Chartered Accountants Australia and New Zealand (CA ANZ) is calling for improvements to how the ATO issues, communicates and uses director penalty notices (DPNs). In a submission to the Tax Ombudsman’s review of DPNs, CA ANZ highlights key opportunities to make DPNs more effective, clearer, more consistent and fairer for directors.

Background

DPNs are a critical debt collection tool. When used effectively, they encourage directors to act early, seek advice and resolve unpaid tax and superannuation debts before they escalate. However, their  success depends on clear communication, timely intervention and fair administration. Directors must understand the reason for the notice, their personal liability and the steps they can take to respond.

However, CA ANZ members report that DPNs often arrive late, are hard for clients to understand, are issued inconsistently and do not allow enough time to act. Challenges also arise when DPNs are sent to companies in external administration, to former directors, to multiple directors or to those experiencing financial abuse.

Priority areas for improvement

Based on member feedback and a survey, CA ANZ has identified several member priorities and opportunities for improvement:

• Provide an electronic copy of the DPN that alerts the director’s tax agent at the same time as the director, to enable earlier engagement and maximise the 21-day notice period.
• Extend the minimum response period to 40 calendar days to account for postal delivery times.
• Make DPNs easier to understand by:
  • Clearly explaining what a DPN is and the nature of the director’s personal liability
  • Displaying the total outstanding debt
  • Stating the exact date by which action must be taken, rather than requiring directors to calculate the deadline
  • Explaining the difference between lockdown and non-lockdown debts
  • Explaining parallel liabilities
  • Using plain English throughout
• Use DPNs as an early intervention and behavioural correction tool.
• Increase transparency around the principles and governance guiding DPN issuance, including clear guidance on the expected sequence of ATO actions.
• The ATO be transparent if a DPN will be issued to a business undergoing external administration. If the ATO accepts, votes for or does not oppose a formal insolvency proposal, it should not issue a DPN for the same debt unless the arrangement fails or material information was not disclosed.
• Strengthen safeguards for former directors who may not have access to company records.
• Visibly link DPNs issued to multiple directors that relate to the same debt/s and promptly notify all directors if the debt is paid, otherwise satisfied or a payment arrangement is made by one director.
• Apply the ATO’s vulnerability framework to DPN administration, so directors experiencing financial abuse are identified and supported early. Clarify the defence of “some other good reason” to include those facing financial vulnerability, abuse or coercive control.

To assess the effectiveness of the DPN regime, CA ANZ also calls for regular reporting on the number and value of DPNs issued, the proportion resulting in payment, those where no action is taken and those leading to further ATO action.