We have previously written about the impact of Director Penalty Notices. However, in summary a Director Penalty Notice allows the ATO to collect unpaid GST, PAYG Tax, superannuation (and certain other taxes) from a company’s director.  That is a Director Penalty Notice makes directors personally liable for a company’s tax debts.
There are two types of Director Penalty Notices, being:

• Lockdown Director Penalty Notices which apply if a company fails to pay the taxes referred to above and it also fails to lodge BAS within three months of being due or SGC Statements for unpaid superannuation within one month of superannuation being due for payment. Under a Lockdown Director Penalty Notice, the directors are automatically personally liable for unpaid debts unless the debts are paid.
• 21-Day Director Penalty Notices which apply if a company fails to pay fails to pay the taxes referred to above, but makes lodgements of BAS and SGC Statements within required periods to avoid a Lockdown Director Penalty Notice. If a 21-Day Director Penalty Notice is received the directors can avoid liability if amounts in the notice are paid or if the company is placed in liquidation or voluntary administration or a small business restructuring practitioner is appointed within twenty-one days of the date of the Director Penalty Notice.

What is the effect of resigning as a director?

We are often asked by clients can they resign as a director to avoid the risk of Director Penalty Notices?
The simple answer to this question is no. If you resign as a director you can still:

• Get a 21-Day Director Penalty Notice for relevant payable while you were a director which have not been paid; and/or
• Get a Lockdown Director Penalty Notice for relevant payable while you were a director if those amounts were not paid and also not reported to the ATO within required timeframes.

Whilst you should always get professional advice on your circumstances, in some cases resigning as a director can often be the worst thing you can do. This is because if you resign as a director you lose certain powers in respect of your company, including the power to appoint an external administrator (in some cases) which can be a means of avoiding liability under a 21-Day Director Penalty Notice.

Contact us for assistance

If your business has tax debts which it is unable to pay, contact us at TAX DEBT SOLVED for a free confidential discussion about your circumstances.  In these circumstances the best time to talk to us is right now, as we will be able to advise you on options available to your company and hopefully assist with avoiding the risks associated with Director Penalty Notices.