Director Penalty Notices (“DPN”)

A company is a useful structure to achieve asset protection, protecting the assets of those who are ultimately controlling the activities of the company (the directors) and benefitting from the income producing activities of the company (the shareholders). However, directors still maintain a degree of risk as they can be made personally liable for superannuation, GST and PAYG liabilities. Thanks largely to COVID-19, directors have been able to take the time to consider and act on these tax debts of their company as the ATO shifted its focus away from debt recovery in an attempt to assist and support businesses experiencing financial hardship. In May 2022, the ATO put directors on notice that they will no longer enjoy this period of reprieve but will now be the target of aggressive debt recovery action including garnishee notices and DPN’s if the company does not pay their tax debts or enter into a payment arrangement with the ATO. As of May 2022, the ATO was issuing 30-40 DPNs a day and expected to increase. It is important to understand what powers the ATO has in respect of DPNs, what powers and rights the director has in responding to the DPNs and most importantly that acting quickly and diligently is critical.

Directors Obligations

  1. Section 252 of the Income Tax Assessment Act 1936 requires every company to appoint, and have appointed at all times, a public officer (director) who must ensure that the company is meeting its tax obligations. Schedule 1 of the Tax Administration Act 1953 (“the Act”) legislates the rules and rights of the director in meeting its obligations under subdivision 269 of the Act:
    • Directors of a company have an obligation pursuant to subsection 269-15(1) of the Act to cause the company to comply with the following obligations listed at section 269-10 of the Act:
      • PAYG withholding;
      • Superannuation guarantee payments; and
      • Goods and services tax (“GST”);
    • The director may be liable under section 269-20 of the Act to pay a penalty to the ATO if the director fails to meet their obligation because:
      • the tax liability becoming overdue; and
      • if the director:
        • had been a director during the time that the company incurred and held that tax liability; or
        • became a director after the tax liability became due and payable, and remains payable after 30 days of being appointed;
      • Subsection 269-15(2) of the Act discharges the obligation of the director, thus removing the risk of the director being personally liable for the tax liability, if:
        • the tax liability is paid in full or a payment plan is entered into with the ATO;
        • an administrator is appointed; or
        • the company begins the process of being wound up.

Subsection 269-30(1) of the Act requires the above to occur prior to the ATO issuing a DPN in accordance with section 269-25 of the Act, or within 21 days of the DPN being issued.


  1. Pursuant to subsection 269-25(1) of the Act, the ATO cannot make a director personally liable for the tax liability of the company until 21 days after the ATO has issued to the director a DPN in accordance with section 269-25 of the Act:
    • The DPN must contain the information listed in subsection 269-25(2) to be a valid DPN;
    • Pursuant to subsection 269-25(4) of the Act, the 21 day period for a director to discharge their liability does not commence from the date the director receives the DPN, but commences from the date that the ATO leaves or posts the DPN;
    • Section 269-50 of the Act allows the ATO to give notice by posting it or leaving it at the address which appears on the company’s ASIC records as the directors’ place of residence or business;
    • Former directors are not immune from receiving a DPN if they were a director at the time the obligations relating to the DPN arose. This means if a director has resigned they can still be hit with a DPN; and
    • A new director can also be issued with a DPN if:
      • they became a director after the tax liability became due; and
      • continued their appointment as director for at least 30 days under section 269-20(3) of The Act.

This makes it very important to do some due diligence on the company before undertaking a directorship.


  1. If the 21 day period has lapsed, the director becomes personally liable for the tax liability in the DPN. The only other option available to the director to remove their personal liability is to apply one of the following defences available to them under section 269-35 of the Act:
    • during the time you were under the relevant obligation that is the subject of the DPN, it was unreasonable for you to take part, and you did not take part, in the management of the company; or
    • within the 21 days of the DPN being issued the director had taken all reasonable steps to extinguish their liability by ensuring that one of the acts at paragraph 1.3 above happened, and they have notified the ATO of this within 60 days of the DPN being issued; or
    • there were no reasonable steps the director could have taken to ensure any of the acts at paragraph 1.3 above could have happened.

