Director Liability for GST

Effective April 1, 2020, company directors will be personally liable via a Director Penalty Notices (DPN) for their company’s unpaid goods and services tax (GST).

A DPN allows the ATO to circumvent the “corporate veil”, the protection that is usually provided by the corporate structure.

DPN notices now cover – GST, PAYG withholding (PAYGW) and superannuation guarantee (SG).

There are two type of DPN Notices:

Non Lockdown DPN

If PAYGW, GST or SG is unpaid, but has been reported to the ATO on time, the director penalty can be remitted by:

  • Having the company, or another party, pay the outstanding amount;
  • Appointing an administrator;
  • Placing the company into liquidation

Action need to be taken within 21 days from the date of the DPN to receive a remission of the director penalty. Please note the 21 day timeframe commences from the date of the DPN notice, not the date of receipt.

Lockdown DPN

If PAYGW, GST or SG is unpaid and not reported to the ATO, the director penalty can only be remitted by paying the outstanding debt (i.e. there is no option to place the company into liquidation). Payment of the outstanding debt needs to be made within 21 days from the date of the DPN.

What if I get issued with a DPN?

You should contact your accountant or adviser as soon as possible!

The statutory defences to a DPN are extremely narrow and rarely successful. However, if your company has a GST, PAYGW or SG debt and you believe one of the below defences applies, you may consider raising this defence with the ATO through its early engagement process.

A director will not be liable for a director penalty if:

  • The director did not take part (and it would have been unreasonable to expect the director to take part) in the management of the company during the relevant period due to illness, or some other good reason; or
  • The director took all reasonable steps, to ensure that one of the following three things happened:
    • The company paid the outstanding amount;
    • An administrator was appointed to the company;
    • The directors began winding up the company.

    Note: This defence will fail if the director has relied on others to manage the company’s financial affairs, without making further inquiries. A director is also not able to claim that they are not an “active” director. All company directors are considered responsible for ensuring the business meets its GST, PAYG and superannuation obligations.

Resigning as a director will not remove liability for a DPN. Directors can be held liable for GST, PAYGW and SG obligations that arose prior to their resignation.

What are the key take home messages:

  1. Review your current organisation structure now! Nobody ever plans on their business failing. It is good to understand what your risks are as a director and mitigate these if possible.
  2. Directors need to ensure they lodge their documents on time, every time with the ATO.
  3. If your business is experiencing cashflow issues, talk to your accountant / adviser early.
  4. Directors need to promptly negotiate payment plans with the ATO when they are unable to pay their obligations on time. Whilst under a payment plan with the ATO, a DPN will generally not be issued.
  5. New directors need to ensure they complete their due diligence prior to their appointment. New directors can be held personally liable for historical SG, PAYGW or GST that remains unpaid and unreported within 3 months or more after their date of appointment.
  6. Directors need to ensure their personal details are up to date with ASIC. You could miss the 21 day deadline to remit a DPN if your notice goes to the incorrect address.