|
|
Directors Take Notice - New DPNS, New Rules
|
Director Penalty Notices have long been a favoured revenue-collection tool of the ATO. DPNs also focus directors on the issue of insolvent trading - or facing the consequences. The recently passed Tax Laws Amendment (Transfer of Provisions) Act 2010 means the rules have now changed, introducing new elements to stamp out fraudulent phoenix activity. But the message remains the same: directors beware! The objective of the amendments is to place pressure on company directors to ensure companies meet their PAYG taxation obligations and, if they can’t, to place the company in external administration. The moves reflect the government’s attention on phoenix activity - a practise estimated to avoid taxes totalling $600 million a year and costing the economy up to $2.4 billion per annum. The new legislation - which came into effect on July 1 and covers tax obligations incurred before and after that date - provides for significant changes to the DPN and the Security Deposit (SD). In this issue of SME Insights I am going to examine the key changes under the amendments and how they could impact you.
The main changes to note are:
The DPN now takes effect when it is posted, not when the DPN is received by the director or the registered office of the company. Under the reforms, the ATO can rely on documents filed with ASIC and when the ATO mails a DPN you can consider yourself served - whether you receive it or not. A small oversight - such as a director’s failure to advise ASIC of a change of address - could have dire consequences if the notice goes to the wrong address and the director finds himself liable under a notice he never received! The Commissioner can now take action against the director after 21 days (increased from 14 days). Note the reference is to days - not business days - so this timeframe will include weekends and public holidays. A director now has 21 days (also increased from 14 days; also calendar days not business days) to take one of the following steps to be relieved from the obligations imposed by the DPN: o Pay the tax obligation in full o Appoint a voluntary administrator to the company o Commence a winding up of the company. An instalment payment arrangement with the ATO will no longer satisfy the director’s obligations under a DPN and it will only preclude the ATO from commencing proceedings to enforce the DPN whilst the instalment arrangement is in force and being complied with. Under the old legislation, the Commissioner could seek an SD from a taxpayer for a future income tax liability. Refusal to provide security is a criminal offence. SDs now apply to all tax liabilities - not just future income tax.
You should also be aware that: The amendments alter the defence of “illness or other good reason”. Now a director is required to show it would have been unreasonable to expect that director to have taken part in the management of the company at that time. The Court has no power to grant relief to a director from a DPN.
Conclusion Directors need to consider the most appropriate action to take when they receive a DPN. Unless there is certainty about the ability to comply with an instalment arrangement, to avoid personal liability the director should either ensure the outstanding taxation obligations are paid in full, or take steps to appoint a voluntary administrator or liquidator to the company within the required 21 days. Company directors should make themselves aware of the impact of the amendments to the Act. The key messages are: Phoenix activity is not a business restructuring tool. Ensure your clients provide an accurate registered office and private address, as a misdirected DPN can have serious consequences for clients, their advisers and bankers. Clients need to carefully consider whether to enter into a payment arrangement with the Commissioner. Lenders’ reviews of clients need to consider any payment arrangements with the ATO and how a breach of those arrangements might affect their position. Consider the cash requirement impact an SD might have for a borrower’s restructure and a lender’s position.
|
|
|
| |
|
