ATO ‘flavour of the year’: insolvency a strong option for directors facing DPNs

Speaking to Accountants Daily, Robinson noted that directors who “bury their heads in the sand” and take late action on notices will be subject to a lockdown DPN, automatically making them personally liable for debts.

“If [accountants are] onboarding clients that have heaps of overdue items, it might be best to [have a] meeting with an insolvency specialist first to talk about the best path forward, rather than just doing what accountants do as our default is — bring a client up-to-date, lodge everything and get everything up-to-date.

“[Getting lodgments up to date is] not always necessarily going to be [the best foot forward] if the client is genuinely insolvent or needs to be liquidated or to appoint an insolvency specialist because they're at risk of DPNs.”

Robinson said the impacts of DPNs on directors are significant. 

“It's a scary-looking letter when you think about mental health and the effects of being in debt and what that has on people; it is extremely concerning and causes quite a lot of detrimental moods, behaviours and fear of what's going to happen,” Robinson said.

“Following the ATO's increased issuance of director penalty notices, stricter payment plan policies and the use of technology for compliance, there may be severe consequences for business owners who fail to address tax debts promptly,” Robinson said in a recent LinkedIn post.

Despite its effects on directors, Robinson called the ATO’s 21-day DPN deadline a “clever way” for the ATO to clamp down on collectable debt.

“[DPNs are the] biggest and most used tool that we see right now from the ATO to force the director's hand. The other ones like, garnishees [we] don't see as often or as much [as] DPNs. That seems to be the flavor of the year for the ATO,” he told the masthead.

“That 21-day timeline can be very tight when it's about when the letter was generated, not when the client actually got notified. [If] it takes several days to arrive through the post, all of a sudden, your 21 days might be 17 days or 16 days,” Robinson said. 

When asked what he would like to see changed, he said he would like to see that extended to at least 28 days.

“These are very big decisions that have long-lasting impacts to a director's life potentially, and having less than three weeks to make one of the biggest calls of your life [is] a very short timeline.”

Following the Australian National Audit Office’s (ANAO) recent audit report of the ATO on Wednesday (30 June), the Tax Office has accepted a recommendation by ANAO to set a volume target on collectible small business debt, increasing scrutiny on SMEs.

Further, Tax Ombudsman Ruth Owen plans to undertake a review into the ATO’s DPN system, scheduled to begin this month. 

“This review would explore how the ATO uses and administers DPNs and any opportunities to improve its approach,” Owen said.

“[The impacts of DPNs are significant] where directors have ceased their directorships or been unaware of the liabilities due to personal circumstances, such as illness, which may have prevented their active involvement in the management of the company,” she said.

“An increasing area of concern is how coerced directorships are being used to perpetrate financial abuse, with DPN liabilities being a further impact on victim-survivors.”