Compliance
Director penalty notice
A director penalty notice makes company directors personally liable for certain unpaid company tax debts, such as PAYG withholding, super guarantee charge and GST, unless they act within the notice period.
A director penalty notice, often called a DPN, is a way the ATO can make company directors personally responsible for certain company tax debts. It applies to amounts such as unpaid PAYG withholding, super guarantee charge and, since 2020, GST. The idea is that the money was collected from customers or employees on trust for the government, and directors should not be able to leave it unpaid by letting the company fail.
There are two main types. One is where the company has reported the amounts on time, within three months of the due date. In that case, the ATO sends a DPN, and the director generally has 21 days to take action, such as paying the debt, entering an agreement with the ATO for a payment plan, appointing an administrator or putting the company into liquidation. If none of these occurs, the director becomes personally liable for the penalty, equal to the unpaid amount.
The other type is for amounts not reported within three months of the due date. In that case, the director may become personally liable immediately, without a notice period. This is sometimes called a lockdown DPN, because the options to avoid the liability through liquidation or administration are no longer available. The only way to remove the liability is to pay the debt or in some cases have the amounts reported, so that the matter can fall back into the first type.
Directors cannot avoid liability by resigning at the last moment. If a director resigns after the due date, they can still be liable for the amounts that were due while they were in the role. There are limited defences, such as illness or taking all reasonable steps to ensure the company complied, but they are narrow. New directors also have time limits to ensure they act promptly to deal with existing debts.
The ATO can also use a related mechanism for estimating amounts that a company has not reported, to bring the DPN into effect. This is why it matters to lodge activity statements on time, even if the company cannot pay. Lodging on time keeps the debt in the category where the director still has options, whereas not lodging can lead to personal liability with no way out.
The rules matter in the context of phoenix activity, where directors close a company to avoid debts. The DPN regime exists to discourage this. Directors, including those of small family companies, should take company tax obligations seriously, and obtain advice early if the company is in difficulty. Insolvency practitioners and accountants can often help.
This page is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
A company lodges its BAS on time showing $22,000 of GST payable but cannot pay. The ATO sends a director penalty notice to the sole director, giving 21 days to act. If the director enters a payment plan with the ATO within that time, personal liability is avoided. If the director does nothing, the director becomes personally liable for the $22,000.
Practical tips
- Lodge BAS and PAYG reports on time, even when you cannot pay, so options remain open.
- Act within the notice period if you receive a DPN, for example by arranging a payment plan.
- Seek advice early if the company is struggling, and remember resigning does not remove existing liability.