What is a Director Penalty Notice?

A Director Penalty Notice (DPN) is a formal notice issued by the Australian Taxation Office (ATO) that makes company directors personally liable for certain unpaid company tax debts. These typically include:

• Pay As You Go (PAYG) withholding
• Goods and Services Tax (GST)
• Superannuation Guarantee Charge (SGC)

Types of DPNs

There are two main types of DPNs:

Non-Lockdown DPN

• Issued when a company lodges its BAS or SGC statements on time but fails to pay.
• Directors can avoid personal liability by doing one of the following within 21 days of the notice:
  • Paying the debt in full; or
  • Appointing an administrator; or
  • Engaging a small business restructuring practitioner; or
  • Beginning to wind up the company.

Lockdown DPN

• Issued when a company fails to lodge its BAS within 3 months of the due date or SGC reported by the due date for the SGC statement.
• Directors cannot avoid liability once issued because payment is the only option.

ATO Focus

Recently, the ATO has intensified enforcement of DPNs, particularly targeting:

• Illegal phoenix activity
• Repeat non-compliance with superannuation obligations.
• Late lodgments of BAS and SGC statements.

The ATO has also streamlined its digital systems to automatically flag directors of companies with overdue lodgments, increasing the likelihood of DPNs being issued swiftly.

Key Responsibilities for Directors

• Before you become a director of a company check for any unpaid or unreported PAYG withholding, GST and SGC liabilities.
• Lodge on time: Even if your company can’t pay, lodging BAS and SGC statements on time can protect you from lockdown DPNs.
• Monitor company finances: Stay informed about your company’s tax obligations.
• Act quickly: If you receive a DPN, seek professional advice immediately—you only have 21 days to act.

Defences Available

Directors may avoid liability if they can prove:

• They were ill or incapacitated and unable to manage the company.
• They took all reasonable steps to ensure compliance.
• Or there were other exceptional circumstances.

However, these defences are narrowly interpreted and require strong evidence.

Final Thoughts

DPNs are a powerful tool in the ATO’s arsenal. With increased scrutiny lately, directors must be proactive in managing compliance. Ignoring tax obligations can now lead to personal financial consequences, despite the company being a separate legal entity.

How can Charles & Co. help you?

Our Team with more than 50 years combined experience can help businesses and individuals in a range of challenging and distressed situations. We encourage anyone experiencing financial or operational distress to contact us to discuss your options.