Tourism industry directors: Important update on Director Penalty Notices

As a director in the tourism and hospitality industry, your role is to guide and oversee all aspects of your business, from managing assets and employees to ensuring compliance with financial obligations. 

The tourism and hospitality sectors are particularly vulnerable to cash flow fluctuations due to seasonal changes, travel restrictions, and other external factors. Facing these unique challenges is not easy, and the previous leniency of the Australian Tax Office (ATO) in pursuing overdue tax debt may have caused you to prioritise other urgent concerns over tax-related debts.

However, recent increases in enforcement actions by the ATO highlight the importance of staying current with all fiscal responsibilities, including tax obligations. As a director, you can be held personally liable for any unpaid debts.

If tax debt is a significant concern for your business, if you have received a director penalty notice, or if you simply want to know what steps to take if you receive one, this article will help you understand the risks involved and how to protect both your personal and business interests.

What are Director Penalty Notices? 

A Director Penalty Notice (DPN) is a serious legal notice issued by the ATO that holds directors personally liable for certain unpaid tax debts of their company. In the tourism sector, where cash flow can be unpredictable, it’s essential to be aware of these risks.

The DPN can apply to:

• Pay As You Go (PAYG) Withheld: Taxes taken from employee wages can be quite significant, especially for tourism businesses during busy seasons. When demand is high, employers often bring on a lot of seasonal workers, which increases the total tax withholdings. Employers have a responsibility to stay compliant with tax regulations and to ensure they’re calculating the right amounts to withhold. For those who don’t, you could face penalties and legal issues, ultimately harming your business’ reputation.
• Superannuation Guarantee Charge (SGC): This is the punitive charge that applies where employers fail to pay on time compulsory Superannuation Guarantee contributions to employees’ superannuation funds. . The ATO has increased compliance activity in relation to unpaid super, issuing 8,710 DPNs in the 2024 income year, which is a more than two-fold increase on the previous income year.
• Goods and Services Tax (GST): GST is collected on the sale of goods and services, which can vary greatly with changes in tourist numbers and spending patterns. GST can also have specific exemptions in relation to international travel or events supplied by non-residents, making it important for hospitality businesses to consult with a tax adviser. 
  If your tourism company fails to meet its obligations in any of these areas, you, as a director, may receive a DPN. This notice gives you 21 days to either pay the outstanding amount or negotiate a payment plan with the ATO. 

Increased ATO enforcement in the tourism sector

During the pandemic, the ATO adopted a lenient approach to tax collection, understanding the severe impact on the tourism industry. However, with economic recovery underway, the ATO, backed by the federal government, is now pursuing over $34 billion in unpaid tax debts from small to medium enterprises (SMEs).

The food and beverages sector, a core part of the broader tourism industry, was found to have the highest tax default rates in 2024, according to CreditorWatch. Their business risk data also indicated that cost-of-living pressures are affecting this sector, with 9.2% of Food and Beverage services businesses becoming insolvent or shutting down between 31 January 2024 and 31 January 2025.

Last year, the ATO began contacting directors of tourism companies with overdue debts, urging them to arrange payments or enter into payment plans. Failure to respond could result in the issuance of a DPN, making you personally liable.

What tourism directors should do

1. Stay vigilant: Regularly review your company’s financial obligations to ensure all taxes are paid on time.
2. Communicate proactively: If your tourism business is struggling, reach out to the ATO early to discuss your options and avoid the risk of a DPN. Early communication can help you find a manageable solution and maintain your business’s reputation.
3. Seek professional advice: Reach out to a professional advisor who understands the unique challenges of the tourism industry. Professional guidance can help you navigate complex tax obligations and protect yourself from personal liability.

By staying informed and proactive, you can protect yourself from personal liability and ensure the ongoing success of your tourism business. 

 FOR MORE INFORMATION

Contact your local adviser today to learn more and get the support you need.