by Shaw Gidley06.04.22

What should I do if I receive a Director Penalty Notice (DPN)?

If you receive a letter from the Australian Taxation Office (AT0) advising you that you are subject to a Director Penalty Notice (DPN), you should immediately request assistance. Failing to take the appropriate steps may result in the Director becoming personally liable for a company’s tax debts and could ultimately result in the director’s bankruptcy. This is a complex area of the law and you may need to refer to a specialist restructuring practitioner such as Shaw Gidley.


A Director Penalty Notice is issued by the Australian Taxation Office (ATO) to encourage directors to continue meeting a company’s tax obligations by attaching unpaid company tax debt to a director personally. The tax obligations that can attach personally include Superannuation Guarantee Charge, PAYG withholding and from 1 April 2020, GST, luxury car tax and wine equalisation tax.

If a director penalty notice is issued and appropriate steps are not taken, the director will become personally liable for the company’s liabilities. This includes unpaid estimates of those liabilities where the director has not reported all outstanding tax debts. This means that a director ultimately will put at risk personal assets, such as the family home, or could become bankrupt if the ATO pursue the director.

The ATO has shown some leniency during the COVID-19 pandemic and has not been issuing director penalty notices. However, since May 2022 the ATO has now recommenced aggressive collection activity with director penalty notices appearing to be one of the weapons of choice for the ATO.

Directors can incur penalties equal to their company’s unpaid tax liabilities, or estimated unpaid liabilities under a Director Penalty Notices. There are two types of Director Penalty Notices:

  1. Lockdown Director Penalty Notices – when lodgments are made outside of statutory time limits or not reported at all. A lockdown liability results in the director becoming automatically personally liable unless the company debt is repaid in full, with the director being unable to avoid liability otherwise.
  2. Non-Lockdown Director Penalty Notices – Where lodgments are made within the statutory time limits, but the tax debt is not paid, the director has 21 days to pay the debt or appoint an administrator, restructuring practitioner, or voluntary liquidator to avoid personal liability

Shaw Gidley can assist by providing these services and we encourage you to contact our office should you wish to appoint an external administrator.

There are more options to avoid personal liability under the non-lockdown Director Penalty Notice by appointing an external administrator whereas with a lockdown Director Penalty Notice the debt must be paid either by the company or the director and there is no way to avoid personal liability:


Lodgments made outside of time frames or unreported


Lodgments made within time frames

PAYG and since 1 April 2020: GST, luxury
car tax and wine equalisation tax
Reported three (3) months after the due date or unreported
BAS statements reported within three (3) months of the due date
Superannuation Superannuation Guarantee Charge statement is not lodged by the due date or unreported
Superannuation Guarantee Charge statement is lodged when due
Director potential exposure after Director Penalty Notice is issued ATO can commence recovery against the director personally after 21 days from the date of the Director Penalty Notice unless the company pays the outstanding debt in full.
Can avoid personal liability by:
- Paying the debt; or
- Appointing a voluntary administrator or restructuring practitioner; or
- Appointing a liquidator
Within 21 days from the date of the Notice

