The Director Penalty Regime allows the Commissioner to make directors of a company personally liable for specified taxation liabilities of the companies they represent through the issue of a Director Penalty Notice (“DPN”).
How will it work?
The proposed changes will allow the Commissioner to make an estimate of an entity’s net amount in their Business Activity Statement. If the Commissioner makes an estimate, the entity is liable to pay that amount to the Commissioner and the director has 21 days to ensure the amount is dealt with to avoid becoming personally liable.
The impact on Directors
Company directors will be obligated to pay a Commissioner assessed net amount on the day the relevant tax period ends. Directors that cease to be directors after this date are subject to this obligation even if they cease to be directors before the due date. Any new directors appointed will also become subject to the penalty if the obligation remains unsatisfied for a further 30 days.
Directors who fail to lodge a BAS within three months of the lodgement due date will receive a lockdown DPN. This means the directors are automatically liable to the ATO for the unpaid GST and will not be entitled to remittance of a DPN penalty if the company then goes into liquidation.
What should you do if you receive a notice?
If you receive a notice you should obtain immediate advice to understand what options are available to you. Given the strict time limits that apply, failure to act upon receipt may mean the option for remission is lost.
Regardless of intention, the law as drafted has the potential to impact legitimate businesses and restructuring activities and will have broad ranging implications for all company directors. It will impact how directors address their company’s GST liabililty, demonstrate oversight and reasonable care. Once implemented, directors will be expected to know how data is captured, how the BAS is compiled, ensure ongoing compliance through appropriate internal controls and procedures and be able illustrate that documented risk mitigation procedures are followed.
To deal with this new level of personal risk, directors should take the necessary steps now to ensure that the GST affairs of their companies are in order and identify any potential exposure. We recommend that directors seek specialist advice where issues are complex and the GST treatment is uncertain.
A GST Health Check completed by a GST specialist can provide both new and existing directors with assurance that the company is complying with its GST obligations and will also satisfy the requirement that reasonable care has been exercised. A GST Health Check also has the added benefit of identifying GST refund opportunities and ensuring that the company has adequate controls around its GST accounting and BAS preparation processes.
If you would like further details about GST Health Checks and its benefits, please get in touch with Craig Whatman, Partner - Tax Consulting.