Director Penalty Notices and Single Touch Payroll
A director penalty notice (DPN), is a common mechanism of the Australian Taxation Office (ATO) when it comes to pursuing directors. In this context, it is important for directors to understand how DPNs work, particularly as the ATO has recently ramped up its issuing of DPNs, with some 18,500 being issued in the August 2022 calendar year.
1. What is a Director Penalty Notice?
1.1 A company is required to adhere to certain reporting standards with ATO, including in relation to:
(a) monthly, quarterly or annual business activity statements (BAS);
(b) annual goods and services tax (GST) returns (if eligible);
(c) pay as you go (PAYG) instalments;
(d) superannuation guarantee charge (SGC) liabilities;
(e) PAYG withholding tax; and
(f) other tax obligations.
1.2 The ATO can issue a DPN to a director for failure to comply with reporting standards. If a DPN is issued, a director can be held personally liable for its company’s failure to comply with these reporting standards.
2. Non-lockdown DPN v Lockdown DPN
3. There are two different types of DPNs which can be issued to directors:
(a) Non-lockdown DPN; and
(b) Lockdown DPN.
4. Non-lockdown DPN
4.1 A director, for failing to pay PAYG withholding, SGC or GST liabilities to the ATO, can be issued with a penalty which is commonly known as a “Non-Lockdown DPN”.
4.2 Non-lockdown DPNs provide that a penalty can be ‘remitted’ (i.e. avoided) where, either before a DPN is issued or within 21 days after the DPN is given, a company appoints a small business restructuring practitioner, is placed into administration or begins to be wound up.
4.3 Non-lockdown DPNs are issued to directors of companies that have not paid their PAYG, SGC or GST liabilities by the due date but have:
(a) lodged their BAS and instalment activity statements within three months of the liability’s due date; or
(b) reported PAYG withholding within 3 months of the liability’s due date under Single Touch Payroll; and
(c) lodged their superannuation guarantee statements by the due date.
5. Lockdown DPN
5.1 A penalty which cannot be remitted to the company (otherwise known as a Lockdown DPN), will be issued by the ATO in circumstances where the Company has failed to:
(a) pay the PAYG withholding to the ATO; and
(b) notify the commissioner of a liability, within 3 months of the due date.
5.2 Once a Lockdown DPN has been issued, the only way for the director to avoid personal liability is for the company to pay the debt.
6. What is Single Touch Payroll?
6.1 Single Touch Payroll, is an Australian Government initiative that was introduced in 2018 in order to reduce employers' reporting burdens to government agencies.
6.2 With Single Touch Payroll, every time an employer pays an employee using Single Touch Payroll enabled software, they automatically report an employees' payroll information to the ATO. Payroll information includes:
(a) salaries and wages;
(b) PAYG withholding; and
6.3 Some of the benefits of Single Touch Payroll are:
(a) it makes reporting tax and superannuation information to the ATO easier; and
(b) it streamlines reporting processes as employers are no longer required to engage in separate reporting processes to different government organisations.
6.4 As of January 2022, all employers are required to use Single Touch Payroll.
7.1 Since the introduction of Single Touch Payroll in 2018, there is a question as to whether Single Touch Payroll complies with the ATO reporting standards for the purpose of considering whether a Lockdown DPN can be issued.
7.2 A company must report its PAYG liabilities to the Commissioner, on or before the day on which the amount is due to be paid (regardless of whether it is paid). The notification must also be in the “approved form”.
7.3 A company can comply with its reporting obligations in the “approved form” by engaging in Single Touch Payroll.
7.4 It is our view that as long as the company has properly reported, including through the Single Touch Payroll System, the ATO cannot issue a Lockdown DPN in respect of outstanding liabilities.