What Is a Director Penalty Notice (DPN)

As a director of a medical practice or any company, it’s essential to understand your obligations, especially when it comes to ATO debt management. One of the most urgent issues I often see directors encounter is receiving a Director Penalty Notice (DPN).

But what exactly is a DPN, and how does it impact you as a director? Let’s break it down.

What Is a Director Penalty Notice?

A Director Penalty Notice (DPN) is a notice issued by the Australian Tax Office (ATO) to directors, holding them personally liable for a company’s unpaid tax obligations. These obligations may include GST, PAYG withholding, or other amounts reported on Business Activity Statements (BAS).

The ATO uses DPNs to collect outstanding tax liabilities from directors if it believes the company is unable to repay the debt on time. And the reality is, DPNs are becoming more common as the ATO ramps up its debt collection efforts.

Why Are DPNs Becoming More Common?

Over the past five years, the ATO’s debt book has nearly doubled, rising to over $90 billion AUD. With such an astronomical figure, the ATO has intensified its focus on compliance and debt collection. As a result, more directors are receiving DPNs, which create a parallel personal liability for the company’s debts.

What Happens When You Receive a DPN?

Let’s explore this through an example:

Imagine you’re a director at a medical practice, along with three other doctor-directors. The company owes $100,000 to the ATO in unpaid GST and BAS liabilities.

If the ATO determines that your company cannot meet its repayment obligations, it can issue a DPN to each director. Here’s the critical part:

• Each director becomes personally liable for the full $100,000 debt.

• The liability is not divided proportionally (e.g., $25,000 per director for four directors); instead, each director is individually on the hook for the entire $100,000.

• Once the debt is repaid, it is reduced proportionally across all DPNs issued; however, the ATO may still pursue each director for the full amount.

How Can the ATO Recover the Debt?

If you’ve received a DPN, the ATO may recover the debt in several ways, including:

• Garnishee Notices: These allow the ATO to access income from your personal employment or other sources

• Legal Action: The ATO can escalate recovery efforts, potentially resulting in court proceedings.

What Should You Do If You Receive a DPN?

Receiving a DPN is serious, far more than a simple “heads-up.” It’s a time-sensitive matter, as you only have 21 days to act before the liability becomes locked in.

Here’s what you should do immediately if you receive a DPN:

• Contact Your Accountant: Seek professional advice from your accountant or a specialist immediately

• Communicate with the ATO: Work with your adviser to explore repayment options and negotiate terms

• Assess the Company’s Compliance: Review the company’s financial status and ensure tax obligations are up to date moving forward.

How to Minimise the Risk of a DPN

The best way to manage DPNs is to prevent them from happening in the first place. As a director, you must:

• Maintain good oversight of the companies you oversee

• Stay vigilant about tax compliance and ensure BAS, GST, and other liabilities are paid on time

• Work proactively with your accountant to address potential issues early.

  
  

At GrowthMD, we specialise in helping medical practices and directors navigate their tax obligations with confidence. Our team understands the unique challenges directors face, and our goal is to help you avoid stressful situations like DPNs altogether.

If you’re concerned about your liability as a director or have received a DPN notice, reach out to our team today. We’re here to provide expert advice and help you protect your financial well-being.

Please don’t wait until it’s too late. Contact us today at GrowthMD to ensure you’re prepared for any challenges that may arise as a director.