  • A Director Penalty Notice is taken to be given at the time it is posted.
  • Non-Lockdown Director Penalty Notice - A director has 21 days from the date of the notice to take the relevant steps to avoid personal liability.
  • Lockdown Director Penalty Notice – the company must pay the outstanding amount. There is no way to avoid personal liability otherwise.
  • A Director Penalty Notice is issued to a director’s address as disclosed on the ASIC Company Register. Directors may not even be aware that a Director Penalty Notice has been issued where address details are not updated.
  • Where there are multiple directors the ATO may commence an action against any or all directors (current and former).
  • Directors should seek advice immediately after a Director Penalty Notice has been issued.
  • Resigning will not avoid directors becoming personally liable.
  • All debts up to the date of resignation should be reported and paid or adequate arrangements put in place for the outstanding debts to be reported and paid.
  • If unpaid, the resigning director should ensure that all of the relevant tax debts were reported within the due dates and identify any potential debts that may be subject to a lockdown Director Penalty Notice.
  • The resigning director may wish to attempt to put arrangements in place for the lockdown debts to be paid by the company. While the ATO does not have an obligation to allocate payments to a particular debt, the former director may, for example, request that the ATO allocate future payments under a payment arrangement against the lockdown debt.
  • If the company has unreported debts or debts that have been reported late and could be subject to a lockdown Director Penalty Notice, the directors will not know if and when the debt is pursued by the ATO. The ATO may issue the Director Penalty Notice many years after the director’s resignation date.
  • Individuals considering an appointment as director of a company need to be prudent and consider unpaid and unreported taxation and superannuation contributions and a company’s ability to pay those obligations. Once appointed, directors only have 30 days to assess the company’s financial position and consider whether to stay on as a director or resign.
  • Once a director has been appointed, the director will become personally liable after 30 days for any outstanding ATO liabilities (Superannuation, PAYG, GST, WET and LCT) unless the debts are paid in full, or a voluntary administrator or liquidator is appointed.
  • The newly appointed director’s liability extends to amounts due before their appointment.
  • Directors should document what steps they took to satisfy themselves with the company’s financial position at the date of appointment and consider seeking an indemnity and guarantee from the former outgoing director.
  • The director(s) become personally liable.
  • The ATO may undertake a default assessment of the liabilities and raise interest charges plus penalties.
  • If the company was reporting wages through single-touch payroll, the ATO will usually have sufficient data available to determine the Superannuation Guarantee Charge (“SGC”) and PAYG liabilities incurred.
  • If directors report the outstanding liabilities, the ATO will then be able to pursue the director for the outstanding debt.
  • If the company is placed into liquidation without reporting the debt, the ATO may consider at this stage whether it will raise default assessments for the outstanding lodgements.
  • We have seen instances of the Director Penalty Notice debt being attached to the director’s tax account. In those cases, future tax refunds are being applied against the debt.

We note various risks associated with Director Penalty Notices for directors. These include:

  • Timing Risks: There appears to be no defined timeframe by which the ATO pursue the directors. We are aware through our network of one instance where a lockdown Director Penalty Notice has been pursued 6 years after the underlying debt was incurred.
  • Transparency Risk: The ATO issues Director Penalty Notice letters requesting repayment. The ATO does not release its calculation of how the Director Penalty Notice was calculated. The director may have destroyed all records or provided all records to a liquidator and is unable to verify how the amount specified in the Director Penalty Notice was calculated. After 21 days the ATO may commence recovery action.
  • Information Risk: Director Penalty Notice creates a separate debt for the director. If a liquidator is appointed to a company, or if the director resigns, the director may want to request how the Director Penalty Notice is calculated. However, the ATO’s view is that the director no longer has the power to request information on behalf of the company. The ATO consider that the liquidator or current director will need to request the release of any information on behalf of the director. Directors in these circumstances experience difficulty obtaining information within the 21-day time frame provided by the ATO to pay the debt. This can further complicate challenging the underlying debt raised.
  • Superannuation guarantee amnesty: Applications closed on 7 September 2020. Uncertainty exists as to whether the ATO will now commence recovering any unreported Superannuation Guarantee Charges more aggressively.
  • Superannuation paid late: Superannuation may have been paid late, but directly to the superannuation fund and all that is outstanding is administration charges (per outstanding employee, per quarter) and interest charges, however, the ATO may assume no super was paid and pursue the whole amount unless directors can prove otherwise. Directors may be required to reconstruct accounts. The director in this case has to use the ATO’s “late payment offset election” to reduce the amount of the Superannuation Guarantee Charge. The process for applying for the late payment offset is somewhat time-consuming and only available for 4 years after which the ATO could pursue the full amount.
  • Single touch payroll: There is now increased reporting with STP providing information to the ATO immediately. While this reduces some of the reporting lockdown risks in respect of PAYG, this may allow the ATO to pursue unremitted PAYG and Superannuation Guarantee Charge more aggressively.
  • Default Assessments: Where a company fails to make lodgements for unpaid liabilities, the ATO can estimate the outstanding Superannuation Guarantee Charge, PAYG, GST, WET and LCT subject to providing the proper notices. The estimate may not be incorrect.
  • Cost of Challenging Director Penalty Notices: Significant professional (accounting and legal) costs are associated with challenging amounts raised under a Director Penalty Notice.
  • Government’s increased reliance on tax collection: The increased government deficit may represent an increasing risk to directors. Raising taxes is seen as difficult and politically unpopular, however, there may be little political consequence in pursuing directors personally for unpaid company tax debts. The Commissioner of Taxation Annual Report disclosed that from 2019 to 2020, 74.6% of activity statements were reported on time. It does not disclose what percentage of the 25.4% of unreported activity statements have been lodged outside of the timeframe before becoming lockdown Director Penalty Notice liabilities, however, we estimate that there may be a substantial number of directors of small to medium size companies who potentially are liable under a lockdown Director Penalty Notice.
  • Uncertainty - There is no certainty around whether or not the ATO will make use of the Director Penalty Notice powers. This can be particularly frustrating when directors are trying to “move on” with their lives and may have ceased involvement in the business.

