Protection of assets.
Many business owners choose to operate their business through a corporate structure. Running a business can be fraught with pitfalls and risks, particularly during times of high inflation. Separating your business and personal assets helps to segregate your business risks away from your personal assets.
The business risk could involve a lawsuit about a faulty product, wrongful dismissal of an employee, the business’s inability to pay its debts on time, professional liability for negligent advice or service, or consumer protection issues.
Many directors are unaware that they are personally responsible for the following;
- Employee PAYG liabilities
- Superannuation for employees
The ATO can issue a Director Penalty Notice (DPN) for the above and claim the shortfall directly from the directors.
ATO deputy commissioner Vivek Chaudhary told the recent Tax Institute 2023 Tax Summit that rising debts owed by companies and individuals were “concerning and unsustainable”, with small businesses the main culprit.
Mr Chaudhary said more than $5bn remained owed by companies that met the criteria for delivering director penalty notices (DPN) listed above.
The ATO is concerned that companies have been using the ATO as a bank; by delaying the payment of their tax liabilities, they are funding their business operations to the detriment of the wider taxpayer community.
Whilst the ATO did not heavily police this practice in the heart of COVID, it is concerned that the practice is continuing and plans to reel in serial offenders via the use of these Director Penalty Notices (DPN).
Mr Chaudhary said there were 23,246 DPNs issued in 2022-23, compared to 18,500 for the 2022 calendar year. 60 DPNs were being issued daily, compared to 30 in May 2022. Overall, 2,500 businesses are expected to be reported to credit agencies in the current financial year, up from 867 last calendar year.
Last year, the ATO issued warning letters. This year, the ATO is issuing warning letters, DPNs, and statutory demands that give company directors just 21 days to pay their debt or voluntarily enter an insolvency appointment. According to the Australian Securities & Investments Commission, in the 12 months to 20 June 2023, 7942 companies entered an insolvency appointment, up 62 per cent from 4912 the year before.
Mr Chaudhary advised, “We intend to continue increasing legal recovery actions this year to return to more normal pre-pandemic levels, with approximately 100 wind-ups filed in July 2023 alone.”
We strongly recommend reviewing your PAYG, GST, and superannuation liabilities before receiving a DPN. The ATO gives you only 21 days to rectify the outstanding debt; from our experience, this is insufficient time.
Should you require further information about Director Penalty Notices, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation-free appointment.
The information in this document does not take into account your personal objectives, financial situation, or needs, so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.