What the heck is an ato directors penalty notice – help!!

Tax

What the heck is an ato directors penalty notice – help!!

When a director gets one of these it can be really scary. So what are they and how can you avoid getting one?

As a company director, or a director of a corporate trustee,  you normally have limited liability and debts of a company cannot be allocated to a director unless they have given personal guarantees.

However, for certain tax debts the ATO can make a director personally liable if the company or trust cannot pay those tax debts.

The debts relate to Superannuation liabilities of employees and PAYGW (employee tax the company has deducted from its employees but not paid to the ATO).  

The ATO has signaled that they are not prepared to finance businesses via unpaid tax and superannuation obligations. In the last year, there has been increased activity by the ATO against businesses who are behind in lodging their tax returns, including other returns such as BAS and FBT.

This removal of ATO funding assistance has meant that many businesses now need to find external sources of finance to pay tax liabilities. Unfortunately, banks do not like funding tax liabilities.  

If the ATO believes that a company might not be able to pay its debts or returns and BASs have not been lodged they are now likely to issue a Directors Penalty Notice.

This notice will insist that the director pay all amounts personally and bring all returns up to date within 21 days otherwise  legal action and a claim against a director’s personal assets can be made. If the notice is ignored there are serious implications including fines and imprisonment.

So how can you avoid a penalty notice?  Well firstly the obvious:

  • Lodge outstanding BAS and PAYG as soon as possible
  • Pay your BAS and Super amounts within the relevant time frames
  • If you are late filing returns for BAS try to lodge them within 3 months of the due date.

The obvious assumes that the business has the funds to pay. Sometimes that is not possible.  So what do you do then?

  • ·         Get in touch with the ATO and try to get a payment plan in place. Do not ignore demands.
  • ·         Get in touch with your advisor to see how you can structure your business to ensure payments can be made.
  • ·         Try to obtain external funding from banks

If liabilities get out of hand you may need to seriously consider appointing a liquidator. This may be the only way to ensure a Directors Penalty Notice is not issued and you don’t lose your home. You must speak to an advisor at this point. 


Hitesh Mohanlal

Director at WOW! Advisors & Business Accountants

14 years ago I lost a family member aged 38. I realised then there were important things in life than business and money. This tragic event drives everything I do. I am the founder of WOW! Advisors & Business Accountants, MediSuccess and CrystalClear Bookkeeping. I authored Double Your Profits and Halve Your Working Hours for Medical Practitioners.' I am Australia's leading Strategist & Business Adviser with a passion to bring smiles to the faces of medical professionals. As a result of the work I have done & based on my approach I has been recognised on Fox, NBC, CBS and ABC. Most business owners work long hours & recent surveys show that work life balance, income and wealth creation is the major area of concern. My ethos is to work with business owners improving their accounting and taxes but particularly to improve profits/ personal income and wealth whilst cutting working hours in half so that they can enjoy an awesome lifestyle with plenty of time for family, fun and philanthropy. I specialise in the medical sector. I have worked with over 3,500 businesses in Australia, America, UK, Japan and Europe. I soon realised that over 78% of business owners: - Found understanding figures too hard. - Were never taught how to run a business. - Spent money on areas they did not need to. - Paid more tax than they needed to. So we design strategies to specifically deal with the above but also: - Move business owners from being a business operator to a business owner so the business can run on its own. - Create investments, assets and wealth which generate income so that if you are unable to work or retire income is still generated. I am so passionate about saving tax and improving profit that since March 2019 for every $100 we save/ make for clients I am committed to make 20 impact across the world. Currently over 1,000,000 impacts have been made.


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