There are a number of advantages in operating a business through a company structure. Chief among them is asset protection. Because a company is a separate legal entity, it is liable for any debts incurred while trading. Directors, it is widely believed, are protected – they have no personal liability for the debts or actions of the company they run, and therefore their personal assets are not at risk from creditors in the event that their business folds or is sued. While this is largely true, Director Penalty Notices (DPNs) stand as an exception to this general rule, and can see directors held personally liable for certain ATO-related debts owed by their company.
The DPN regime applies to ‘directors’. It follows that the DPN regime does not apply to individuals that sit behind other business structures such as partners in a partnership, or trustees of a trust. For DPN purposes, directors include:
(a) A person validly appointed as a director.
(b) A person, even though not validly appointed as a director, that acts in the position of a director ( a ‘de facto’ director). They are directors in substance, if not in form.
(c) A person, even though not validly appointed as a director, whose instructions or wishes the directors are accustomed to act in accordance with.
DPNs can be issued to directors in relation to liabilities/debts that arose prior to their appointment. The DPN regime also applies former directors.
Originally, the DPN regime applied only to PAYGW liabilities. In 2012, the DPN regime was extended to Superannuation Guarantee (SG) amounts from the 1 April 2012 quarter onwards.
In the May 2018 Federal Budget the Government announced that it intends to extend the DPN regime to GST, Luxury Car Tax, and Wine Equalisation Tax (WET) as part of Activity Statements. Put simply, the scope of the DPN regime is to be expanded to allow the ATO to make estimates of an entity’s net amount owing under the GST Act. Once passed (the legislation is at this point only at public consultation stage) the broadening of the regime will apply from the quarter commencing after the date of Royal Assent. Moving forward, although not yet law, it’s important that company directors have an eye to ensuring that these indirect taxes are paid in respect of future tax periods.
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