Director Penalty Notices (DPN): A quick guide for company directors
In this guide you will learn how to respond quickly and effectively to an ATO Director Penalty Notice (DPN) and protect you and your family from personal liability.
What is a Director Penalty Notice (DPN)?
A Director Penalty Notice (DPN) is issued by the Australian Taxation Office (ATO) to recover unpaid company tax debts like PAYG, GST, and superannuation. Unlike most company debts, a DPN makes directors personally liable for these obligations. This serious legal notice requires immediate attention to avoid financial consequences.
In our full blog post, we cover what debts are included, how the ATO determines liability, and the role of ASIC-registered personal addresses in the process.
Read more: Understanding Director Penalty Notices: What every director should know
The two types of DPNs: 21-Day DPNs versus Lockdown DPNs
The ATO issues two types of DPNs: 21-day DPNs, which allow directors a short grace period to act, and lockdown DPNs, which impose immediate liability for late-lodged or unreported debts. Each type has different implications for directors, making it vital to understand which one you’re dealing with.
Our full blog post explores the differences in liability coverage, action requirements, and how to handle each type of DPN effectively.
Read more: 21-day DPNs versus lockdown DPNs: Key differences and what they mean for company directors
Got a DPN? Don’t sit on it. You’ve only got 21 days.
What triggers a Director Penalty Notice?
The ATO typically issues a DPN when a company fails to lodge BAS or SGC returns on time or has unpaid tax debts. Non-compliance, poor payment history, or failure to negotiate an ATO payment plan increases your risk of receiving a DPN.
In the blog post, we examine the top reasons directors receive DPNs, from late filings to systemic tax underpayments, and how proactive compliance can reduce your exposure.
Read more: Common triggers for a DPN: How to avoid becoming personally liable
How to respond when you receive a DPN
Receiving a DPN requires swift action. For 21-day DPNs, appointing a small business restructuring practitioner, voluntary administrator, or liquidator is critical to avoid liability. For lockdown DPNs, immediate repayment is the only option.
The blog post provides a step-by-step guide, covering timelines, legal considerations, and how to engage insolvency professionals to act within the deadline.
Read more: Received a Director Penalty Notice? Your step-by-step action plan
How personal liability is determined under a DPN
DPNs make directors liable for certain tax debts, similar to a personal guarantee. This means that even if the company can’t pay, the ATO can pursue directors directly. This liability is based on the debts reported to or assessed by the ATO.
Our blog post explains the mechanics of personal liability, including how the ATO enforces it and its impact on your personal financial situation.
Read more: Director liability explained: How a DPN affects you personally
Avoiding a Lockdown DPN: Key compliance strategies
The key to avoiding a lockdown DPN is timely lodgement of all BAS, IAS and unpaid super returns, even if payment isn’t possible. Setting up a complying ATO payment plan and maintaining good compliance history also reduces risk.
In the blog post, we share practical tips for staying compliant, handling late payments, and reducing your company’s exposure to ATO enforcement.
Read more: How to avoid a lockdown DPN: Compliance tips for directors
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Small Business Restructuring and DPNs
A Small Business Restructure (SBR) can be a lifeline for directors dealing with DPNs. It allows you to restructure tax debts while keeping the company trading and avoiding personal liability for 21-day DPNs.
Our full blog post explores how SBR works, its eligibility criteria, and its benefits in dealing with DPNs effectively.
Read more: Using Small Business Restructuring (SBR) to deal with a Director Penalty Notice
What happens if you ignore a DPN?
Ignoring a DPN leads to serious consequences, including automatic personal liability for company tax debts. Left unresolved, this liability can escalate to personal bankruptcy or loss of personal assets such as the family home.
The blog post details the legal and financial risks of inaction and how to recover from the fallout of missed DPN deadlines.
Read more: Ignoring a DPN: What directors need to know about the risks
What's this 'SBR' we're referring to?
An SBR is a Small Business Restructure. It's an initiative brought in by the federal government to support small businesses that may have struggled during or since COVID.
You're not alone if your company has large tax debts that you've not been able to stay on top of, but your business has now turned the corner and is otherwise profitable.
An SBR is a government backed lifeline to get your company back on track by reducing your company's ATO debts and allowing you to pay the balance off over time.
Small Business Restructure (SBR) basics
SBRs are for companies, not sole traders or partnerships.
Your company's debt needs to be under $1 million.
The business continues, whereas an insolvency closes it.
An SBR typically reduces a company's ATO debts by 70% after costs.
The remaining debt is repaid in monthly and/or lump sum payments.
There are other eligibility criteria, which we'll explain when we speak with you.
How DPNs interact with Liquidation or Deregistration
Liquidation and deregistration do not automatically remove DPN liabilities. In fact, lockdown DPNs can still be issued years after a company has been liquidated.
Our blog post clarifies how different insolvency processes impact DPNs and the steps directors must take to protect themselves.
Read more: DPNs, Liquidation, and Deregistration: What directors must know
How to pay off DPN debts and protect your assets
If liability under a DPN cannot be avoided, paying off the debts strategically is essential. Methods include refinancing, ATO payment plans, or targeted debt reduction approaches.
In the blog post, we cover payment strategies and how to minimize financial impact while resolving DPN-related debts.
Read more: Paying off DPN debts: Strategies to minimise financial impact
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Case studies: Real stories of directors facing DPNs
Real-life cases provide valuable lessons for directors facing DPNs. From success stories to cautionary tales, learn how others navigated the complexities of DPNs.
The full blog post shares insights from real directors, highlighting effective strategies and common pitfalls.
Read more: Case studies: Lessons learned from directors who faced DPNs
FAQs about Director Penalty Notices
From receiving multiple DPNs to handling expired notices, directors often have questions about how DPNs work and what to do next.
Our Frequently Asked Questions (FAQ) blog post answers the most common queries, providing a quick reference for directors seeking clarity.
Read more: DPN FAQs: Your questions answered
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