If you receive a Director Penalty Notice (or DPN) you can be made personally liable for certain amounts owed by your company. The policy makes sense. However, too often the ATO uses DPNs to claim vast amounts – sometimes years later – without showing their figures!
Like all organisations, the ATO is comprised of humans (lots of them), and we all can make mistakes. Every DPN should be looked at sceptically.
If you receive a DPN take it seriously and act fast. You will usually have 21 days before the ATO can go to Court.
The DPN regime is tough – but receiving a DPN does not mean game over. We have been successful in defending directors against DPNS in at least four ways, and in the process have saved our clients hundreds of thousands dollars from ATO mistakes.
1. The DPN was sent to the wrong address
Because DPNs are powerful, there are strict requirements about where they must be sent. The DPN must be sent to your residential address as shown on the ASIC register for your company. If the DPN is sent to a different address it may be invalid, and the ATO must re-issue it. It is important to update your address on the ASIC register, because the ATO can validly send a DPN to an old address – and you may only find out about the DPN after it is too late.
2. The DPN has ‘expired’ amounts
There are strict time limits within which a DPN can be used to recover amounts. These rules are complex, and the ATO sometimes gets them wrong.
The time limits are affected by:
- When your company began to be wound up (if applicable);
- Whether your company previously lodged things like super guarantee charge statements; and
- Whether the ATO issued default assessments to your company for the DPN amounts.
We have been involved in a number of cases where the ATO has admitted that some of the DPN amounts have expired and cannot be pursued.
3. The DPN amounts are incorrect
It consistently frustrates us that the ATO sends a two-page DPN letter asking for hundreds of thousands in alleged unpaid taxes, without any detail. The ATO do not need to send a breakdown of how the amount is calculated or any supporting documents – even though these calculations are (presumably) performed before the DPN is issued.
Often the ATO’s calculations go back a while, and you may not have all the records to double-check the ATO’s numbers.
Unfortunately, the ATO does make mistakes in their figures, quite often. We have seen it happen. This is why you should ask the ATO for a detailed breakdown, and take every opportunity to verify the figures. This may require a carefully worded Freedom of Information (FOI) request.
Asking the ATO for their calculations may not slow down their recovery process, but it is important to do. You should not agree to pay the ATO unless you believe their figures are correct. This is how a transparent tax system should operate.
4. You can claim a specific defence
The law allows specific defences against DPN amounts. These include:
- You were suffering from a severe illness or had ‘some other good reason’ that makes it unreasonable to expect you to have properly managed your company;
- You took all reasonable steps to try and make your company meet its obligations, or to wind up the company, and there was nothing you could reasonably have done to make this happen; or
- You interpreted the relevant law in a way that was ‘reasonably arguable’.
If any of these defences apply, then this may result in the DPN not imposing personal liability on you. It is critical that you present your defence to the ATO within the time limit – usually within 60 days of the DPN.
Every DPN should be thoroughly reviewed and challenged if relevant. We have done this successfully, many times.
The information contained in this post is current at the date of editing – 11 April 2023.