Lockdown DPN

  1. The 21 day period does not apply where the DPN issued is a Lockdown DPN. A Lockdown DPN is one in which subsection 269-30(1) of the Act does not apply pursuant to subsection 269-30(2) of the Act, and the director will therefore become personally liable for the tax liability in the DPN from the date the DPN is issued. Lockdown DPN’s may be issued for the following liabilities:
    • PAYG withholding tax liability if the company did not report the amount to the ATO (by way of lodging its activity statement) within 3 months of that activity statement’s lodgement date. Therefore, if the activity statement is a quarterly business activity statement (“BAS”) and lodged through a tax agent, there will be an additional month because of the extended lodgement date provided to registered BAS agents;
    • PAYG withholding estimate;
    • Superannuation guarantee charge (“SGC”) if:
      • the company has not lodged the SGC statement pursuant to section 33 of the Superannuation Guarantee (Administration) Act 1992 in respect to that amount within 1 month and 28 days from the end of the quarter that the underlying superannuation guarantee liability was incurred; or
      • the company has lodged an SGC statement, but underreported the SGC liability, then the Lockdown DPN will apply to that shortfall;
    • SGC estimate;
    • GST liability if:
      • the company did not report the amount to the ATO (by way of lodging its BAS) within 3 months of the BAS lodgement date; or
      • the company has lodged the BAS, but underreported the GST liability, then the Lockdown DPN will apply to that shortfall; and
    • GST estimate.


  1. If a director has become personally liable for the tax liability of a company because they have either:
    • received a Lockdown DPN; or
    • received a Standard DPN, and have not:
      • taken one of the actions under subsection 269-25(1) of the Act within 21 days of the DPN being issued; and
      • neither of the DPN defences at section 269-35 of the Act apply; or
      • any applicable DPN defences at section 269-35 of the Act occurred within the relevant time period;

the remaining options available are to:

  • dispute the debt if it is in contention;
  • negotiate a payment plan with the ATO; or
  • apply for voluntary bankruptcy.

Tips and Traps

  1. Avoiding a DPN and garnishee notice is a much simpler and cost-effective approach than responding to them. In the case where they have not been avoided it is better to respond to them promptly and accordingly than to ignore or postpone them. Below are some trip and traps to be mindful of:

Regularly check and update ASIC information

  • It is crucial that the address of the director and company are therefore checked regularly to ensure the details are correct according to ASIC and updated immediately when required. The Act does not give the option to the ATO to email the DPN, and therefore the ATO will be reluctant to ever email a copy of the DPN, even to a director’s accountant or legal practitioner per subsection 269-52(1) of the Act. As a result, if the address according to ASIC is found to be incorrect after the DPN has been issued but before the 21 day period has ended, and the director requests a copy of the DPN to be resent to the corrected address the 21 day period will not reset and the time available to the director to discharge their liability is significantly less;

Always lodge activity statements by the lodgement due date

  • As discussed at paragraph 4.5, a Lockdown DPN may be issued for overdue GST liability where the BAS had not been lodged within 3 months of the lodgement date or if the GST liability had been underreported;

Deregistering is not the same as winding up

  • Deregistering the company without properly going through the process of winding it up will not prevent the ATO from issuing a DPN and making the director personally liable. Deregistering the company without winding it up first is not recommended because if a DPN is subsequently issued, the director will have 21 days from it being issued to:
    • become aware of the DPN upon actually receiving it; then
    • apply to the courts and ASIC to have the company re-registered; and then
    • appoint an administrator or begin the process of winding up the company

thus potentially being at risk of the 21 day period lapsing before the above steps have been successfully implemented. If this does occur however, there are DPN defences in section 269-35 of the Act which may still apply to remove the directors personal liability under the DPN;

Consider asset protection

  • It is strongly recommended when acting as a director of a company with employees or GST liabilities (or both) that the director seeks advice in respect to asset protection before being at real risk of bankruptcy;

Timing of GST liability

  • The provisions relating to the Lockdown DPN for GST and GST estimate was introduced to the Act through the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020. Section 22 in Schedule 3 of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 states that these amendments to the Act do not apply retrospectively, and therefore only apply to GST liabilities in respect of any period commencing from 1st April 2020; and

Enter a payment plan

  • By entering into a payment plan with the ATO the debt will no longer accrue penalties (but will continue to accrue interest which may be remitted) and the ATO cannot pursue recovery action against the company taxpayer while they are on the payment plan, including issuing a DPN to its directors. It is important that the company taxpayer lodges its BAS and income tax returns and pay any tax payments when they full due or the payment plan is immediately terminated.