DIRECTOR PENALTY NOTICES: IT JUST GETS WORSE

We have regularly advised clients about the Australian Tax Office's powerful tools
to assist the taxman in collecting revenue.

One particularly draconian measure is the "Director Penalty Notice" (DPN).

A DPN is a notice issued to a Director (or Directors) of a Company requiring the

Director to procure the payment of certain taxation liabilities, most notably PAYG
deductions, within 21 days. If the Director fails to pay the amount listed on the
DPN within 21 days from the date of the DPN, or procure the appointment of a
liquidator or administrator to the Company, the Director will be liable for a
penalty equal to the unpaid tax stated on the DPN. The Commissioner of
Taxation can then commence proceedings against the Director in a court of
competent jurisdiction, to recover the penalty.

SO HOW CAN THAT GET WORSE?

In the recent May 2011 Budget, the Government announced some changes to the
regime, which will apply from 1 July 2011.

Directors of all tax-paying entities should pay attention to the following

developments:
1. DPNs will now apply to the Company's unpaid superannuation guarantee
amounts so that Directors may become personally liable for those amounts;
2. Directors and their associates cannot claim the benefit of tax withheld
credits in their individual tax returns, where the Company has failed to
remit PAYG withholding amounts to the ATO; and
3. the Commissioner of Taxation may commence proceedings to recover from
a Director certain taxes payable by the Company, where those taxes have
remained unpaid and unreported for 3 months, without giving the Director
21 days notice in the form of a DPN.

Whether or not these new measures will achieve the Government's stated aim of
reducing phoenix activity will be revealed over time. What is certain now is that
the "Corporate Veil" has been further pierced and the personal liability of
Directors for the tax debts of their Companies has become further entrenched.
The Commissioner of Taxation, unlike all other creditors, continues to enjoy a
ratchet-ing up of his special powers to recover debts.

1
WHAT YOU NEED TO DO

If your Company has failed to remit monies to the ATO or has or unpaid
superannuation guarantee obligations, you must take advice on how to normalise
your affairs, prior to any enforcement action commenced by the ATO. You must,
firstly, understand the severity of your problem, so that you can, secondly, create
an informed strategy to deal with these issues.

FOR MORE INFORMATION

For information in relation to Director Penalty Notices or insolvency and
corporations law generally, please contact Angela Laylee on 38525055 or
angelal@redchip.com.au.

REDMAILS ARE a service to clients and associates of redchip lawyers. If you

do not wish to receive the service, just reply to the sender’s email address and
write “delete” in the subject line.