In a sweeping move to recoup unpaid taxes, the Australian Taxation Office (ATO) has issued a remarkable 26,702 director penalty notices (DPNs) in the past year, totalling $4.4 billion. This aggressive recovery effort marks a significant 50% increase from the previous financial year, signalling the ATO’s heightened focus on chasing down legacy debts.
A notable shift has occurred in the ATO’s strategy, with a growing reliance on “lockdown” DPNs—a powerful tool that allows the ATO to pursue directors long after their companies have ceased trading. Once considered a rare occurrence, these lockdown DPNs have become a common sight post-COVID, as insolvency practitioners like Stewart Free from Jirsch Sutherland are increasingly encountering them in their work.
The reason behind this surge? A drastic shift in the ATO’s approach. Traditionally, directors who received standard DPNs had 21 days to either settle their debts, enter into liquidation, or restructure their businesses. However, lockdown DPNs, which are issued when tax debts go unpaid for more than three months, remain enforceable even after a company is wound up, leaving directors with fewer options to resolve the situation.
What makes these lockdown DPNs particularly concerning is their longevity. Many directors, having gone through the winding-up process, are blindsided by these notices years later when they are least prepared to address them. Scott Butler, a restructuring partner at Hall & Wilcox, highlights the predicament this creates: “Directors are being hit with penalties for debts that go back up to eight years, often just as they are beginning to rebuild their lives.”
The ATO’s intensified focus on superannuation guarantee charge (SGC) amounts has also contributed to the rise in DPNs. Companies incur these charges when they fail to pay employee entitlements within the required timeframe. If an SGC statement isn’t lodged on time, the debt becomes locked down, and unlike other tax debts, it isn’t subject to a disclosure period. This can leave companies—and their directors—unaware of their mounting liabilities until it’s too late.
Butler points out that the ATO’s current approach of delaying notifications exacerbates the problem. “Many directors are only finding out about these penalties years after the fact, leaving them with limited options to address the issue.”
In response to growing concerns from the business community, the ATO has explained that the increased issuance of DPNs is part of its return to “normal operations” following a pause in firmer recovery actions during the COVID-19 pandemic. Last year, the ATO issued 17,459 DPNs, totalling $2.87 billion in debts, but with the agency back in full swing, these numbers have seen a significant rise.
For directors, the message is clear: staying on top of tax obligations is more critical than ever. As the ATO continues to leverage its tools for debt recovery, directors must remain vigilant to avoid being caught off guard by penalties that could impact them years down the line.
If you’re a director facing the complexities of a DPN or need expert advice on managing tax obligations, the team at Walker Hill is here to help. Contact us at support@walkerhill.com.au today to ensure you’re fully informed and protected from unexpected liabilities.
