Mistakes, Penalties and Official Sources
Director penalty notices explained: when company tax debts become personal
How ATO director penalty notices work for Australian company directors, which debts they cover, the 21-day options, lockdown notices, new directors and how good accounting prevents them.
A director penalty notice (DPN) is how the ATO makes company directors personally liable for certain unpaid company tax debts: PAYG withholding, superannuation guarantee charge (SGC) and, since 1 April 2020, GST (along with luxury car tax and wine equalisation tax). If the company reported the debt on time, a director who receives a DPN can generally avoid personal liability by causing the company, within 21 days of the notice date, to pay the debt, appoint an administrator or liquidator, or appoint a small business restructuring practitioner. If the company did not report the debt on time, the notice is a lockdown DPN and generally the only way out is payment. This makes timely lodgement the single most important protection for directors.
This guide is part of the accounting mistakes overview. It is general information; if you have received a DPN, get advice from a registered tax agent, lawyer or registered insolvency practitioner immediately.
The legal basis
The director penalty regime is in Division 269 of Schedule 1 to the Taxation Administration Act 1953. Directors have a duty to cause the company to comply with its obligations for the covered taxes. If the company does not, the director becomes liable to a penalty equal to the unpaid amount, which the ATO can recover after giving a DPN.
Which debts are covered
| Debt | Covered by DPN | Reporting that protects against lockdown |
|---|---|---|
| PAYG withholding | Yes | Reported (for example on BAS or IAS) within 3 months of the due date |
| Superannuation guarantee charge | Yes | From 1 July 2026 (Payday Super): a voluntary disclosure statement for the qualifying earnings day lodged on or before the SGC due day |
| GST, luxury car tax, wine equalisation tax | Yes, from 1 April 2020 | Reported within 3 months of the due date |
| Company income tax | No | Not covered by the DPN regime |
| Fringe benefits tax | No | Not covered |
Under Payday Super, which started on 1 July 2026, super contributions are due with each payment of wages. Late or missing contributions can lead to SGC, which is now worked out for each qualifying earnings day, and unpaid SGC falls into the DPN regime. For DPN purposes the SGC is treated as due 60 days after the qualifying earnings day (or earlier, when the charge becomes payable), and lockdown is avoided only to the extent the company has lodged a voluntary disclosure statement by that due day. Check how these deadlines apply to your company; see Payday Super mistakes.
Standard DPN vs lockdown DPN
Standard (non-lockdown) DPN: the debt was reported on time but not paid. Within 21 days of the date of the notice (not the date you receive it), the director can avoid the penalty by causing the company to:
- Pay the debt in full, or
- Appoint a voluntary administrator, or
- Appoint a small business restructuring practitioner, or
- Begin winding up (liquidation).
A payment plan alone does not remit the director's penalty, although the ATO may take it into account.
Lockdown DPN: the debt was not reported within the time limits above (for PAYG withholding and GST, 3 months after the due date; for SGC, by the SGC due day). Generally, the penalty can only be remitted by payment. Placing the company in administration or liquidation does not remit it.
The 21 days run from the date on the notice. DPNs are sent to the director's address on ASIC's register, so make sure it is current; a notice can be effective even if you did not read it in time.
New directors and former directors
- New directors generally have 30 days after appointment before they become liable for unpaid amounts that fell due before they joined. Ask to see the company's ATO account before accepting a directorship.
- Resigning does not remove liability for debts that fell due while you were a director.
Defences
A director may have a defence if, for example, they did not take part in management because of illness or another good reason, or took all reasonable steps to ensure the company complied, or, for SGC, the company took a reasonably arguable position. Defences are narrow and fact-specific; get legal advice.
How accounting practice prevents DPNs
| Practice | Effect |
|---|---|
| Lodge every BAS and IAS on time, even with no money to pay | Prevents lockdown on GST and PAYG withholding |
| Hold GST and withheld PAYG in a separate account | Reduces the chance of debts arising |
| Pay super each pay cycle and confirm receipt | Avoids SGC |
| Review the company's ATO account monthly | Shows debts early |
| Keep the director's address current with ASIC | Ensures notices arrive |
| Ask your BAS agent to report even if payment is not possible | Keeps the 21-day options open |
Worked example (illustrative)
A company owes $18,000 of PAYG withholding and $22,000 of GST.
- Scenario A: both were reported on BAS on time. The director receives a standard DPN dated 1 March. By 22 March the company appoints a small business restructuring practitioner. The director penalty is remitted, although the company still has to deal with the debt in the restructuring.
- Scenario B: neither was reported within 3 months of the due date. The director receives a lockdown DPN for $40,000. Appointing a liquidator does not remit it; the director is personally liable unless the company pays or a defence applies.
The only difference between A and B is lodging on time, a job that might cost a few hundred dollars in BAS agent fees. See BAS and GST lodgement costs.
Other consequences of tax debt
- ATO debts can be reported to credit reporting bureaus in some circumstances for businesses with large overdue debts that are not engaging with the ATO.
- The ATO can issue garnishee notices to third parties who owe the company money.
- Unpaid debts accrue non-deductible GIC; see ATO penalties and interest.
Frequently asked questions
Does a DPN cover company income tax?
No. The DPN regime covers PAYG withholding, SGC, GST, luxury car tax and wine equalisation tax.
Can I get a DPN if I am a director only in name?
Yes. Every director has the duty. Narrow defences may apply, but being a passive or family director is not in itself a defence.
What is small business restructuring?
A formal process under the Corporations Act 2001 for eligible small companies, generally with liabilities under $1 million, to propose a plan to creditors while the directors keep control. Employee entitlements and lodgements must be up to date for eligibility. A registered insolvency practitioner can advise.
Who can help if my company cannot pay?
A registered tax agent, a lawyer or a registered liquidator. ASBFEO and state small business commissioners can direct you to support services.
Sources and where to check
- Australian Taxation Office — director penalties, lockdown rules, payment plans
- ASIC — updating director details; registered liquidators and small business restructuring
- Federal Register of Legislation — Taxation Administration Act 1953 Schedule 1, Division 269
- Australian Small Business and Family Enterprise Ombudsman — support for businesses in financial difficulty
- Australian Restructuring Insolvency and Turnaround Association — finding a registered insolvency practitioner
