A Director Penalty Notice (DPN) is a stark reminder of the personal liability directors face for unpaid company tax debts. When personal liability is locked in—whether through inaction on a 21-day DPN or immediate liability under a lockdown DPN—paying off the debt becomes unavoidable. However, paying off DPN-related debts doesn’t have to spell financial ruin.
In this article, we explore practical strategies for paying DPN debts while minimising the impact on your personal and professional life.
Understanding your DPN debt
Before tackling a DPN debt, it’s essential to understand how liability was determined and what the debt includes.
Types of debts included
DPN debts typically cover unpaid:
Pay-As-You-Go (PAYG) Withholding Tax: Amounts withheld from employee wages.
Goods and Services Tax (GST): Unpaid GST amounts collected by the company.
Superannuation Guarantee Charge (SGC): Unpaid or late-paid employee superannuation.
Interest and penalties imposed by the ATO are not part of the DPN debt itself but will accrue if the debt remains unpaid.
Lockdown vs 21-day DPN liabilities
21-day DPNs: Liability can be avoided if action is taken within 21 days of the notice being issued.
Lockdown DPNs: Liability is immediate and non-negotiable, applying to late-lodged or unlodged returns.
Knowing which type of DPN applies to you will help determine your options for repayment.
Strategies for paying off DPN debts
Paying a DPN debt requires careful planning to minimise the financial strain. Below are the most effective strategies:
1. Prioritise payments to the DPN account
Payments made directly to your personal DPN account with the ATO are applied specifically to the DPN liability. This ensures the amount owed decreases faster compared to payments made to the company’s BAS account, which may be applied to penalties or interest first.
How to pay the DPN account
Log in to your ATO portal to access the payment details for the DPN account.
Use the reference number provided in your DPN notice to ensure payments are allocated correctly.
2. Negotiate a payment plan with the ATO
If you’re unable to pay the debt in full, a payment plan can spread the financial burden over manageable instalments.
Steps to set up a payment plan
Assess your finances: Calculate how much you can realistically pay each month.
Contact the ATO: Propose a payment plan that aligns with your cash flow.
Stay compliant: Make payments on time to avoid defaulting on the agreement.
Payment plans show good faith and may prevent harsher enforcement actions by the ATO, such as garnishee notices or asset seizure.
3. Refinance personal assets
Refinancing personal assets, such as your home or investment property, can provide a lump sum to pay off the debt entirely. While this strategy involves risk, it can help you clear the liability and avoid ongoing interest accrual.
Options for refinancing
Home loan refinancing: Leverage equity in your home to access funds.
Personal loans: Apply for a loan to cover the debt but ensure the repayment terms are manageable.
Key consideration: Consult a financial advisor to ensure refinancing aligns with your overall financial goals.
4. Liquidate non-essential assets
Selling non-essential personal assets can generate quick funds to reduce your DPN debt. This might include selling:
Vehicles or equipment.
Investment portfolios.
Luxury items, such as jewellery or collectibles.
While this option may be difficult emotionally, it can help protect more critical assets, such as your home.
5. Use superannuation contributions
In certain situations, directors may be able to access superannuation funds early to pay off DPN debts. This option is subject to strict conditions and should only be pursued after consulting with a financial professional.
Protecting yourself during the repayment process
Paying off DPN debts is only part of the solution. It’s equally important to take steps to avoid future personal liability and minimise financial stress during the repayment process.
1. Stay compliant with tax obligations
Ensure your company lodges all future BAS and SGC returns on time, even if full payment isn’t possible. Timely lodgement can prevent additional lockdown DPNs.
2. Engage professional support
Working with a financial advisor, accountant, or insolvency practitioner can help you:
Develop a repayment strategy tailored to your financial situation.
Explore restructuring options for any remaining company debts.
Negotiate effectively with the ATO.
3. Monitor your credit report
DPN debts can affect your personal credit score, particularly if enforcement actions are taken. Regularly review your credit report to ensure no inaccuracies arise during the repayment process.
Case study: Paying off a DPN debt
The situation
Lisa was a director of a marketing agency that received a lockdown DPN for $75,000 in unpaid GST debts. Unable to pay the amount in full, Lisa risked losing personal assets.
The solution
Lisa consulted a financial advisor who recommended:
Refinancing her home loan to access $40,000.
Negotiating a payment plan with the ATO for the remaining $35,000.
By combining refinancing and a payment plan, Lisa cleared the liability within two years, avoiding additional interest and protecting her professional reputation.
The outcome
Lisa successfully avoided bankruptcy and implemented improved compliance systems to prevent future issues.
FAQs about paying off DPN debts
Q: Can I negotiate a discount on the debt with the ATO?
It’s rare, but in some cases, the ATO may agree to reduce penalties or interest as part of a payment plan. The core DPN debt, however, is usually non-negotiable.
Q: What happens if I default on a payment plan?
Defaulting on a payment plan can lead to harsher enforcement actions, such as garnishee notices or legal proceedings.
Q: Is it better to pay off the debt in full?
If possible, paying the debt in full reduces interest accrual and ends liability quickly. However, a payment plan or refinancing can be effective if full repayment isn’t immediately feasible.
Key takeaways
Paying off a DPN debt requires a strategic approach to minimise financial impact. Whether you choose to make direct payments, refinance assets, or negotiate a payment plan, acting quickly is essential to avoid escalating costs and enforcement actions.
If you’re facing a DPN debt, contact Business Reset today. Our team can help you develop a tailored repayment strategy and protect your financial future.
Read next: Case studies: Real stories of directors facing DPNs
Previous: DPNs, Liquidation, and Deregistration: What directors must know
Or back to: Director Penalty Notices (DPNs): A Fast-Track Guide for Company Directors