Many directors know that the ATO has a range of legal powers and Notices it can send to companies and directors to recover tax debts.
Those powers are often significantly stronger than the powers of an average creditor and they can include personal liability for directors. So we thought it important to note down the various Notices that the ATO can use and also explain the order and process the ATO uses in its enforcement actions.
Director Penalty Notice
One of the most powerful Notices the ATO can send is a Directors Penalty Notice or DPN as they are commonly called. The laws were changed in June 2012 and the new laws are designed to change the way directors view company tax debts. It is now much easier for a director to become personally liable for a company’s tax debt.
There are two types of Director Penalty Notices:
- The “21 Day DPN” which is the traditional Director Penalty Notice which gives a director 21 days to take certain actions which will result in the proposed “penalty” being cancelled; and
- The “Lockdown DPN” under the June 2012 laws, which require that if company tax returns are not lodged on time then a director is automatically personally liable for Pay As You Go (“PAYG”) and Superannuation Guarantee Charge (“SGC”) liabilities.
We have a full page and a video elsewhere on our website so if you have received a DPN you should head there to receive our advice.
A Garnishee Notice is a Notice actually served on a Bank rather than the company. It requires the Bank to immediately forward any money in a company’s Bank Account directly to the ATO. So a company will usually only find out about the Notice after it is served on the Bank and the money has been frozen or sent to the ATO.
If you become aware that the ATO has served a Garnishee Notice on your Bank, it is important for a director to act immediately. It means that the ATO is not happy with the company’s previous conduct and has decided to use quite a heavy Enforcement Action. If a Garnishee Notice has been issued, then a director can expect to receive other Notices and enforcement actions.
Statutory Demand and Wind Up Notice
The ATO is the most common Petitioner for the liquidation of a company. If your company receives a Statutory Demand or a Wind Up Notice it means that the ATO is seeking to have the company put into liquidation. Therefore it is very important for a director to get advice on their options.
The Enforcement Process
The ATO can serve a number of different Notices and take very different paths of enforcement. Here are some general principles on what a company with a tax debt can expect:
- If a company is struggling to pay a tax debt the ATO will often accept a repayment arrangement. That could typically be up to three months;
- If a company defaults on a payment arrangement then there is a good chance the ATO will issue a Director Penalty Notice (“DPN”);
- Either before or after the above, the ATO may issue a Garnishee Notice to try and obtain any funds held in a company’s bank account;
- If the DPN expires, then the ATO will issue a Statutory Demand and then a Wind Up Notice to try and get the company into liquidation;
- Sometime after that, the ATO will seek payment from directors personally for any amounts that became due under the DPN.
The above can be a slow process but once on the above path the ATO will usually simply proceed through the steps until all enforcement actions have been used.