Director Penalty Notices (DPNs) can feel overwhelming for company directors, especially if it’s your first time encountering one. With so much at stake—including personal liability for unpaid tax debts—it’s essential to understand how DPNs work and what steps you can take to address them effectively.
This article answers the most frequently asked questions about DPNs, providing you with the clarity and guidance you need to protect your financial future.
What is a DPN, and why are they issued?
A Director Penalty Notice (DPN) is issued by the Australian Taxation Office (ATO) to hold company directors personally liable for unpaid tax debts. The ATO typically issues DPNs when a company:
Fails to lodge Business Activity Statements (BAS), Instalment Activity Statements (IAS) or Superannuation Guarantee Charge (SGC) returns on time.
Has unpaid tax debts, such as GST, PAYG withholding or superannuation.
DPNs are intended to force directors to act on outstanding tax liabilities promptly.
What types of DPNs can be issued?
There are two main types of DPNs:
1. 21-day DPN
Grace period: Gives directors 21 days from the date the notice is issued to take action and avoid personal liability.
Eligible debts: Applies to debts where tax returns (e.g. BAS, IAS or SGC) were lodged on time but remain unpaid.
Actions to avoid liability: Appoint a Small Business Restructuring Practitioner, voluntary administrator, or liquidator within 21 days.
2. Lockdown DPN
Immediate liability: Imposes personal liability as soon as the notice is issued.
Eligible debts: Covers tax debts tied to late-lodged or unlodged returns.
Resolution: The only way to resolve a lockdown DPN is to pay the debt in full.
Can a DPN be issued after my company is liquidated or deregistered?
Liquidation
For 21-day DPNs, appointing a liquidator within the notice period clears director liability. However, lockdown DPNs remain enforceable even after liquidation.
Deregistration
Deregistration does not protect directors from DPNs. Lockdown DPNs can still be issued for unpaid debts after the company has been removed from the ASIC register.
How does the ATO deliver a DPN?
DPNs are sent by ordinary post to the director’s personal address listed with ASIC. They are not sent via email or directly to the company.
Key considerations
If your ASIC address is outdated, you may not receive the DPN in time, but the 21-day period still applies from the date it was mailed.
You can check for DPN notices in your ATO portal, where they may appear as a 'Director Penalty' account.
What happens if I ignore a DPN?
Ignoring a DPN has severe consequences:
Personal liability: You become personally liable for the unpaid debts listed in the notice.
Asset risk: The ATO can seize personal assets, garnish wages, or initiate legal proceedings to recover the debt.
Bankruptcy: If the liability is significant, bankruptcy may become the only option.
What debts are covered by a DPN?
DPNs typically apply to:
PAYG Withholding Tax: Amounts withheld from employee wages but not remitted to the ATO.
GST: Unpaid GST amounts owed to the ATO.
Superannuation Guarantee Charge (SGC): Unpaid or late-paid super contributions.
Interest and penalties associated with these debts are not part of the DPN liability but may still accrue if the debt remains unpaid.
Can I receive multiple DPNs?
Yes, directors can receive multiple DPNs for the same company. The ATO issues separate notices for each type of debt, such as PAYG withholding, GST, and SGC.
Example
If a company owes $100,000 in PAYG debts and $50,000 in GST debts, the director may receive two separate DPNs, each requiring action to avoid liability.
What defences are available against a DPN?
Defending against a DPN is challenging, but some limited defences exist:
Illness or inability to manage the company: You can demonstrate that you were unable to manage the company’s affairs due to illness or other exceptional circumstances.
All reasonable steps were taken: If you can prove that you took all reasonable steps to ensure the company lodged returns and paid its debts, you may have grounds for defence.
Lodgement compliance: For PAYG debts, showing that you lodged Single Touch Payroll (STP) reports on time may exempt you from lockdown liability.
Key tip: Defences are rare and require strong evidence. Consult legal or insolvency professionals if you believe you have grounds for defence.
Can I negotiate with the ATO after receiving a DPN?
Negotiating a payment plan with the ATO can help manage the debt but does not remove personal liability under a DPN. Payment plans are most effective for resolving lockdown DPN liabilities.
What happens if I resign as a director?
Resigning does not absolve you of liability for DPN-related debts incurred during your time as a director.
Key rules for resignation
Ensure the resignation date is lodged with ASIC within 28 days.
Directors who fail to lodge their resignation on time may remain liable for company debts incurred after their intended resignation date.
How can I avoid a DPN?
The best way to avoid a DPN is through proactive compliance and financial management:
Lodge all returns on time: Ensure BAS, IAS and SGC returns are submitted by their due dates, even if payment isn’t possible.
Set up payment plans: If your company is struggling to pay tax debts, negotiate a payment plan with the ATO to demonstrate compliance.
Monitor ASIC records: Keep your personal address with ASIC up to date to ensure you receive any notices promptly.
Seek professional help: Engage accountants, bookkeepers, or insolvency experts to address financial challenges early.
FAQs recap
Q: Can DPN debts be disputed?
Disputes are rare and require strong evidence of exceptional circumstances or compliance.
Q: Does voluntary liquidation always clear DPN liabilities?
No. Liquidation only clears debts under a 21-day DPN if completed within the notice period. Lockdown DPN debts remain enforceable.
Q: Can a company still trade after receiving a DPN?
Yes, but only if the DPN is addressed promptly, such as through restructuring or payment.
Key takeaways
Understanding how Director Penalty Notices work is essential for every company director. By staying compliant, acting quickly when a DPN is issued, and seeking professional advice, you can minimise the risks of personal liability.
If you have received a DPN or need help managing your company’s tax obligations, contact Business Reset today. Our team specialises in helping directors navigate DPN challenges and protect their financial futures.
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