When cash flow gets tight, corporate compliance is often the first casualty. Some directors also think that if a tax debt can’t be paid, that it’s best not to lodge any tax returns.
Here are 7 reasons why it’s best to keep tax lodgements up to date and accurate – even if they can’t be paid!
- The traditional 21 day Director Penalty Notice (DPN)
- Where a company has a PAYG or Superannuation Guarantee debt, then the ATO can issue a DPN giving the director 21 days notice of the impending personal liability with actions that may result in the penalty being remitted. If a director does nothing, they will become personally liable for the company’s DPN tax debt
- The new ‘Lockdown” DPN
- Less well known are Lockdown DPN’s that apply where a company has not lodged its BAS return (for PAYG) or Super Guarantee Charge (SGC) statement within 3 months of the reporting due date. A lockdown DPN informs the director that the are instantly personally liable for the amount of the DPN – there is no avoiding personal liability.
- Single Touch Payroll (STP)
- From 1 July 2019, the ATO require all employers to switch to an STP enabled system that automatically sends payroll information to the ATO. This means that the ATO will know which businesses are not complying with their requirements right away
- The ‘amendment’ trap
- Sometimes a company that is struggling to pay its BAS debt will lodge a nik or low BAS in an effort to prevent automatic liabilty under a Lockdown DPN. Bad idea! If the BAS is amended outside the 3 month reporting period, the ATO may then issue a Lockdown DPN claiming that the reporting date is taken to be the date of amendment, not the initial date of submission
- Superannuation – the new audit focus
- The ATO has had an increasingly strong focus on performing super audits, and as a result, many DPN’s have been issued. It is now a key focus area for the ATO, and it has developed new systems to monitor and pursue non-compliance
- Superannuation – proposed legislation
- the government is planning to strengthen DPN’s related to Superannuation debts by removing the 3 month grace period, giving the ATO the ability to immediately issue a Lockdown DPN if an SGC debt is not paid on time. There may even be criminal penalties for failing to comply with SGC obligations
- GST – beware of proposed legislation
- Also currently on the discussion table, are plans to expand the DPN laws to cover GST!
Putting all of this together, what is our current Advice?
- Directors should stay up to date with BAS, IAS and SGC lodgements. If the debt cannot be paid, lodge anyway.
- If a director receives a 21 day DPN, it is important to act quickly. Not acting in time (or not at all) will automatically result in a personal liability
- If a company has an existing PAYG or Super debt that is unpaid and unreported for 3 months after the due date, then you should contact us immediately
If you find yourself on the wrong side of any of the points above, please call your accountant or contact us to discuss your options