Director penalty notices: how the ATO makes company tax personal

Why do director penalties matter so much?

A company is a separate legal person, and normally its debts are its own. Director penalties are one of the main exceptions. For three kinds of tax — PAYG withholding, GST and super guarantee charge — the law lets the ATO make directors personally liable for what the company hasn’t paid.

These aren’t rare. The ANAO’s audit of the ATO’s small business debt management recorded 64,342 director penalty notices issued in 2024–25. If you’re a director of a company with overdue BAS or super, this section is the most important part of our site.

What are the four ways to remit a standard DPN?

Within 21 days of the notice, the penalty is remitted if the company:

Outcome	What it means	Who controls the company afterwards
Pays in full	The company’s liability is cleared	You
Appoints an administrator	Voluntary administration begins	The administrator
Appoints a small business restructuring practitioner	SBR begins	You, with practitioner oversight
Begins to be wound up	Liquidation	The liquidator

Three of those four hand some or all control to an insolvency practitioner and come with professional fees. Only one — paying — leaves you running your company exactly as before. That’s not a sales line; it’s simply how the rules work. Funding is often how companies pay. See tax debt loans.

What is the lockdown rule?

This is the rule that changes everything. If the company’s PAYG withholding or GST is reported more than three months after the due date — or not reported at all — the director penalty for that amount can only be remitted by paying it in full. Administration, restructuring and liquidation no longer help.

ATO estimates matter here too: estimated amounts are treated as amounts that were never reported. And the ATO says a successful SBR will not remit a lockdown director penalty, or a standard one that wasn’t remitted within 21 days. Read lockdown DPNs carefully.

For super guarantee charge, Payday Super has changed how and when amounts fall due from 1 July 2026, which can affect lockdown timing. See Payday Super and director risk.

How is a DPN delivered?

The ATO posts the notice to, or leaves it at, the director’s address as shown on the ASIC register. The 21 days run from that day — not from when you open the envelope, and not from when you finally check an old address. Keeping your ASIC-registered address current is one of the simplest, most protective things a director can do.

Who is liable?

• Current directors for the company’s unpaid amounts during their time in office.
• New directors have 30 days from appointment to cause one of the four outcomes for amounts already owing — after that, they can be liable for earlier debts. See new and resigning directors.
• Former directors can remain liable for amounts that arose while they were directors.

What defences are available?

The ATO recognises three:

1. Illness or another good reason meant you didn’t take part in managing the company.
2. All reasonable steps — you took every reasonable step to make the company pay, appoint an administrator or begin winding up, or there were no reasonable steps you could have taken.
3. Reasonably arguable position — for SGC and GST only, the company applied the law in a reasonably arguable way.

Defences are fact-specific and need legal advice. Don’t rely on one without it.

What does a director penalty look like in real life?

Here is an illustrative example only. Two directors run a small manufacturing company. Through a hard winter they lodged every BAS on time but paid only part of the GST and PAYG withholding. In spring, each receives a director penalty notice for the unpaid amounts. Because everything was reported within three months of the due dates, these are standard penalties — all four remitting outcomes are open to them.

They sit down with their accountant on day two. The business has a full order book and is profitable again; liquidation or administration would throw that away. Small business restructuring is possible, but it would mean practitioner fees, a formal appointment their suppliers would notice, and paying the restructuring practitioner’s plan fees on top. One of the directors owns an investment unit with good equity. A second mortgage over the unit pays the company’s activity statement debt in full on day 16, and both penalties are remitted. The company keeps trading, the directors keep control, and their personal exposure on those amounts is gone.

Now change one fact: suppose the BAS for two quarters had been lodged five months late. Those amounts would be locked down, and only payment would remit them. A restructure or liquidation would leave both directors personally liable for those quarters. That one detail — when the BAS was lodged — is why every DPN conversation starts with dates.

How do you lower the chance of ever receiving one?

• Lodge every BAS on time, even when you can’t pay it in full.
• Pay super with every pay run under Payday Super, within 7 business days.
• Keep your ASIC-registered address current so notices reach you promptly.
• Review the ATO portal monthly — balances, letters and any estimates.
• Separate tax money from operating cash so GST and withholding are there when due.
• Act at the first reminder, not the fifth.

Where should you start?

If a DPN has arrived, go to your first 21 days for a day-by-day checklist, and use our DPN 21-day calculator to find your exact deadline. If you’re considering funding to pay the company liability, see if you qualify — there’s no credit check to enquire, your details stay with us instead of being circulated, and a real person will ask about lockdown dates first. Accurate details are what make that call useful.