Tax Debts – you need to know about Director Penalty Notices

Every company that employs people are required to withhold tax from employee wages and entitlements and remit this to the tax office.

Often when a company is in trouble, this is one of the first payments directors choose not to pay.

Directors need to understand that while paying trade suppliers etc may feel better and provide some immediate relief from mounting creditor pressure, that they are actually putting their own personal finances at some risk.

The ATO can issue what is known as a Director Penalty Notice in respect of PAYG withholding amounts not remitted by the company.

If the Director Penalty Notice is issued and is not complied the director(s) will become personally liable for the outstanding tax debt of the company.

The ATO will generally issue the Director Penalty Notice when they have exhaused other avenues such as direct discussion and negotiation with the debtor company. For instance, if an instalment agreement fails repeatedly.

When the tax office issues the Director Penalty Notice, it sends it to the personal address of the director(s) as per the Australian Securities & Investments Commissions company register.

If you do not maintain your current address details with ASIC and the Director Penalty Notice is issued to your former address – you do not have a valid defence for avoiding liability under the notice. That is, non receipt of the Director Penalty Notice for the reason above is not a valid excuse for non compliance.

If a Director Penalty Notice is issued, you must act immediately as you only have 14 days to comply.

Comliance required one of four choices to be action.

1. 1. Pay the outstanding notice
2. 2. Enter into an instalment arrangement to pay the debt
3. 3. Appoint a Voluntary Administrator
4. 4. Appoint a Liquidator

There are no extensions to the 14 day period allowed under the Notice.

Even if you are negotiating a payment arrangement with the ATO and that is not concluded within the 14 days – you will assume personal liability for the company debt.

Your assets are at risk and you must act urgently if you believe you have received a Director Penalty Notice.

Many of the directors that engage Liquidation Direct to undertake a Creditors Voluntary Liquidation have received a Director Penalty Notice.

If your company is in financial hardship and you suspect the tax office may issue a Director Penalty Notice, or if you have just been served the notice, you cannot wait – you need to act now and seek professional insolvency advice.

The advice Liquidation Direct are able to provide covers corporate insolvency such as Voluntary Liquidation, Official or Court Appointed Liquidation, Voluntary Administration and also personal insolvency including Bankruptcy and alternatives to Bankruptcy including Debt Agreement – Part IX and Personal Insolvency Agreements – Part X of the Bankruptcy Act.

Call 1300 767 525 for free and confidential insolvency advice – 24 hours/7 days