Director Penalty Notice Guide (Updated 2024)

A Director Penalty Notice (DPN) is a Notice that the Australian Tax Office (ATO) can send a director that can make that director personally liable for three types of tax debts of a company – Pay As You Go (PAYG), Superannuation Guarantee Charge (SGC) liabilities and Goods and services tax (GST).

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    What is a director penalty notice?

    A Director Penalty Notice (DPN) is a Notice that the Australian Tax Office (ATO) can send a director. A DPN can make that director personally liable for three types of tax debts of a company:

    1. Pay As You Go (PAYG),
    2. Superannuation Guarantee Charge (SGC) liabilities,
    3. Goods and services tax (GST)

    There are two types of Director Penalty Notices. The first is the traditional Director Penalty Notice which gives a director 21 days to take certain actions to avoid personal liability. The second type of DPN, often referred to as a “Lockdown DPN”, can make a director automatically personally liable if company tax returns are not lodged within 3 months of their due date – there is no opportunity to avoid that liability once the DPN is served on the director. This page contains general information about Director Penalty Notices in Australia.

    Latest Update: April 2024

    After a period of inactivity over COVID, the ATO is issuing Director Penalty Notices regularly again. The current focus appears to be on older debt, and even companies that have already been through liquidation. Directors need to be on the look-out for DPNs. If your company has unpaid and unpayable tax liabilities we recommend that directors seek advice before receiving a DPN. The DPNs we’ve seen have been for a combination of avoidable, and lockdown debts. This means a timely Small Business Restructuring or liquidation will cause the directors to avoid at least some personal liability.


    • Avoid becoming personally liable for the company’s tax debt
    • Understand the different types of notice and the proper plan of action
    • Liquidators with 10+ years of experience



    Can a director be made personally liable for company tax debts by a DPN?

    Yes. As a director, the main way to become personally liable for company tax debts is as a result of the Director Penalty Notice laws. The laws were significantly strengthened in June 2012 and the new laws were designed to, and should, change the way directors view company tax debts. It is now much easier to become personally liable. The 2012 laws have greatly complicated an already difficult area of the law, but their prime objective is to make directors personally liable for some company tax debts.

    What is the ATO’s actual practice regarding issuing DPNs?

    The ATO is open about its approach to non-payment of PAYG, Superannuation and GST. It has issued a statement called “Firmer approach to debt collection” where it confirms its aggressive approach to non-complying businesses regarding unpaid taxes. The ATO has stated it is particularly targeting companies that:

    • repeatedly default on formal Payment Arrangements;
    • avoid tax liabilities by liquidating companies then setting up new companies, often called “phoenix activity”;
    • are showing increasing debt with limited ability to pay the tax debt;
    • actively avoid contact with the ATO.

    So, will the ATO always issue a DPN if it has the legal right to do so? No.  DPNs are issued at the discretion of the ATO, and its practice will vary from time to time.  For example, during difficult times for business, such as during the COVID pandemic, the ATO may suspend issuing DPNs altogether.

    Under what legislation is a DPN issued?

    The specific section of the Income Tax Assessment Act 1936 is Section 222AOE.

    What are the two types of DPNs?

    There are two types of DPN issues by the ATO.  The “21 Day DPN” which has been around for many years, and the “Lockdown DPN”, which came into being in 2012.

    What is a 21-Day Director Penalty Notice?

    The most common Notice gives directors 21 days to act. If a company has outstanding PAYG, Super or GST, then the ATO can send a Director Penalty Notice to a director giving that director 21 days to:

    • make the company pay the debt; or
    • put the company into liquidation; or
    • put the company into voluntary administration; or
    • come to a payment arrangement with the ATO.

    If a director has received a Director Penalty Notice with a 21-day action period, then a director should, not surprisingly, seek advice and act within the 21 days!

    An Example: 21-day DPN

    Bob is the director of Widgets123 Pty Ltd. Widgets123 withholds tax (PAYGW) from employee wages and should pay those amounts to the ATO quarterly.  In the first quarter of 2021, Widgets123 lodged its BAS returns on time but didn’t pay the amounts to the ATO. The ATO can issue a DPN to Bob which would tell him that he will become personally liable for that BAS debt of Widgets123 in 21 days.  If, during those 21 days, Bob makes the Company pay the debt or if he puts Widgets123 into liquidation, voluntary administration, or small business restructuring, then Bob is NOT personally liable for the Widgets123 tax debt. If he does nothing in the 21 days, Bob is personally liable for that Widgets123 tax debt.

