When a company fails to pay its PAYG withholding, GST or superannuation guarantee charge, the directors of that company can become personally liable for the same amount. The Australian Taxation Office has signalled a firmer approach to collecting unpaid tax and super — including faster use of Director Penalty Notices as a primary enforcement tool. For company directors, the critical point is that personal liability arises automatically when a payment is missed, and the options available to respond depend entirely on whether the company has lodged its returns on time. This article explains how the DPN regime works, the distinction between Lockdown and Non-lockdown notices, the defences available, and the steps directors should take before a notice arrives.

What is an ATO Director Penalty Notice (DPN) and When is it Issued?

A Director Penalty Notice (DPN) is a formal notice issued by the Australian Taxation Office that makes a company director personally liable for certain unpaid company tax and superannuation obligations. The notice creates what the ATO describes as a parallel liability — the director's personal debt mirrors the company's unpaid amount, so that payments made against either the company's liability or the director's liability reduce both simultaneously.

Which obligations are covered

Directors can be held personally liable for three categories of unpaid company obligations:

• Pay As You Go (PAYG) withholding — tax withheld from employee wages

• Goods and Services Tax (GST), including Luxury Car Tax (LCT) and Wine Equalisation Tax (WET) — applicable to tax periods commencing on or after 1 April 2020

• Superannuation Guarantee Charge (SGC) — the charge that applies when the company fails to meet its super guarantee obligations

Who is liable

The DPN regime applies to both current and former directors. A director who has resigned remains personally liable for obligations that arose while they were a director, or that relate to a reporting period that ended before their resignation.

Where a company has multiple directors, each director is individually liable for the full amount of the unpaid obligation — not a proportional share. The ATO may pursue any one director for the entire debt.

New directors — a specific risk

A director who joins an existing company takes on personal liability for any pre-existing unpaid or unreported PAYG withholding, GST or SGC obligations unless, within 30 days of appointment, the director ensures the company pays the outstanding amounts in full, appoints a voluntary administrator or small business restructuring practitioner, or begins the process of winding up. Before accepting a directorship, reviewing the company's compliance position is essential.

The ATO's current enforcement posture

The ATO has publicly stated that it is changing its approach to collecting unpaid tax and super — moving more quickly to firmer actions, including DPNs, for businesses that do not engage or establish a payment arrangement for unpaid GST, PAYG withholding, or superannuation. Directors of multiple companies who allow these amounts to go unpaid without engaging with the ATO can expect notices that capture the total value of unpaid obligations across all related entities.

Lockdown vs Non-lockdown DPN: Understanding Your 21-Day Options

Not all DPNs are equal. Whether a director has meaningful options to respond depends on a single factor: whether the company lodged its returns and statements on time. The ATO's own guidance makes clear that timely lodgement — even without payment — is what preserves a director's ability to take action short of paying the full amount.

The two types — what triggers each

Note: For Non-lockdown DPNs, the appointment of a voluntary administrator must be made pursuant to section 436A of the Corporations Act 2001, and the appointment of a Small Business Restructuring practitioner under section 453B of that Act.

Why lodgement matters more than payment

The critical point is that lodgement and payment are treated differently under the DPN regime. A company that has lodged its BAS or SGC statement on time — even if it cannot pay — preserves the director's access to remission options. A company that has failed to lodge on time forecloses those options entirely, regardless of what the director does after receiving the notice.

This means that where a company is experiencing cash flow difficulty, ensuring that all returns and statements are lodged on time is the single most important action a director can take to protect their personal position.

The 21-day clock — when it starts

The 21-day period for responding to a DPN starts on the day the ATO posts the notice or leaves it at the address registered with ASIC — not the day the director receives it. Given standard postal delivery times, directors may have considerably less than 21 days from the date the notice actually arrives. Directors should treat any DPN as requiring immediate action from the moment it is received.

Defences available to directors

The director penalty regime provides a limited set of circumstances in which a director is not liable for a director penalty. Section 269-35 of Schedule 1 to the Taxation Administration Act 1953 sets out these defences, which must cover the entire period from when the company's obligation to pay the liability first arose.

The three available defences

1. Illness or incapacity

A director will not be liable if, for the entire relevant period, they did not take part in the management of the company — and it would have been unreasonable to expect them to do so — because of illness or another acceptable reason.

