Director Penalty Notices (DPNs): A Guide for Directors
Director Penalty Notices: What Company Directors Need to Know
Unpaid company tax and superannuation obligations can expose a director to a personal penalty.
The director penalty arises by operation of law when the underlying debt isn’t paid by the company.
A Director Penalty Notice does not create that liability. It is the formal notice the Australian Taxation Office (ATO) must give before commencing recovery proceedings against the director.
The time to respond is short.
The options available will depend on when the company reported the liabilities and whether the director penalties are locked down.
What is a Director Penalty Notice?
The director penalty regime is contained in Division 269 of Schedule 1 to the Taxation Administration Act 1953.
It can apply to unpaid:
- pay as you go withholding (PAYGW);
- assessed GST net amounts, including relevant wine equalisation tax and luxury car tax amounts;
- GST instalments;
- superannuation guarantee charge (SGC); and
- ATO estimates of PAYGW, net GST amounts or SGC.
The penalty is generally equal to the company’s unpaid liability.
Once the ATO issues a DPN and the required 21-day period expires, it can commence recovery proceedings against the director.
What if there is more than one director?
Each director can be liable for the full director penalty. The amount is not divided between them.
The company’s liability and the corresponding penalties of its current and former directors are parallel liabilities. A payment applied to one reduces the others to the same extent, so the ATO cannot recover the same principal amount twice.
The ATO may pursue the company, one director or several directors. A director who pays has statutory rights of indemnity and contribution against the company and the other directors, although those rights may have little practical value if they cannot pay.
A director cannot safely leave tax and superannuation compliance entirely to a co-director, bookkeeper or accountant. Every director needs enough oversight to know whether the company is reporting and paying its obligations.
The 21-day deadline
You have 21 days to deal with a DPN.
If the ATO sends the DPN by post, the 21 days start when the ATO posts it, not when you receive it, open it or give it to your accountant or lawyer. In practice, you should calculate the 21 days from the date shown on the DPN and act on that basis.
The 21-day period is fixed by law and should not be treated as capable of extension.
If your address with ASIC is out of date, or you do not open your mail, this does not give you more time. Directors should keep their address details with ASIC up to date and make sure important mail is checked promptly.
Lockdown and non-lockdown DPNs
The terms “lockdown” and “non-lockdown” are commonly used in practice. The distinction matters because it determines whether an insolvency appointment can remit the director penalty.
A single DPN can contain both lockdown and non-lockdown amounts. Each amount must be checked separately.
Non-lockdown DPNs
For PAYGW and assessed GST net amounts, a penalty will generally remain non-lockdown to the extent the relevant liability was reported or notified within three months after its due date but was not paid.
The reporting test for superannuation depends on when the liability arose:
- For a super shortfall relating to a quarter ending before 1 July 2026, the company had to lodge an SGC statement within one month and 28 days after the end of the quarter.
- For SGC for a QE day on or after 1 July 2026, the company generally needs to lodge a voluntary disclosure statement by the relevant due day (see below).
For a non-lockdown amount, the penalty may be remitted if, within the 21-day period, the company:
- pays the debt in full;
- appoints a voluntary administrator;
- appoints a small business restructuring practitioner; or
- begins to be wound up.
Each option has different consequences, so ensure you get appropriate advice.
An ATO payment arrangement does not, by itself, remit a director penalty.
Lockdown DPNs
For PAYGW and assessed GST net amounts, a director penalty will generally be locked down to the extent the relevant liability was not reported or notified within three months after its due date.
For a superannuation shortfall relating to a quarter ending before 1 July 2026, a director penalty will generally be locked down if the company did not lodge an SGC statement within one month and 28 days after the end of the relevant quarter.
For SGC for a QE day on or after 1 July 2026, lockdown can apply if the company does not make a voluntary disclosure by the required deadline (see below).
Appointing an administrator, restructuring practitioner or liquidator does not remit a locked-down penalty.
This is why reporting on time matters, even when the company cannot pay.
Options may still be available to deal with lockdown DPNs, but they require consideration of both the company and the director’s personal position.
How Payday Super affects directors
From 1 July 2026, super must generally reach an employee’s fund within seven business days after payday. Each payday is treated as a separate qualifying earnings day, or QE day.
If the required contribution is not received by the applicable deadline, the company will be liable for superannuation guarantee charge (SGC) for that payday.
