Director penalty notices, bankruptcy, and the family home

During the COVID period and up until recently the Australian Taxation Office (ATO) provided arguably generous payment plans to enable business taxpayers to pay outstanding income tax and Business Activity Statement related debts, such as GST and PAYG Withholding.

The tide has now turned and the ATO is resurrecting debts previously written off as uneconomic to collect and undertaking collection action against businesses that constantly break their Payment Plans.

While Companies provide business proprietors acting as Directors considerable protection from creditors, the Director Penalty regime available to the ATO does make directors personally liable for the outstanding tax liabilities of their business. Receipt of a Directors Penalty Notice requires urgent action if received.

It was recently reported in Accountants Daily that the ATO is increasingly using data-matching tools to identify which directors have the assets to meet Director Penalty Notices and some 30,000 DPNs have been issued since 1 January 2024. Approximately 12 DPN’S are being received each day by Directors in Western Australia now.

It is important for directors to understand the personal ramifications if the 21-day period expires, and the Company is not able to pay the liability associated with the DPN. From this, the ATO can commence proceedings against the director to recover the director penalty amount 21 days after the DPN has been issued.

With the Directors personal assets now being exposed to the amount of the DPN, if they are not able to pay it, then the Director will need to consider all the available options, including those within the Bankruptcy Act, 1966. This then means the family home can be attacked by the trustee in Bankruptcy to enable repayment of the ATO debts of the business.

Lose your house and this often leads to marital breakdowns, considerable long-term issues for the children of the marital relationship, mental breakdowns and even suicide.

At Accord we will often have more palatable solutions for you in respect of business tax debts, firstly working with you to avoid the need for DPN’S and where DPN’S are issued have a network of insolvency practitioners that work constructively with us. 

Remember, if you receive a DPN, please act quickly and get good accounting and tax advice.