    When do the 21 days run from?

    The 21 day period runs from the date of the DPN Notice. So to be clear, it does not run from the date you receive it, it runs from the date that the ATO send it.

    What is a “Lockdown” Director Penalty Notice?

    Laws were passed in June 2012 that dramatically increased the scope of the DPN laws and director personal liability. In brief, the laws:

    • Expanded the DPN regime to include Superannuation payable to employees (“SGC”);
    • Make directors automatically personally liable if PAYG or SGC amounts remain unpaid and unreported three months after the due date for lodging a return;
    • Restrict access to PAYG withholding credits for company directors and their associates where the company has failed to pay withheld amounts to the Commissioner of Taxation.

    Unlike with a 21 Day DPN, a director cannot cause their director penalties to be remitted (which means cancelled) by placing their company into voluntary administration or liquidation.

    An Example: Lockdown DPN

    Sandra is the director of Marbles123 Pty Ltd. Marbles123 withholds tax (PAYGW) from employee wages and should pay those amounts to the ATO quarterly.  In the second quarter of 2021, Marbles123 didn’t lodge its BAS returns within 3 months of the date required for lodgement and didn’t pay the amounts to the ATO. Many months later Marbles123 lodged the BASs but still didn’t pay the tax due.  The ATO can issue a DPN to Sandra which would tell her that he is personally liable for that BAS debt of Marbles123. There is nothing Sandra can do to avoid personal liability. In the future, the ATO can pursue either Marbles123 or Sandra personally, or both, for the amounts due by Marbles123.

    Could I get both a 21-Day DPN and a Lockdown DPN?

    Yes. The old DPN laws still apply so you may get a DPN that gives no opportunity to have the penalty remitted (being a Lockdown DPN) or one that gives 21 days in which to act and avoid personal liability. In practice, the ATO will often issue both a Lockdown DPN and a 21-Day DPN at the same time for different amounts.

    Is there a simple rule to avoid being personally liable under a Director Penalty Notice?

    Yes. The DPN laws are designed to change the behaviour of directors. In years gone by, directors tended to leave tax debts at the bottom of the payments pile. That was often achieved by directors simply not complying with tax lodgement and payment requirements – BASs were not lodged on time and tax debts were often the last to be paid. That is now a very bad approach. The three simple rules are:

    • Get your company tax returns up to date and lodge them – if you do that you cannot be liable under a Lockdown DPN;
    • If you get a 21-Day DPN – get advice and act within 21 days;
    • Put the company into Small Business Restructuring.

    And to be clear, if the company cannot pay the debt due under a BAS for PAYG or a Super debt, lodge the return anyway, otherwise you will be personally liable for the debt.

    What company taxes can I be liable for under a DPN?

    The ATO can issue DPNs for three types of unpaid company taxes:

    • Pay As You Go (“PAYG“) which is the amounts deducted from employee wages for income tax;
    • Superannuation Guarantee Charge (“SGC“) liabilities which is amounts due to employees for their Superannuation;
    • Goods & Services Tax (“GST”).

    What are Superannuation Guarantee Laws?

    Under Superannuation Guarantee law, if an employer is not able to meet their superannuation obligations by the due date for payment, they are required to lodge a “Superannuation guarantee charge statement – quarterly (NAT9599)” with the ATO. With that legislation it is important that a company lodge a NAT9599 with the ATO within 3 months of the due payment date or its directors will be automatically personally liable for the company’s Superannuation Guarantee Charge (SGC) liability. It should be noted that SGC is made up of the shortfall in Super payments plus interest (10% pa) and a processing fee (currently $20 per employee, per period). So unlike PAYG where a director is made liable for the shortfall only, for Super the director is liable for the shortfall plus interest and fees.

    Can a DPN include GST?

    Yes. On 1 April 2020, the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 become effective and the ATO can now make directors liable for unpaid GST.

