30/03/2009

Directors’ penalty notices are issued under section 222AOE of the Income Tax Assessment Act 1936.

On receipt of a directors penalty notice, the director has 14 days in which to do one of the following:

-  discharge the liability;

-  enter into a written agreement with the ATO to pay by instalments;

-  place the company in administration; or

-  begin to wind up the company.

If the director does not comply with the penalty notice within 14 days, the director of the company becomes personally liable for the penalty which is the equivalent of the company tax debt.

An individual director may raise a defence to personal liability, on the following bases:

-  the director, because of illness or some other good reason, was not taking part in the management of the company at any time when the directors penalty notice had to be complied with;

-  the director took all reasonable steps to ensure that the directors complied with the notice by ensuring one of the 4 options were followed; or

-  there was no such steps the directors could have taken.

Any of the above defences may not necessarily allow the director to avoid other personal liability if it can be proven that the company had been trading whilst insolvent.

It is vitally important that each director act as soon as the penalty notice has been received. 

Given the strict timeframe it is important that a director know how a penalty notice is served by the ATO.  A penalty notice is served on the director if the ATO leaves it or sends it to the director’s residence or business address as listed on the ASIC register.  It is therefore also important that if a director changes address, the ASIC register is updated immediately which should reduce the risk of a penalty notice being sent to the previous address and not coming to the director’s attention within the 14 day compliance period.

If you receive such a notice please call David Nicoll on (02) 8296 6222 or contact your accountant urgently