Director penalty notices explained

The reason the regime exists

Ordinarily a company’s debts are its own business, not its directors’. A handful of amounts owed to the ATO are treated differently because the company never really owned that money: tax taken out of staff wages, GST charged to customers and super owed to employees. The director penalty regime gives directors a personal stake in seeing those amounts paid. When the company does not pay, the ATO can turn to the people running it.

What follows is a plain-English summary of the ATO’s published rules for general information only. Anyone holding a notice should get professional advice on their own position.

The debts in scope

Three company liabilities can follow a director home:

• unpaid GST
• unpaid PAYG withholding
• unpaid super guarantee charge

Other debts, such as company income tax or money owed to trade creditors, sit outside the regime. Directors can still be personally exposed through other routes, including personal guarantees they have signed and the rules on insolvent trading.

How the clock runs

After a DPN is issued, the ATO has to wait 21 days before it can recover the penalty. Day one is the date the notice is posted or delivered to the address ASIC holds for the director, not the date it is read. If that address is old, much of the window can disappear before the director knows anything about it. Keeping your ASIC details up to date costs nothing and protects you.

When the company reported on time

The test for on-time reporting differs by tax. GST and PAYG withholding count as reported on time if they were reported no later than three months after they fell due. Super guarantee charge has to be reported by its own due date. If those tests are met, the director has four ways to have the penalty remitted, provided the step is taken within the 21 days:

• the company enters voluntary administration
• the company appoints a small business restructuring practitioner
• the company is placed into liquidation
• the debt is paid in full

When the company reported late or not at all

If GST or PAYG withholding was reported more than three months late, or never reported, the regime closes three of those four doors. The ATO’s position is that full payment is then the only way to have the penalty remitted, and late or unlodged super guarantee charge is handled the same way. People in the industry call these lockdown DPNs. Administration or liquidation will not shift the personal liability in this case. Note also that where the ATO has had to estimate an amount, it counts as unreported.

After the 21 days are up

An unremitted penalty can be pursued against the director personally. Tools available to the ATO include garnishee notices, using the director’s own tax refunds to offset the debt, and court action. This is why a DPN can put the family home and other personal assets on the line.

Stepping onto a board

Anyone who becomes a director gets 30 days to see that the company either pays the relevant debts in full, appoints an administrator or restructuring practitioner, or goes into liquidation. Miss that and the new director can be exposed for amounts that accrued before they arrived. Walking away within those 30 days may not help either, according to the ATO. Before accepting a directorship, ask to see the company’s ATO account statement.

Holding a notice right now? Get urgent help with a DPN.

Paying the debt with a secured loan

Paying the company’s liability in full is often the cleanest answer, and with a lockdown notice it is the only one. A loan secured over property, frequently the director’s home or an investment property, can provide the money, with the ATO paid directly at settlement. If interest is prepaid or added to the loan, there are no monthly repayments to find while the business gets back on its feet. More on director penalty notice funding.

Illustrative example

Illustrative only. A director of a Perth building company receives a DPN covering PAYG withholding and GST that were reported several months late after a rough patch. Because reporting was late, full payment is the only way out. With thirteen days remaining, he arranges a second mortgage over a rental property, the funds go straight to the ATO at settlement, the penalty is remitted and the family home is out of danger.

Keeping DPNs away

• Report by the due date even when the bank balance is thin. It keeps more options alive.
• Hold GST and PAYG withholding in a separate account so the money is there when it is due.
• Get ready for Payday Super. From 1 July 2026 employers must pay super alongside wages so it lands in funds within seven business days. Read super guarantee and Payday Super.
• Check your ASIC address whenever you move.
• Call the ATO early if cash is getting tight.

What to ask your adviser

• Exactly which debts does the notice cover, and did the company report them on time?
• On what date was it issued?
• Is full payment the right move, or is another path open?
• What happens to the company once the debt is cleared?

When there is more than one director

Each director of a company can receive a notice, and each can be liable for the whole amount. Any payment, whether by the company or by one director, reduces what every director owes. Directors who are also spouses or business partners usually need to agree a joint response, including whose property will secure any loan. If one director’s property is being used to protect the others, independent legal advice matters.

The company after the penalty is gone

Clearing the liability removes the personal penalty, but the business still has to be viable. A profitable company needs to stay on top of every future lodgement and payment. If the outlook is shaky, the director should get advice on whether trading can continue, since the duty to avoid insolvent trading still applies. A loan that pays the ATO protects the director and buys time, but it does not repair the business on its own.

Myths worth dropping

“I will get a warning letter first.” The ATO normally sends reminders about overdue debts, but do not assume a separate warning will precede a DPN.

“Winding the company up will make it disappear.” It will not if the debts were reported late or never.

“My directorship was only a formality.” The regime applies to every director, however hands-off they were.

Move before the deadline

For a director, few letters carry as much personal risk as a DPN, but quick action usually keeps it contained. Tell us the amount on the notice, its issue date and what property is available, and we will confirm whether funds can be ready in time. Your first enquiry involves no credit check, your details stay with one team, and having the notice to hand on the first call saves precious days. Start now.