The ATO reported that during the financial year 2023, over 24,000 Director Penalty Notices (“DPN”) were issued to individual company directors with respect to more than 18,000 companies. Surprisingly, only 1/3 of taxpayers subsequently took action to engage with the ATO.

I was recently contacted by a director who received a demand from the ATO in 2024 for payment of a DPN issued in 2010. The DPN amount was approximately $6,000, pertaining to a company wound up pursuant to the ATO’s petition, and the Court Liquidation was finalised in 2013.

I believe that the above scenario is not an isolated incident. It underscores the critical need for directors to comprehend that the ATO has no time limit to pursue recovery action for a DPN. Similar to the situation I encountered, where the Court Liquidation and associated tax liability might have faded from memory over the years, directors may find themselves confronted with a follow-up demand from the ATO even after 14 years have passed.

Directors may have re-established their financial affairs and accumulated substantial assets by this juncture. If the outstanding tax debt amounts to hundreds of thousands, what was forgotten or believed to have been resolved suddenly resurfaces, throwing one’s financial affairs into disarray?

It is worth reminding that the director penalty regime outlines circumstances in which a defence to a DPN may be available to a director. One of the defences is that a director has taken all reasonable steps, unless there were no reasonable steps the director could have taken, to ensure that one of the following happened:

• the company paid the amount outstanding;
• an administrator was appointed to the company;
• a small business restructuring practitioner was appointed to the company; or
• the directors began winding up the company (within the meaning of the Corporations Act 2001).

Therefore, it is critical for all directors to understand that if you have an outstanding DPN liability, it’s time to take action and seek professional advice proactively. There is no time limit on when the ATO can take recovery action. Ignoring or delaying could severely threaten your future financial security and prosperity.

Please feel free to contact the directors of Rodgers Reidy to discuss your options to deal with the financial effects of the problems faced and navigate you through the financial minefield.

Reference: https://www.ato.gov.au/media-centre/addressing-collectable-tax-debt-tax-institute-s-tax-summit-2023

https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/in-detail/director-penalty-regime

https://www.ato.gov.au/law/view/document?DocID=PSR/PS20113/NAT/ATO/00001&PiT=99991231235958

https://www.ato.gov.au/law/view/document?DocID=PSR/PS201118/NAT/ATO/00001&PiT=99991231235958#P59