Received an ato director penalty notice?

A: No. When your DPN expires you'll still become personally liable for the ATO debt.

A Director Penalty Notice (DPN) is a notice the Australia Taxation Office (ATO) issues to you, as a company director, for the collection of unpaid tax balances owed by the company.

Receiving a DPN means that tax debts that were owed by the company are now—or soon will become—owed by you personally.

This can have serious financial repercussions for you as individual because your personal assets such as your home, other real estate and investments might need to be sold to pay your ATO debt. If you do not personally have the means to pay the debt, this could lead to bankruptcy.

Your options to avoid personal liability for a 21-day DPN, include doing one of the following within 21 days of the date of the DPN:

• appoint a small business restructuring practitioner;

• appoint a voluntary administrator to the company; or

• appoint a liquidator.

It’s important to note that entering into, or negotiating to enter into, a payment plan with the ATO is NOT an option to avoid personal liability.

The ATO can issue a DPN when it is owed:

• business activity statement (BAS) debts

  • for pay as you go withholding tax (PAYG),and

  • goods and services tax (GST), or

• superannuation guarantee charge (SGC) debts.

A DPN should not be issued if the company is on a complying payment arrangement for its debts. That means it is meeting both its instalments and ongoing BAS liabilities in full.

A DPN is one of a number of options available to recover its debts, or cause a company to cease accruing more debt it can’t pay. The other main options include a garnishee notice and winding up action.

The ATO wants to recover debts it’s owed, but more importantly, it doesn’t want non-compliant companies to keep racking up more debt, when they can’t pay the debts they already owe.

A DPN is intended to force a company director to deal with their BAS or SGC debts by paying them, or by putting their company into an insolvency process.

The consequence of not doing this is that the directors of a company will become personally liable for the company debts included in the DPN. Ordinarily, the ATO can’t come after directors for company debts, so this makes the DPN have the same effect as if the director signed a personal guarantee for their BAS and super debts.

If you’re not on a complying ATO payment plan for your company BAS or SGC debts, it’s a matter of when, not if, a DPN will be issued to you. You’re essentially playing Russian roulette with the ATO.

The problem is that if a DPN is issued and you don’t see it, you could unknowingly become liable for your company’s BAS or SGC debts. We’ve seen this cause directors to become liable for $400,000, even $1,300,000 of their company’s BAS debts which is a very regrettable situation.

There are two types of DPNs which the ATO can issue:

1. 21-day DPN

2. Lockdown DPN 

The type of DPN the ATO issues to a company director can depend on the timing that the respective BAS were lodged.

While these different types of DPNs were issued separately in the past, the ATO now issues DPNs which can include both 21-day and lockdown amounts.

So if you receive a DPN, it’s important to read it carefully.

Separate DPNs will be issued for debts your company owes for PAYG, GST and SGC.

A 21-day DPN gives the directors 21 days to put their company into an insolvency process to avoid personal liability.

Voluntary administration, liquidation or a small business restructure, even if unsuccessful, all clear 21-day DPN debts, if started before, or within 21 days of, a 21-day DPN being issued.

This means that if the company enters an insolvency process before a 21-day DPN is issued and 21 days passes, the ATO cannot issue a DPN for unpaid debts that arose from BAS or SGC statements lodged within required timeframes. Even if your SBR is not accepted, the ATO cannot issue a fresh DPN afterwards.

A lockdown DPN does not have the 21-day grace period. The directors are automatically liable for lockdown DPN debts.

Lockdown DPNs can’t be avoided unless the debts are paid in full.

Lockdown DPNs can be issued at any time, even after liquidation. This means a DPN can be issued at any time for unpaid debts relating to BAS or SGC statements not lodged within required timeframes. This could be in 1, 3 or even 20+ years later.

The exception to this, for now at least, is that the ATO has publicly stated they have not issued a lockdown DPN after a successful SBR.

A lockdown DPN can be confusing as it may refer to a 21-day period, but this is just the window before the ATO may start action to recover the debt from the director personally.

The DPN is a letter sent by ordinary post (not via email or electronically) that outlines the company’s unpaid tax amounts and the remission options available. (Remission means payment or reduction of a debt.)

The ATO mails the DPN to the company’s current directors. They use the personal address that you, as company director, registered with the Australian Securities & Investment Commission (ASIC), or sometimes the ATO uses the address last known to them.

Note that it is not posted to your company’s address, and it is not posted to your company’s accountant.

The ATO sometimes lets your personal accountant (tax agent) know or sends a courtesy copy to your personal address registered with the ATO if it differs to the ASIC address, but this is not always the case and directors sometimes don’t receive DPNs that have been issued to them.

This makes it crucial that you keep your personal address as director updated with ASIC. We have assisted a number of directors who moved house, didn’t update their personal ASIC address then months later discovered they were liable for hundreds of thousands, or even millions, of dollars of company debt.

Yes. Check in your personal ATO portal through myGov. The DPN will be listed as a new tax account in your portal with “Director Penalty” in the account name.

The date the ATO mails the DPN (or leaves the DPN at the address registered with ASIC) is the date the notice is considered to be ‘given’ to you.

In other words, the date on the DPN is the date the clock starts ticking. The date you first become aware of the DPN is not taken into account.

Unfortunately, yes.

It seems crazy that you could miss a letter, and be liable for hundreds of thousands, or even millions of dollars of your company’s debt. But that’s the law.

Even if you don’t receive (that is, actually see or know about) the DPN, if 21 days passes without your company entering into an insolvency, you will become personally liable for the DPN debts.

The ATO has steadily increased the number of DPNs it issues. In the 2024 financial year around 27,000 companies were issued DPNs. We expect this number to increase.

If your company has ATO debt it can’t pay, the ATO knows and it will take action to prevent your debt growing.

While the ATO was very lenient throughout COVID and in the years following, this all changed in 2023. The ATO now expects every company to pay its ATO debt, or enter into an appropriate process to deal with its debt. If directors don’t do this proactively, the ATO will take action to force the directors to make a decision about their company’s debts and future.

The ATO has a number of debt recovery options available to it. The main four options are:

• Issue a DPN to the company directors

• Report the company’s ATO debt to credit reporting agencies

• Issue a garnishee notice

• Issue a statutory demand to commence steps to wind up a company and have a liquidator appointed.

The DPN has become the ATO’s preferred recovery method as it is cheap and very effective. It effectively gives 21 days to deal with their company’s debts or face serious personal financial consequences, including potential personal bankruptcy.