2. All reasonable steps taken

A director will not be liable if they took all reasonable steps to ensure that one of the following occurred: the company paid the outstanding amount in full; an administrator was appointed to the company; a small business restructuring practitioner was appointed; or the company began to be wound up. Where no reasonable steps could have been taken, this defence may also apply.

3. Reasonably arguable position — SGC and GST only

For unpaid SGC or GST liabilities, a director will not be liable if the company applied the relevant legislation in a way that could be reasonably argued to be in accordance with the law, and took reasonable care in doing so.

Important limitations on these defences

The ATO's published guidance notes several limitations that courts have confirmed apply to these defences.

Relying on others — including fellow directors or professional advisers — to ensure compliance is not a defence. Each director bears individual responsibility for the company's obligations.

The defence must cover the whole period from when the obligation arose to the expiry of the notice. A director cannot rely on steps taken only after the liability was already overdue.

Resigning as a director does not remove liability for obligations that arose during the director's tenure.

A director's non-participation in company management — whether or not the director was aware of this — will generally constitute a breach of duty rather than a valid defence.

How to submit a defence

A DPN defence must be submitted to the ATO Commissioner in writing, clearly identifying which of the three defences is being relied upon. Submissions can be made through Online Services for Agents or by mail. If the ATO accepts the defence, the director penalty liability is removed. Directors who believe they have a valid defence should contact the ATO or a tax adviser as soon as possible.

What directors should do — before and after a DPN arrives

The director penalty regime creates personal liability automatically when a company misses its payment due date. The ATO does not need to issue a DPN for the liability to exist — the notice is simply the mechanism that triggers the 21-day window for remission. The practical implication is that directors cannot afford to wait for a DPN before taking action.

Before a DPN is issued

1. Lodge all returns and statements on time — regardless of whether the company can pay

As established above, timely lodgement is what determines whether a Non-lockdown or Lockdown DPN applies. This means that where a company is experiencing cash flow pressure, lodging BAS, IAS and SGC statements on time — even without payment — is the director's most critical compliance obligation.

2. Contact the ATO early if the company cannot pay

The ATO's published guidance states that businesses experiencing difficulty should contact the ATO before debts compound. Payment arrangements are available, and the ATO has indicated it will move more quickly to firmer action — including DPNs — against businesses that do not engage. Early contact preserves options and demonstrates good faith.

3. Review the company's compliance position before accepting a directorship

As noted above, new directors have 30 days from appointment to address any pre-existing unpaid liabilities — after which personal liability attaches. Conducting due diligence on the company's tax and superannuation compliance before accepting a directorship is essential.

After receiving a DPN

Act immediately — do not wait

As noted above, the 21-day period starts on the day the ATO posts the notice, not the day it is received. By the time a DPN arrives by post, several days of the 21-day window may already have elapsed. Directors should treat any DPN as requiring immediate professional advice from the moment it is received.

Determine whether the DPN is a Lockdown or Non-lockdown notice

The type of DPN determines the options available. A Non-lockdown DPN allows remission through payment, voluntary administration, small business restructuring, or liquidation within 21 days. A Lockdown DPN limits remission to payment of the company liability in full. The notice itself will typically indicate which type has been issued.

Seek professional advice without delay

Given the complexity of the DPN regime, the short timeframe for response, and the significance of personal liability, directors who receive a DPN should immediately seek advice from a registered tax agent, insolvency practitioner, or solicitor with experience in taxation and corporate law. The ATO also has support options available for directors in financial difficulty.

The Director Penalty Notice regime places significant personal obligations on company directors — obligations that arise automatically and that cannot be avoided simply by resigning or delegating responsibility to others. The most effective protection available to a director is also the most straightforward: ensure the company lodges all returns and statements on time, engage with the ATO early if payment is not possible, and seek professional advice before accepting a directorship in a company with unresolved tax or superannuation liabilities.

Directors who receive a DPN should treat it as requiring immediate action. The 21-day window starts on the date the ATO posts the notice — not the date it is received.

For advice on a specific DPN situation, payment arrangements, or the remission options available, consult a registered tax agent, insolvency practitioner, or solicitor with relevant experience, or contact the ATO directly.

Official sources:

• Australian Taxation Office — Director penalties

• Australian Taxation Office — Firmer action we may take

• Australian Taxation Office — Payment plans

Last updated: August 2026