    Who can be issued with a DPN?

    Any current director of a company can be issued with a DPN. Also, a director who has resigned may receive a DPN under certain circumstances, essentially, they may be liable for amounts due after they resign if the event that resulted in the unpaid tax liability occurred during their time as a director. Also, a de-facto or “shadow” director may receive a DPN. However, that is a rare event.

    Will a Director Penalty Notice apply to me if I am a new director?

    Not straight away. A new director of a company is liable for PAYG and SGC debts but not until 30 days after they become a director. That period is designed to give the new director time to assess if there is a backlog of PAYG or SGC and gives time for them to act, or resign.

    An Example: New director

    Gizmo123 Pty Limited withholds tax (PAYG) from employee wages and should pay those amounts to the ATO quarterly. In the second quarter of 2021, Gizmo123 didn’t lodge its BAS returns within 3 months of the date required for lodgement and didn’t pay the amounts to the ATO. Many months later, Gizmo123 lodged the BASs but still didn’t pay the tax due.  Alice became a new director of Gizmo123 in November 2021, being well after the time Gizmo123 incurred the tax debt for the second quarter of 2021. Alice has 30 days from the date of her appointment to make sure that Gizmo123 either pays the tax debt in full, enters Voluntary Administration, Small Business Restructuring or Liquidation.  If Gizmo123 doesn’t take one of those 4 actions in 30 days, then the ATO can issue a DPN to Alice which would tell her that she is personally liable for that BAS debt of Gizmo123.

    What does the ATO mean by “parallel liability”?

    The ATO now talks about “parallel liability”. That means that if the company has more than one director, the amounts owed are likely to be the same for all directors because the amount the company owes and the DPN issued to the directors are parallel in nature. The ATO can pursue either the company or any director. So any payment will reduce the director penalty amount for the other directors and the company’s liability.

    Will the ATO send the DPN to all directors?

    Usually, yes.

    If the company has not done its tax returns how can the ATO issue a Director Penalty Notice?

    If returns are not lodged, and so the ATO does not know the specific amount that a company owes, then the ATO can estimate those amounts and issue a DPN using those estimates.

    Are there any defences for a director who receives a Director Penalty Notice?

    Yes, there are defences.  The usual process is that the ATO will issue a DPN and if the director is of the view that the DPN should not apply they can lodge that defence with the ATO for consideration.  But the defences are quite narrow.  The main defence is that the director was ill, or had some other good reason, and so did not take part in management of the company at the relevant time.  But it is not a defence to simply show that the director relied on others (including fellow directors and professional advisors) to ensure the company paid the tax.  So, to be clear, a director’s non-participation in the management of the company is not a defence.

    Is it a defence if I tried, but failed, to get the company to pay the tax debt?

    Sometimes. It may be the case that there was a director dispute and a director tried to get the company to comply with its tax obligations, but the other director caused that to not happen. In such cases, the director would need to show that they took reasonable steps to ensure that the company would comply with its tax obligations.

    Can I avoid liability under a Director Penalty Notice by claiming I did not receive it?

    Unlikely. There have been court cases where directors claimed they did not receive the DPN. The Courts accepted the ATO evidence that the ATO had sent the DPNs to the correct address. If a director has moved address, and failed to update their addresses with the ATO, then that is a problem for the director rather than the ATO. Further, the ATO can serve a DPN on a director by sending the DPN to the company’s tax agent’s address.

    Are there extra defences regarding DPNs for superannuation guarantee charge?

    Yes. Where a DPN is for SGC, a director may have a defence that the company took “reasonable care” to pay its Superannuation liability, but it remained unpaid for some good reason. The SGA Act allows a 60-day period to raise a defence against the recovery of all director penalties by methods other than court proceedings. If a director wanted to rely on this defence, it would still be best to raise the defence prior to the DPN expiring.

    What if it was my spouse’s company and I was just helping by acting as the director?

    There are provisions that allow as a defence that a director was not actually involved in the management of the company and it was reasonable for the director not to be involved. However, this is a hard defence for a director to establish. The tax laws state that the defence is only valid if it was “unreasonable to expect the director to take part due to illness or some other good reason”. Simply not being involved is not a defence – there must be a good reason.

