DPNs and Payment Plans: Buying Time Can Lock in Risk
The ATO is clearly focused on collecting current debt. One of its weapons of choice is a Director Penalty Notice.
A Director Penalty Notice, or DPN, is a notice issued by the ATO that can make directors personally liable for certain company tax debts, including PAYG, GST and superannuation.
If a DPN is received, it should not be ignored. In some cases, a director may be able to avoid personal liability by ensuring the company takes certain steps within the required time, such as paying the debt, appointing a voluntary administrator, appointing a small business restructuring practitioner, or placing the company into liquidation.
Sometimes directors are tempted to enter into a repayment arrangement with the ATO to buy time and let the DPN expire. That may solve the immediate pressure, but if the fundamentals of the business have not been addressed, the company may later default on the arrangement.
By that stage, the DPN may have expired and the opportunity to take steps to have the penalty remitted may have been lost.
A payment arrangement can be useful, but if the business is not viable or needs restructuring, it may simply delay the problem and make the director’s personal position worse.
