If you’ve received a director penalty notice from the ATO, you need to know why the notice has been issued, and exactly what you can do about it. Many company directors react negatively to this notice, and don’t quite understand the issues involved. This is strictly a taxation issue, and there are multiple possibilities for both representation and dealing with the problems.
The basics of a director penalty notice
- The director penalty notice is issued to company directors under taxation law.
- Company directors are prima facie responsible for unpaid company taxes.
- The ATO has the statutory power to issue these notices to directors. This power cannot be challenged.
- The ATO may amend, withdraw, or otherwise deal with issues related to the director penalty notice at its discretion.
- Directors may also face issues related to corporate regulation in relation to their conduct, including taxation matters.
That may sound pretty grim, but there are qualifiers:
- Directors may appeal directly to the ATO in relation to the taxation issues of the director penalty notice.
- All taxation assessments may be appealed.
- Mitigating circumstances like business issues related to the non-payment of taxes are relevant to any appeal against the director penalty notice.
- If the business has been the victim of fraud, embezzlement or other criminal acts which mean the company was or is unable to pay outstanding taxes, the ATO may reconsider the appropriateness of the director penalty notice.
- Business or corporate insolvency may be sufficient basis for the ATO to reevaluate the director penalty notice.
Where to get help
Let’s put an end to one urban myth right now- The ATO isn’t the enemy. Nor is the Australian Securities and Industries Commission (ASIC). These regulators are able to provide a lot of assistance to directors “left holding the baby” with company problems.
Person A, a director of Company A, has been issued with a director penalty notice. Company A was the victim of a major fraud. The company was literally cleaned out financially by another director, Person B. The company couldn’t even pay its phone bill, let alone its taxes. Person A appeals to the ATO regarding the circumstances. Police confirm the fraud, and the ATO reevaluates the taxation position.
Company Z, a consulting company with multiple debtors, hasn’t paid taxes for years. The ATO issues a director penalty notice to directors Y and Z. Directors Y and Z discover that their tax accountant has been extremely negligent and failed to lodge Company Z’s tax returns correctly, a clerical error showing the fees as received when in fact they weren’t and failing to respond or even pass on tax office notices. Directors Y and Z appeal to the ATO, asking for time to clear up the issues and get their returns lodged. They also sue their tax accountant for damages and hire a debt collection agency to collect fees.
If you’ve got problems in relation to a director penalty notice you can get help from:
- The Australian Taxation Office
- ASIC- In relation to corporate conduct regulations and director obligations
- Business insolvency experts- Regarding corporate solvency, liquidation options and related taxation and creditor issues
You’ll find that help is just a phone call away