Director Penalty Notices Advice

The ATO can issue a Director Penalty Notice (DPN) to recover a company’s unpaid PAYG Tax, GST and superannuation from a company’s directors.

There are two types of DPN which the ATO can issue. They can apply as follows.

Types of Director Penalty Notices

21-Day Director Penalty Notices

A company is required to:

Pay PAYG Tax and GST to the ATO by due dates.

Lodge Business Activity Statements (BAS) with the ATO each quarter reporting PAYG Tax and GST payable.

Pay superannuation by due dates.

Report Superannuation Guarantee Charge (SGC) to the ATO if the company doesn’t pay superannuation by due dates.

Where a company doesn’t pay PAYG Tax, GST or superannuation, but it lodges its BAS within 3 months of being due and/or SGC is reported to the ATO by due dates, the ATO can issue a DPN to the company’s directors. If this happens directors can be liable for the PAYG Tax, GST or SGC claimed. However, directors can avoid personal liability if:

The PAYG Tax, GST or SGC is paid; or

The company is placed in liquidation or voluntary administration or a small business restructuring practitioner is appointed within 21 days of the date of the Director Penalty Notice.

“Lockdown” Director Penalty Notices

“Lockdown” Director Penalty Notices apply where a company doesn’t pay PAYG Tax, GST or superannuation and also doesn’t lodge BAS within 3 months of being due or SGC is not reported to the ATO by required dates. If this occurs the directors are automatically liable for PAYG Tax, GST or SGC and:

The ATO can issue a DPN to recover unpaid PAYG Tax, GST or SGC.

Placing the company in liquidation, or voluntary administration or appointing a small business restructuring practitioner doesn’t avoid liability. The ATO can issue DPNs after a company is already in one of these types of appointments.

The ATO can estimate a company’s debts for PAYG Tax, GST and SGC. After estimating the debts the ATO will issue a DPN based on estimates.

What are the Required Dates to Report SGC to the ATO By to Avoid Liability

Up until 30 June 2026, companies were required to pay superannuation quarterly or sometimes monthly. In those circumstances superannuation was payable on the 28^th day of the month after the period end. So, for example superannuation for the June Quarter was payable on 28 July. If superannuation was not paid, then companies had a further one month to report superannuation to the ATO. However, if this was not done then directors became personally liable for SGC subject to the above provisions summarised under the heading “Lockdown” Director Penalty Notices.

From 1 July 2026 companies are required to pay superannuation when they pay wages to employees. This is called Payday Super or Sameday Super. These payments must be received by an employee’s superannuation fund within 7 business days of wages being paid. If payments are not received by an employee’s superannuation fund within 7 business days of wages being paid then:

A company must report the unpaid superannuation to the ATO.

The ATO can at anytime estimate the amount of SGC owed by a company, which the ATO will do based on single touch payroll data.

Directors will be personally liable for unpaid SGC at the earlier of 60 days after wages were paid or the ATO estimates a company’s SGC liability.

Accordingly, given the ATO can at anytime estimate the amount of SGC owed by a company then directors can quickly become personally liable for unpaid SGC subject to the above provisions summarised under the heading “Lockdown” Director Penalty Notices.

Estimates if Liability

The ATO can estimate unpaid PAYG Tax, GST and SGC if a company fails to lodge returns on time or report required amounts. These estimates can then be used to issue DPNs to a company’s director.

Where estimates are raised in most cases claims for DPN amounts by the ATO will be claims for “Lockdown” DPN liability.

What Happens if You are Liable Under a Director Penalty Notice?

If you become liable under a DPN the ATO will treat the debt as it would treat any ordinary tax debt . The ATO can and will:

Retain any tax refunds you become entitled to.

Commence legal proceedings against you to obtain a Judgment for the amount of the debt.

Use the Judgment to issue a Bankruptcy Notice and then subsequently make you bankrupt.

Garnishee funds from your personal bank account or from your wages.

If a company has multiple directors, then the directors are jointly and severally liable for the DPN debts. However, the ATO will often target its recovery action at the director it considers has the best ability to pay. The ATO will have information on a director’s personal financial position based on the director’s past Income Tax Returns and other material a director has provided to the ATO.

What Can You Do to Avoid Director Penalty Notice Debts?

The following tips will help you avoid liability under DPNs:

If a DPN is received act promptly given likely short timeframes involved.

Obtain advice at an early stage. If you call us we can advise on risks associated with the continued trading of your company.

Lodge BAS and if superannuation is not paid, ensure SGC is reported to the ATO on time. If lodgements are made but tax debts are not paid you still have 21 days from the date of a DPN to place a company in liquidation, voluntary administration or small business restructuring to avoid liability.

Make sure your postal address is up to date in records maintained by ASIC. DPNs are issued to your personal address as recorded with ASIC. If you do not receive a notice due to a change of address this is not a defence to a claim by the ATO.

Check your personal online ATO Portal. DPNs should also be issued to you via correspondence in your personal online ATO Portal and the debts should also appear on the portal.

If a liquidator, administrator or small business restructuring practitioner is to be appointed, the time to make an appointment is within 21 days of the DATE of the DPN.

What Can You Do if You are Liable to Pay a Director Penalty Notice?

If you are liable under a DPN then:

You should promptly obtain advice from a qualified professional.

You can negotiate a personal payment arrangement with the ATO for the amount of the director penalty debt. We have assisted numerous company directors negotiate these types of payment arrangements.

If there are other directors of the company, seek that they make a contribution to the ATO to pay a proportionate part of the liability.

Consider whether it may be possible to put forward a proposal for a Personal Insolvency Agreement.

If there are no other alternatives, consider filing for bankruptcy.

Old and New Directors

The ATO can issue a DPN to a director who was a director at the time when unpaid PAYG Tax or superannuation was incurred, but who has subsequently resigned. Therefore, resigning as a director will not get you off the hook for potential DPN exposure.

The ATO can also issue a DPN to an incoming new director. Whilst the director is liable immediately the ATO cannot issue a notice until the director has been in office for more than 30 days.

Payment Arrangements and Director Penalty Notices

The ATO won’t issue a DPN if a company is subject to a payment arrangement and is complying with the terms of the arrangement. The ATO will also not seek recovery of DPN amounts from directors (which they are already liable for) if a company enters into and complies with a payment arrangement.

However, if a 21 Day DPN is received then entering into a payment arrangement will not avoid personal liability under the DPN, unless the DPN amount is paid in full via the payment arrangement or other means.

Defences to Claims by the ATO Under Director Penalty Notices

A company’s director will have a defence to a claim by the ATO under a DPN if they can establish that:

Due to illness or another acceptable reason, they were not managing the company at the relevant time.

They took all reasonable steps to ensure the company paid PAYG Tax, GST or superannuation.

They took all reasonable steps to wind the company up or appoint a voluntary administrator.

Reasonable steps were taken to ensure that the company complied with its obligations to pay superannuation. This defence may be available where directors reasonably thought they were engaging a subcontractor. However, the subcontractor was subsequently deemed to be an employee to which superannuation provisions applied.

Director Penalty Notices – Further Information and Advice

Given the serious consequences a DPN may have it is important that you urgently obtain advice if your company is unable to pay PAYG Tax, GST or superannuation.

If you need assistance, please contact our Brisbane or Gold Coast office. We will be able to advise how we can assist you in an initial obligation free consultation.