The following real-life case study demonstrates how the ATO has pursued both the current and former directors for unpaid and unreported superannuation liabilities.

  • ATO undertook a default assessment of superannuation unpaid by a company and raised a Superannuation Guarantee Charge (“SGC”). Based on the estimated SGC, the ATO pursued the debt. Despite both the former and current director disagreeing with the ATO’s default assessment, the former and current director did not maintain adequate books and records and failed to engage an accountant to challenge the SGC assessment.
  • Following winding up proceedings a Shaw Gidley liquidator was appointed to the company by the court.
  • The director failed to engage with the Liquidator and attempted to dispose of the company’s plant and equipment without the liquidator’s knowledge. The liquidator registered PPSR securities over various goods and as such was able to intervene in the sale and protect the company’s interest in various plant and equipment.
  • The director’s conduct resulted in the Liquidator’s costs increasing, thereby decreasing the funds available to distribute to the ATO by way of a priority dividend in respect of SGC.
  • The ATO pursued the director personally under a lockdown Director Penalty Notice. The director commenced disposing of his assets including real property and paid more than $100,000 to the pre-insolvency adviser. In addition, the director’s de-facto partner commenced family law proceedings claiming an interest in the director’s properties.
  • The director appointed a Trustee to propose a Part X Personal Insolvency Arrangement (‘Part X’). Part X allows a debtor to propose an alternate arrangement to creditors to avoid bankruptcy. The Part X proposal was ultimately rejected by the ATO, and the Director was bankrupt. The Part X administrator’s costs further dissipated scarce resources available to meet SGC.
  • The ATO proceeded to then pursue the company’s former director who resigned 4 years ago for unpaid SGC incurred 4 to 6 years ago. The former director was also made bankrupt.

Alternate options were available to the current and former directors. There were several missed opportunities in the above scenario which could have either avoided the bankruptcy or resulted in a better outcome for the directors, employees and the ATO. The directors unfortunately did not seek the right advice from properly qualified advisers. For example, some missed opportunities included the following:

