On 28 March, the ATO sent its strongest message on debt enforcement since the COVID-19 pandemic commenced, advising that it is now issuing letters to taxpayers informing them about their potential personal liability for company tax debts under the Director Penalty Notice (DPN) programme.

In the announcement the ATO advised:

"Directors will be notified that we are considering issuing them with a DPN, which makes them personally liable for the debts of their business if the company does not actively manage their debt.

Our focus is on making directors aware of their obligations and personal liabilities, and the actions we may take if they don’t engage. We will be providing clear pathways for clients to re-engage, work with us, and avoid escalation."

The ATO has also recently made some key changes to the DPN programme, outlined as follows:

  • The DPN programme not only covers unpaid PAYG, but now includes unpaid GST, Superannuation, Wine Equalisation Tax and Luxury Car Tax;
  • Entry into a “payment plan” as an option to prevent a company director from being personally liable for unpaid company tax debts after receiving a DPN is no longer an option. Within 21 days from the date of a DPN a director must do one of the following:
    • Pay the liability in full
    • Put the company into liquidation
    • Put the company into administration
    • Appoint a Small Business Restructuring Practitioner
  • The notices are now being sent to the last known address of the company’s directors as disclosed on a search of the records of the Australian Securities and Investments Commission. That is, if the director has not advised of an updated address they will be personally liable 21 days after the DPN is issued. Even if the DPN goes to the correct address, the advisor has no knowledge of same and hence if a director takes the “do nothing approach”, they will be personally liable after the period of 21 days passes.

The best way to protect and manage ATO risk in your business or client base is to be pro-active. It may be worth reviewing clients with large overdue tax debts, or with payment plans at risk of default.

Our recent experiences with the ATO suggest that it is not motivated to pursue Director Penalties where the Directors have entered into and satisfied a repayment plan (which necessarily extinguishes the debt) or taken steps to address solvency issues by appointing external administrators to either:

  • formally restructure debt (through a Small Business Restructure or Deed of Company Arrangement); or
  • wind-up the Company’s affairs

Encouragingly, the ATO is generally supportive of formal debt restructuring proposals (SBR’s and DOCA’s) where a viable underlying business is able to be demonstrated – a stark contrast to the pre-pandemic position. On 25 February 2022, Grant Thornton and the ATO held a joint webinar “ATO approach to debt enforcement & small business restructures”. Since that time we have spoken with over 50 advisors to discuss clients concerns on a confidential no-names basis.

Feel free to contact your local Grant Thornton restructuring partner to learn more about how we can help.

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