Small and medium businesses are facing increasing pressure as the Australian Taxation Office (ATO) ramps up its enforcement efforts.
With a major spike in company restructurings and a rise in Director Penalty Notices (DPNs) being issued, it’s more important than ever for business owners to stay informed and take proactive steps to protect their financial future.
According to the latest Corporate Insolvency Index from Insolvency Australia, in FY23-24 there was a 219% increase in company restructuring. This coincided with a dramatic increase in small business restructurings since the beginning of the new financial year.
A large increase in DPNs and warnings being issued by the ATO could be a likely explanation for this trend. According to the ABC, the ATO issued 26,702 DPNs worth over $4 billion in the FY2023-24. This is a near 50% increase from the previous financial year, signaling a change in priorities from the ATO.
What are Director Penalty Notices?
A DPN is a notice that must be sent by the ATO to inform company directors of unpaid corporate debt. This can include unpaid pay as you go withholding (PAYGW), goods and services tax (GST) and super guarantee charge (SGC). DPNs can be issued to current and former company directors, subject to their tenure and the nature of the liability.
The most common form of DPN is a non-lockdown DPN, which carries with it a 21-day window for compliance. It is important to note that this 21-day window begins from the date of issue, not from the date of receipt. Non-compliance within this window will result in the director(s) becoming personally liable for the company’s unpaid debt. This can cause severe financial consequences, including the deduction of personal tax credits, legal action from the ATO and even bankruptcy in cases of significant debt.
Along with the 26,702 DPNs, the ATO also issued 6,150 garnishee notices, which entitles third parties to automatically deduct debt payments from a debtor’s accounts or wages.
How does a Director Penalty Notice impact you?
This increase in DPNs represents a significant concern for company directors, who may be choosing to restructure their businesses rather than expose themselves to personal financial risk. These increases serve as a reminder of the importance of strict compliance and good fiscal practices.
If you receive a DPN, urgently seek professional financial help. An accountant will help you navigate your liabilities and plot the best course of action. If you are concerned about your potential liabilities, reconsidering your company structure or seeking advice as a director, contact us today to discuss your situation and find the best options for you.
For more information on how Optima Partners’ services can help your business, contact the team at info@optimapartners.com.au or click here.