  • The directors should have lodged SGC statements if the company was unable to pay the outstanding superannuation by its due date. This would also have ensured that the ATO was aware of the actual SGC debt and would have avoided the risks associated with an audit (including penalties charges). If SGC statements were lodged on time, the appointment of a liquidator within 21 days of the Director Penalty Notice being issued would have avoided the debt becoming a debt of the current and former director.
  • The directors did not assist the ATO with its audit. This resulted in the ATO having to estimate the SGC liability based on insufficient information.
  • Proper books and records were not kept. If the SGC was indeed estimated incorrectly, the directors may have been able to challenge the ATO’s default assessment when it was initially raised. Alternatively, the SGC debt could have been challenged at a later date, however, practically this is difficult and expensive to do.
  • Before resigning as a director, the former director should have ensured that the company was able to discharge all of its SGC and PAYG liabilities (GST was not subject to Director Penalty Notices at that time) and should have documented the steps undertaken to ensure the company was compliant with its obligations.
  • The current director should have assisted the liquidator in realising the company’s assets, thereby minimising administration costs and maximising the funds available to be distributed to the ATO. SGC is a priority debt in liquidation and as such needs to be paid out before any funds are paid to other ordinary unsecured creditors. This would have reduced the amount the director was liable for personally to the ATO.
  • The payment of $100,000 to the pre-insolvency adviser could have been used to pay down a substantial amount of the SGC debt. In addition, the director’s attempts to dispose of his assets can result in the ATO pursuing debts more aggressively.
  • The cost of the Trustee assessing the current director’s Part X Arrangement reduced available funds. In our opinion the current director’s approach in attempting to put forward the Part X Arrangement was misguided. The director and former director could potentially have attempted to negotiate an arrangement with the ATO that may have avoided their bankruptcies.
  • Regrettably, the advice the director was provided with, and the steps the director took, resulted in costly professional fees being incurred by both the ATO in pursuing the director and his company as well as the director personally. All of this at the cost of the employees who were left with unpaid superannuation.

We have prepared the below checklist to assist directors in managing their potential personal liability to the ATO. We recommend that the below matters be considered at the start of each quarter. Where a Director Penalty Notice is issued, directors should act immediately.

Checklist – current directors


Adequately documented what reasonable steps directors took to satisfy themselves that the company was compliant with its obligations in respect of Superannuation Guarantee Charge, GST, PAYG, luxury car tax and wine equalisation tax.

Has GST, PAYG, luxury car tax and wine equalisation tax been reported and lodged with the ATO within 3 months of its due date?

Have Superannuation Guarantee Charge statements been lodged by their due date if superannuation was unpaid?

If liabilities have been reported late, have arrangements been made with the ATO requesting that any future payments made be applied to those debts?

Are all address details on the ASIC company register correct or do they require updating?

If the director did not take part in the running of the business due to illness or some other reason, ensure this is adequately documented.

Has the director maintained adequate books and records in case any disputes are raised?

Directors considering resignation 

Have tax debts, including superannuation, have been paid up to the date of resignation; or

Are adequate safeguards in place to ensure that all debts will be paid?

If tax debts have not been paid, have they been reported outside of the ATO timeframes and as such are now a personal liability of the director?

Have the remaining company directors put in place adequate steps to discharge the “lockdown” debt including requesting that any 

future payments made be applied to the lockdown amounts?

Newly appointed directors

Is the director satisfied within 30 days of their appointment that the company can discharge its historical ATO liabilities including 

superannuation, PAYG, GST, WET and LCT?

When a company enters into liquidation

Has the director ensured all lodgments have been made up to the most recent quarter?

If lodgements are unreported, has the director maintained adequate records to show what amount was incurred during the relevant 

period in case the ATO raise a default assessment?

Defences are limited. Directors should ensure that they meet their tax obligations or otherwise report those obligations within the relevant timeframes.

Nevertheless, Section 269-35 of Schedule 1 of the TAA provides several limited statutory defences available to directors:

  • Because of illness or other good reason, it would have been unreasonable to expect the director to take part, and the director did not take part, in the management of the company.
  • The director took all reasonable steps, or there were no reasonable steps that could have been taken, to ensure the company complied with the obligation, an administrator was appointed, or the company began to be wound up.
  • For Superannuation Guarantee Charge – the company adopted a reasonably arguable position and took reasonable care in connection with applying the Superannuation Guarantee (Administration) Act 1992.
  • Penalties relating to assessed amounts only – the company adopted a reasonably arguable position and took reasonable care in connection with applying the GST Act.

Directors will need to demonstrate that the defence(s) apply. Documenting what has happened or what steps have been taken is vital. We suggest directors undertake quarterly reviews and complete a checklist / workpaper.

Remember, the best way to avoid Director penalty notices is by firstly lodging your outstanding liabilities with the ATO on time and secondly, acting fast if you have received a notice from the ATO. Please contact our office should you require any assistance regarding these matters.