A Director Penalty Notice (DPN) is one of the most serious debt recovery actions the ATO can take against a company director. In certain situations, it allows the ATO to pursue a director personally for unpaid company liabilities relating to PAYG withholding, net GST and super guarantee charge (SGC). In other words, the company debt can become a personal problem for the director as well.
Many directors assume that limited liability always protects them from company tax debts. That is not always the case. Under the director penalty regime, personal liability can arise automatically when the company fails to meet key reporting and payment obligations, and the ATO can generally begin recovery action 21 days after issuing the DPN.
A Director Penalty Notice is a formal notice issued by the ATO to a company director after a director penalty has already arisen. The penalty reflects certain unpaid company tax and super liabilities and creates a parallel personal liability for the director. The company still owes the debt, but the director may also become personally liable for the same amount.
The ATO states that the director penalty regime applies to unpaid company liabilities for PAYG withholding, net GST and super guarantee charge (SGC). If those amounts are not reported and paid properly, the director may become exposed personally. The ATO can also base director penalties on reasonable estimates of unpaid and unreported liabilities in some circumstances.
Personal liability does not start only when the notice arrives. The ATO explains that the liability can arise automatically when the company fails to meet the relevant due date requirements. The DPN is then the formal notice step that warns the director and gives a limited time before recovery action may begin.
This is one of the most important distinctions for directors.
If PAYG withholding or GST is reported within 3 months of the due date, the director may still have a chance to remit the penalty by taking certain steps within the DPN period. However, if those liabilities are not reported within that 3-month window, the penalty can become a lockdown DPN. In that case, later placing the company into administration or liquidation will usually not remit the penalty. For SGC, the ATO also stresses that reporting by the due date is critical.
The 21-day period is critical. The ATO says it can generally begin recovery action 21 days after the DPN is issued. Whether the penalty can still be remitted during that window depends on the type of liability and whether the company reported on time.
For standard DPN situations, remission may still be possible if the company takes a valid step such as going into liquidation, entering voluntary administration, or using an eligible insolvency pathway where the law allows it. But for lockdown penalties, those later steps usually do not remove the director’s personal liability
A payment arrangement with the ATO may help the company manage its debt, but it does not automatically wipe out the director penalty. In practice, full payment has a different effect from simply entering into a payment plan. A partial payment may reduce exposure, but it does not necessarily remove personal liability unless the debt is fully dealt with or another valid remission event happens in time. This is a practical inference from the ATO’s explanation of director penalties as a parallel liability and from its guidance on payment allocation
New directors can inherit risk from existing company problems. The ATO’s guidance says a newly appointed director may become liable for pre-existing unpaid PAYG withholding, GST and SGC debts unless the company takes the necessary corrective action quickly. The ATO’s practice statement also notes that new directors may avoid liability in some cases if, within 30 days of appointment, the company enters administration, liquidation or another eligible insolvency process.
That is why anyone accepting appointment as a director should first check whether the company is up to date with BAS, IAS, GST, PAYG and super obligations
There are limited defences, but they are narrow and fact-specific. The ATO says a director may have a defence where, for example, because of illness or another acceptable reason it would have been unreasonable to expect them to take part in management during the relevant period, or where they took all reasonable steps to ensure the company complied or entered a formal insolvency process when required.
One of the biggest mistakes is focusing only on payment and ignoring lodgment. Under the DPN regime, late reporting can be just as dangerous as non-payment because it can lead to a lockdown outcome. Another common mistake is thinking resignation will solve the problem. In many cases, the liability has already arisen before resignation, so stepping down later may not remove the exposure.
If your company is behind on PAYG withholding, GST or super, do not ignore it. Directors should urgently confirm what has and has not been lodged, identify what remains unpaid, and obtain accounting or legal advice where necessary. In many cases, timing is everything, especially if the company is approaching or already inside the DPN window
A Director Penalty Notice is not just a warning letter. It is a sign that the ATO may pursue a company director personally for company tax and super debts. The key message for directors is simple: lodge on time, act early, and do not assume the company structure will always protect you. Once a liability becomes locked down, the available options become much narrower
A Director Penalty Notice is a formal notice from the ATO that warns a director that they are personally liable, or may soon be pursued personally, for certain unpaid company liabilities such as PAYG withholding, net GST and super guarantee charge
The ATO states it can generally begin recovery action 21 days after issuing the notice. That makes the 21-day period extremely important
A lockdown DPN generally arises when PAYG withholding or GST has not been reported within 3 months of the due date. In that situation, later putting the company into administration or liquidation will usually not remit the penalty
Yes. The ATO confirms that the director penalty regime applies to unpaid super guarantee charge (SGC) as well as PAYG withholding and net GST
Yes. New directors may become liable for pre-existing unpaid liabilities unless the company takes appropriate action quickly after appointment
Not automatically. A payment arrangement may help manage the debt, but it does not necessarily remit the director penalty in the same way as full payment or another valid remission event within time.
An accountant can review the notice, identify which BAS, IAS, GST, PAYG withholding or super obligations are outstanding, and explain how serious the situation is. This helps you understand what needs immediate attention and what options may still be available.
Yes. An accountant can help bring overdue lodgments up to date, check what remains unpaid, and review whether late lodgment has increased the risk to the director. This is often one of the most urgent parts of dealing with a Director Penalty Notice.
Immediately. Director Penalty Notice matters are highly time-sensitive, and delays can reduce the options available. Getting advice early can help you understand the company’s position and the next steps that may need to be taken.
CPA | CA | Registered Tax Agent
15+ Years Industry Experience
Imran Fazil is the Co-Founder and CEO of DIA Taxation, an Australian-owned boutique accounting firm providing tax, accounting, bookkeeping, and advisory services. He is known for combining strong technical knowledge with practical commercial insight, helping individuals and businesses navigate tax matters with clarity and confidence.
With over 15 years of experience in taxation and advisory services, Imran specialises in strategic tax planning, GST and BAS compliance, and trust and company taxation. His experience across construction, property, professional services, and logistics, together with a Big 4 background, supports a strong, commercially focused, and compliance-driven approach.