To keep the option of having any director penalty remitted through voluntary administration, small business restructuring or liquidation, the company must lodge an accurate voluntary disclosure statement in the approved form:
- no later than 60 calendar days after the QE day; and
- before the day the ATO assesses the company’s SGC for that QE day.
The ATO may assess the SGC before the 60 days are up, which will shorten the period for the company to lodge its voluntary disclosure statement.
If the company does not disclose the shortfall in time, any director penalty for the unpaid SGC will be locked down.
If the disclosure reports less SGC than the company actually owes, any director penalty for the difference will be locked down.
Appointing an administrator, small business restructuring practitioner or liquidator will not remit a locked-down amount.
Lodging the disclosure on time preserves the director’s remission options.
New directors
If you become a director after the company’s PAYGW, GST or SGC debts are already due and unpaid, you have 30 days from your appointment to make sure the company:
- pays the outstanding amounts in full;
- appoints a voluntary administrator;
- appoints a small business restructuring practitioner; or
- begins to be wound up.
If none of these things happens within 30 days, you can become personally liable for director penalties relating to debts that were already outstanding when you became a director. Thereafter, the ATO can issue you with a DPN to collect it.
Before accepting an appointment, check the company’s ATO accounts, outstanding lodgements and employee superannuation. Do not assume that existing management has dealt with them.
Resigning after the 30 days does not remove exposure for liabilities connected with your time as a director. The ATO can issue a DPN after you resign.
Are there defences?
The available defences are limited. Depending on the circumstances, a director may need to establish that:
- because of illness or some other good reason, it was unreasonable to expect them to take part in managing the company and they did not take part in management during the relevant period; or
- they took all reasonable steps to ensure the company complied, an administrator or small business restructuring practitioner was appointed, or the company began to be wound up, or there were no reasonable steps they could have taken.
There is also a specific defence for SGC and GST liabilities where the company took reasonable care in applying the relevant law and adopted a reasonably arguable position.
These defences depend on the particular facts and the available evidence. Simply being a passive director, relying on someone else or saying the company could not afford to pay does not, by itself, establish a defence.
What should a director do after receiving a DPN?
Do not ignore it.
Get advice immediately, before the 21-day period expires.
I can review the notice, determine whether it contains lockdown amounts, non-lockdown amounts or both, and explain the available options.
Remember, an ATO payment arrangement does not remit the penalty. If the company later defaults and the 21-day period has expired, the ATO can pursue you personally.
If possible, do not wait until the ATO forces the issue by issuing a DPN. The sooner you speak to me, the more options will usually be available.
Frequently asked questions
How can directors reduce the risk?
Lodge on time, even if the company cannot pay. Directors should also keep their ASIC address current and obtain advice as soon as the company starts falling behind, not after a DPN arrives.
Does the DPN itself create the director penalty?
No. The director penalty arises by operation of law when the company fails to pay its obligations. The DPN is the notice the ATO must give before commencing recovery proceedings against the director.
When does the 21-day period begin?
The 21 days start from the date of the DPN, which is normally the day the ATO posts it, not when the director receives it, opens it or gives it to an adviser. The period cannot be extended.
What is a lockdown DPN?
It is a DPN for an amount that cannot be remitted by appointing an administrator, restructuring practitioner or liquidator. The reporting history determines whether an amount is locked down.
Does an ATO payment plan remit a director penalty?
No. A payment arrangement does not remit the penalty. While an arrangement covering the company’s obligation remains in force, it may restrict certain ATO recovery steps, but the director penalty remains.
Does resigning protect a director from a DPN?
No. Resignation does not end exposure for relevant liabilities connected with the person’s time as a director, even if the penalty arises later.
What is the Payday Super disclosure deadline?
To preserve the possibility of remission through voluntary administration, small business restructuring or liquidation, the company must make an accurate voluntary disclosure no later than 60 days after the relevant QE day. If the ATO assesses the SGC earlier, the disclosure must be lodged before the assessment day. The ATO can issue an assessment before the 60 days, shortening the period for voluntary disclosure.
How I can help
If you have received a DPN, I can review the notice alongside the company’s financial position, identify whether the amounts appear to be lockdown or non-lockdown and explain the restructuring or insolvency options available before the 21-day period expires.
This may include considering whether the company can continue trading, whether a small business restructuring is available, or whether voluntary administration or liquidation is required.
The earlier you contact me, the more time there is to assess the position properly and act.