    If I resign as a director, do I avoid liability under a DPN?

    If you are no longer a director, you remain liable for director penalties that were due before the date of your resignation and for amounts that were incurred before your resignation even if they were not due to be paid.  For example, if an amount was deducted from employees wages whilst you were a director, you resigned, and the payment to the ATO was due after you resigned, you can still be liable.

    If I have a valid defence, how do I lodge it?

    A DPN defence needs to be submitted to the ATO in writing and should include all the supporting documentation. It can be submitted either by mail or by your tax agent.

    What are the effects on a director of a DPN?

    What happens if I get a DPN and do not pay the ATO?

    If a DPN is issued to a director and that director doesn’t pay the amount due, then the ATO is able to pursue that director personally for the company tax debt. So, the ATO has a range of options which could include issuing a Garnishee Notice against that director’s personal bank accounts. Ultimately, the ATO can pursue the director until that director becomes a Bankrupt.

    What if only one director pays the DPN?

    There will sometimes be a dispute between directors and only one of the directors will pay the DPN. In such cases, the Taxation Act provides a “right of indemnity” which allows the director who paid the DPN to then recover the amounts paid from either the company or any other director that was equally liable.

    Does a DPN mean automatic Bankruptcy?

    No, there is no automatic bankruptcy.  It does mean that a director is personally liable for the debt on the DPN and the ATO will pursue that director for the money.  And, yes, if the director does not pay, then the ATO may pursue the director into Bankruptcy.

    Does Small Business Restructuring protect me from a DPN?

    Yes it can. If the ATO has issued a 21 day DPN then one of the options to avoid personal liability is to put the company into Small Business Restructuring. That is often a very good option.

    Does Safe Harbour protect me from a DPN?

    No. “Safe Harbour” is a separate area of the Law that allows some latitude to companies whilst they restructure but its main protection is against personal liability for directors under Insolvent Trading laws.  The safe harbour provisions do not give protection from DPNs.

    How does the ATO actually give the Notice to a director?

    The ATO actually serves, or gives, a director penalty notice by posting it to the directors residential address. The ATO gets that address from the ASIC records. So directors need to be sure that the ASIC record has their up todate address.

    What if I get a DPN for a Deregistered Company?

    Deregistration of a company often occurs because of ASIC concluding that the company is no longer in business.  ASIC will send a notice to the company and if there is no response then ASIC will deregister the company – remove it from the company register.  This can create difficulties.  For example, if the ATO issues a 21-day DPN to a director of a deregistered company then the director does not have the ability to appoint a liquidator or voluntary administrator.  If they could do that then the DPN would be “remitted” which means cancelled or reversed. A director could try and apply to the Courts to have the company reinstated so they could then put it into liquidation, but that is expensive and would need to be done within 21 days.

    Can the ATO issue a DPN on a company that is already in liquidation?

    It depends. If the company has been lodging its tax returns within 3 months of their due date, then the ATO can only issue a 21-day DPN – once the company is in liquidation then the ATO can’t issue that 21-day DPN. However, if returns were lodged later than 3 months, then the ATO still is able to issue a Lockdown DPN and they can do so at anytime in the future.

    What does a DPN look like?

    Example DPN:

    What are the simple things to do to avoid getting a DPN?

    The most effective action to avoid a DPN is to avoid the position where the ATO has the right to issue a DPN. That is, prevention is better than cure. The ATO would also agree with this approach as the prime purpose of DPNs is to encourage directors to ensure a company lodges returns and takes action if a debt can’t be paid. Hence, the top actions to avoid receiving a DPN are:

    • Stay familiar with the company’s financial position and monitor that quarterly and monthly BAS Returns are lodged on time (do this even if the company can’t pay the debt due);
    • Make sure your address details with ASIC and the ATO are current so you avoid the situation where you don’t receive Notices;
    • If the company cannot pay the amounts due for PAYG and Superannuation contact your accountant or us for advice.

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    Tax law can be a complex area and circumstances vary, so we recommend a telephone call for your initial consultation. We will then gladly meet you or just confirm our advice and quote in writing.

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