Can the ATO remit a director penalty?

What remission means for a director penalty

People hear the word remit and think of penalty remission, where the ATO weighs your reasons and can reduce a failure to lodge penalty to nil. Director penalties do not work like that. The tax law sets out exactly when a director penalty is remitted, and the ATO applies those rules rather than exercising a judgement.

For a non-lockdown penalty, remission happens if, within 21 days of the notice being posted, the company:

• pays the amount in full,
• has an administrator appointed,
• has a small business restructuring practitioner appointed, or
• begins to be wound up.

For a lockdown penalty, only payment remits it. There is no application form, no hardship pathway and no discretion to add to that list.

Because the penalty is a parallel liability, any payment made by the company or by you reduces both the company's debt and the penalty by the same amount. Part payment is worth making even where full remission is out of reach.

What the ATO can do

The ATO cannot forgive the penalty, but it has real levers around it.

• Payment plan on the personal liability. The ATO will consider a payment plan for a director penalty. It does not remit the penalty, but it holds off enforcement while you keep to it.
• Interest remission. General interest charge accrues on the penalty and on the underlying company debt. GIC remission is discretionary, and the ATO can reduce or cancel interest where the delay was outside your control.
• Accepting a defence. If you lodge a written defence and the ATO accepts it, the penalty is not recovered. The statutory defences are illness or another acceptable reason for not participating, having taken all reasonable steps, or a reasonably arguable position on SGC or GST.
• Correcting estimates. Where the penalty is based on an ATO estimate of unlodged amounts, lodging the actual return can replace the estimate and reduce the penalty.
• Not pursuing. In serious personal hardship the ATO can decide a debt is uneconomical to pursue. That shelves it; it does not cancel it.

What does not work

A payment plan for the company's debt does not remit the director penalty, even if the ATO accepts the plan and the company keeps to it. This is the most common misunderstanding, and it costs directors the 21 day window. A statement that the company is trading well, or that the debt was an accountant's error, does not remit it either. If you think the underlying amount is wrong, the defences and disputes route exists, but the clock keeps running while you argue.

What to do next

1. Work out from the notice which amounts are non-lockdown and can still be remitted, and which are lockdown.
2. For non-lockdown amounts, decide within the 21 days whether the company will pay or make a formal appointment.
3. For amounts that will not be remitted, ask about a payment plan on the personal liability and put a GIC remission request in writing.
4. If a defence may apply, start gathering dated evidence now and get advice on how to present it.

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