Seen as a sign that the government is now ending its soft approach to tax debt since the pandemic started, the Australian Tax Office (ATO) announced earlier this year that they would be contacting company directors via letter concerning their potential liability for company tax debts.
Since then, over 50,000 Director Penalty Notices (DPN) have reportedly been sent out relating to about 45,000 companies. The notices have done a good job of stirring recipients into action, with many having approached their financial advisers on the way forward. This has partly been attributed to changes in how the ATO has carried out the exercise in comparison to previous DPNs sent out in earlier years.
Many accounting and tax professionals have confirmed that the letters were sent directly to the homes of the directors, rather than to their tax advisers or agents. This is a new change that has seen the clients advising their tax advisers or agents of the notices rather than the other way around. These advisers and agents were also not sent copies of the notices. The ATO is not legally required to inform advisers and agents but has been doing so previously.
Industry professionals have also noted that though the ATO announced that the notices would be sent out in regards to debt obligations in respect of Goods and Services Tax (GST), Pay As You Go (PAYG) withholding, and Superannuation Guarantee Charge, there only appears to be a focus on GST. It has been suggested that even as directors enter into possible payment plans over these debts, it does not stop the ATO from sending out further notices in relation to PAYG and super.
The letters state the amount of debt owed as of 11 March 2022, and the type of debt. It also advises on payment of the debt or contacting the ATO to make other arrangements. Failure to do so, recipients have been notified that a DPN may be issued to each current director and any past directors that were at the company at the time the debt was not paid.
According to John McInerney of Grant Thornton, the wording of the notices indicates that the ATO is back to business as usual and that they were less likely to grant extension requests or debt deferrals as they had generously done so before. He also confirmed that the ATO has already begun reporting delinquent taxpayers to credit rating agencies, with many construction firms being affected.
Once served with a DPN, directors have just 21 days to take action. They have the four options to pay the amount in full, put their company into administration, liquidate it, or carry out small business restructuring.
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