The ATO’s enhanced debt collection powers against directors and other third parties seem to be continually expanding, but the fundamental touchpoint remains the director penalty notification mechanism, which has developed a very substantial body of law.
A DPN is a formal notification to a director advising that certain tax -related liabilities are payable, even where the taxpayer company enters liquidation or administration.
In a decision of the High Court, two purposes were identified about the nature and purpose of a DPN.
The Commissioner must not commence proceedings to recover the penalty until the end of 21 days after the Commissioner gives notice of the penalty.
For the purpose of the DPN rules, a “director” takes the Corporations Act 2001 (Cth) meaning, which includes actual directors, and shadow directors or de facto directors. The term “director”, as defined in the Corporations Act, includes a person who, though not validly appointed as a director, acts in the position of a director (a de facto director) or whose instructions or wishes are ones in accordance with which the directors of the company or body are accustomed to act (a shadow director).
This means that a person may be treated as a director and be liable to pay a penalty under a DPN, even if they are a non-executive director with little involvement in the day-to-day management of the company or have never been formally appointed to the company’s board or notice of their appointment lodged with ASIC.
A director may be liable for the full amount where a superannuation obligation to report an amount is owed and where that obligation remains in effect until:
- the obligation is satisfied; and
- the company is in liquidation or administration.
Save for the comments in the article itself, the additional rules about DPNs for new directors, DPN estimates and PAYG withholding non-compliance tax are, for the sake of brevity, beyond the scope of this article.
Arthur and Mark go on to look at the Lockdown Rule, a number of different defences, and recent changes.
Arthur Athanasiou CTA (Life) practises mainly in the area of taxation advisory, with an emphasis on dispute resolution, particularly in the SME sector, with both the ATO and the SRO. He is a Partner at Thomson Geer.
Mark Gioskos, FTI, is a Senior Associate at Thomson Geer, where he specialises in tax advice, particularly in complex tax litigation and tax audit matters.