Tax Office targeting DPNs at directors with high-value assets 

BUSINESS

The ATO is increasingly using data-matching tools to identify which directors have the assets to meet director penalty notices, according to an insolvency firm. 

By  Miranda Brownlee  • 11 March 2024

The Tax Office is increasingly focusing director penalty notices (DPNs) on directors that it identifies as having the assets to meet the DPN through its data-matching tools, says insolvency and turnaround firm Worrells.

“The ATO recognises that the taxpayer is a director of a company and that they are also declaring investment income from a property, for example,” said Worrells Western Sydney manager, Jeremy Mudford.

“[The ATO] is saying well this claim likely has the ability to meet the DPN so we’re going to issue the DPN. So we’re seeing lots of focused DPNs being issued by the ATO.”

DPNs are increasingly being used as an enforcement tool by the ATO as it chases down billions of dollars in small business tax debts, said Mudford.

“It’s a way of binding a company to a director to make them personally liable so basically piercing the corporate veil,” he said.

“In the first half of 2024, around 30,000 DPNs have been issued.”

Worrells said there are also some other key groups where the ATO is focusing their attention with DPNs.

“One is to encourage disengaged taxpayers to deal with the ATO. So that's a taxpayers that haven't dealt with the ATO in the last three months or 100 days,” said Mudford.

“They're using that game as a tool to basically reengage that client.”

Another area where they’re using DPNs is where there is unpaid super.

“This is consistent with the ATO’s view that unpaid superannuation is not the company’s money, it’s the employee’s money

Mudford also stressed the importance of directors keeping their addresses up to date, with some DPNs being issued to the wrong address.

“The ATO are only required to issue a DPN to the registered address of a director or personal address of a director as per the ASIC register,” he stated.

“I had a client who had a DPN and it showed up on his personal tax portal and it turned out the DPN had been sent to a property he had sold 18 months ago because he hadn’t updated it on the ASIC Register.”

He stressed that DPNs are time-critical, with directors only having 21 days from the date of the letter to respond.

“The ATO tend to issue these DPNs via registered mail or ordinary mail but by the time you actually receive the VPN, it’s probably been four to seven days after the date of the DPN so you’ve already lost some of that 21 days,” he said.

“It’s unfortunate but it’s just a consequence of that kind of communication.”

He also warns business owners not to bury their heads in the sand and ensure they’re still engaging with the ATO.

“We’ve certainly seen that the ATO are receptive to attempts to negotiate and deal with the tax debts. However, if you’re not doing anything about it, the ATO is more likely going to resolve it through some sort of enforcement.”

ATO’s client-agent linking a threat to system integrity: IGTO

Tax ombudsman Karen Payne has criticised the byzantine design and implementation of the process, throwing her support behind calls for an overhaul.

By  Christine Chen  • 18 March 2024 • 10 minute read

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The taxation watchdog has criticised the ATO for making client-agent linking (CAL) "too hard" and finalising it without industry consultation, calling for an overhaul to maintain the integrity of the tax system.

Karen Payne, Inspector-General of Taxation and Taxation Ombudsman (IGTO), said she was concerned that the current process, designed with the aim of enhancing system integrity, was spawning new problems that had "real implications" for taxpayer engagement.

"Client-agent linking is not hitting the mark and is actually creating its own other problems and repercussions which need to be worked through," she told Accountants Daily. "It's just too hard.”

"It's got real implications for ensuring the experience of the taxpayer in the system is an engaging one, that it upholds the integrity of the tax system – that's the concern."

The ATO’s new, multi-step linking process came into effect for all ABN holders except sole traders in mid-November.

Four months into its implementation, however, tax agents say it has unleashed an administrative “nightmare”, leading to lost clients or wasted hours spent navigating the process for taxpayers who were unfamiliar with the ATO’s Online Services for Business portal or needed help to acquire myGovIDs.

Payne said that in her experience, clients relied on tax practitioners to “take the red tape burden away”, and a system that placed the onus on the client to handle administrative tasks was incompatible with the traditional client-tax agent relationship.

She was also critical of the ATO’s design and implementation, which she believed had “somehow been over-engineered to the point where it is now” in comparison to the more “user-friendly” authentication systems commonly used by banks and airlines.

“A very complex process is now my concern. The tax ecosystem is not in a good place if it is difficult for clients and agents to be linked up,” she said.

"The more difficult you make it for somebody to engage with somebody or something, the higher the risk they opt out of engaging with it, or they are locked into a relationship with an agent that they're unhappy with. I think that’s a poor solution."

Inadequate support infrastructure, such as long-winded instructions and wait times on the ATO’s help hotline, compounded the issues.

“The fact that the relationship between the client and the agent means that the solution doesn't work the way that it's been designed to work. The fact that the infrastructure to support the solution is inadequate because people can't get through, people can't connect, the software's not working," she said.

As a result, frustrated businesses have reportedly given up on the linking process, likening it to "running into a brick wall" and declaring “no more tax” until the steps are simplified. 

Industry members have also told Accountants Daily the ATO finalised the regime and announced the decision to expand it in December 2022 without consulting the CAL "working group" of professional bodies and tax practitioners it had assembled.

Payne said the community outrage CAL was causing further evidenced “it was a solution that has been imposed rather than co-designed”.

She said the ATO was “not at all” justified in proceeding with the process against the industry's wishes. “If it hasn’t been a process of co-design, then it’s probably not surprising participants and users of the system are unhappy,” she said.

“The ATO is ultimately there to serve the public. So, it would be an expectation that they would consult collaboratively and constructively and openly with the public to develop and co-design the solution.”

However, she said there were no plans yet for the IGTO to open a formal investigation, calling on the ATO instead to overhaul the system.

“Everybody knows we're here to help. For the time being though, you would think this is a problem that the Tax Office and tax agents should be able to resolve between themselves, but if not, we're happy to jump in,” she said.