I've Received a Director Penalty Notice
A director penalty notice (DPN) is the Australian Taxation Office (ATO) telling you that it intends to recover the company's unpaid pay as you go (PAYG) withholding, GST or superannuation guarantee charge (SGC) from you personally. The ATO must then wait 21 days before it can recover from you, and the 21 days is counted from the day the ATO posted the notice to your address on the Australian Securities and Investments Commission (ASIC) register rather than the day you opened it. What you can do inside those 21 days depends on whether the amounts on the notice are locked down, and that is the first thing Astris Law in Brisbane works out with a director who calls.
Director liability and ATO compliance: guides to DPNs, lockdown notices, SGC and the first 21 days
The liability already exists before the notice arrives. Under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth), a director penalty arises automatically when the company misses a due date for PAYG withholding, GST or SGC and it equals the unpaid amount. The notice does not create the debt; it starts the 21 days after which the ATO may begin recovery against you personally.
If the company reported PAYG withholding and GST within three months of the due date and SGC by its due date, the penalty can still be remitted inside the 21 days by paying in full, appointing an administrator or a small business restructuring practitioner or beginning to wind the company up. If it reported later than that or never reported, the penalty is locked down and only payment in full removes it. Which position you are in, and which route is worth taking, turns on the company's lodgement history and its real financial position.
What You Need To Know
A director penalty is a personal liability for the company's unpaid PAYG withholding, GST and SGC under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth). It arises automatically when the company misses the due date, equals the unpaid amount and exists before any notice is sent.
The 21 days starts on the day the ATO posts the notice or leaves it at the address recorded for you with ASIC. The notice is taken to be given on that day whether or not you see it, so a notice sent to an old address still counts and one that spent a week in the mail has 14 days left.
The amounts on a notice are locked down where the company reported PAYG withholding or GST more than three months after the due date or never reported them, and where it reported SGC after the SGC due date or never reported it. For those amounts only payment of the company's liability in full remits the penalty, and one notice can carry locked down and remittable amounts side by side.
For amounts that are not locked down, the penalty is remitted if, within the 21 days, the company pays the debt in full, an administrator is appointed, a small business restructuring practitioner is appointed or the company begins to be wound up. The appointment must commence inside the 21 days.
Resigning does not remit the penalty and does not remove liability for amounts that were already due. Each director the ATO pursues receives their own notice and owes the full amount, not a share. A payment by one director reduces the liability for all of them and an appointment by the company remits the penalty for every director whose amounts are not locked down.
The ATO issued 84,529 DPNs to individual directors in 2024-25 for liabilities of $5.5 billion, according to its 2024-25 annual report. The Tax Ombudsman describes that as a 136 per cent increase on the prior year and has announced a review of how the ATO administers the regime.
The company's debt keeps growing while the 21 days runs. The general interest charge compounds daily at a rate currently above 11 per cent a year and interest incurred in income years starting on or after 1 July 2025 is no longer tax deductible.
What To Do Inside the 21 Days
Find the date on the notice and work out the deadline from it
The 21 days runs from the day the ATO posted or left the notice, not from the day it reached you. Take the date from the notice itself, work out the deadline and write it where you will see it every day. A notice that went to an old ASIC address and reached you late has not had its deadline moved.
Work out which amounts are locked down
Pull the company's lodgement history and, for each period on the notice, compare when the business activity statement (BAS) was lodged with when it was due and, for super quarters ending on or before 30 June 2026, when the SGC statement was lodged with its due date. PAYG withholding and GST reported within three months of the due date keep the remission options open. Anything later, and any SGC reported after its due date, is locked down. One notice often carries both kinds of amount. Super for paydays from 1 July 2026 falls under the payday super rules and is dealt with separately below.
Check the figures, especially estimates
Where the company never lodged, the ATO may have estimated the liability from payroll and super fund data, and estimates can overstate what is owed. Reconcile the notice against the company's running balance account. An estimate can be challenged, but the challenge does not pause the 21 days, so it runs alongside the main decision rather than instead of it.
Decide the company question early, with your co-directors
For amounts that are not locked down, the choice is between paying in full, voluntary administration, small business restructuring and liquidation. Each takes days to arrange, because practitioners need time for independence checks and paperwork before an appointment commences, so treat the first ten days as decision time and the rest as execution. Two directors holding identical notices can need opposite advice here, because the right exit depends on whether the company is worth saving.
Consider the defences without letting them consume the 21 days
There are three statutory defences and the ATO may consider a written defence at any stage, including before recovery action. They are narrow and the director carries the burden of proving them. A defence that genuinely fits the facts changes the whole approach, while a hopeful one drafted across three weeks consumes the exact period in which an appointment or payment would have removed the penalty.
Take advice before you pay, resign or lodge a backlog
Paying the ATO from personal funds can use your own money on a penalty that the company's appointment would have remitted. Resigning removes your ability to make the company act and remits nothing. Lodging a backlog of BAS does not reopen remission for any period already more than three months past its due date, since those periods are locked down whether or not the company lodges, while periods still inside the three months need lodging promptly because lodgement is what keeps remission open. The timing of lodgements also bears on whether the company can use small business restructuring. Any of these steps might turn out to be right, but none of them should happen before you have advice on the sequence.
Lockdown and Non-Lockdown Amounts
Non-lockdown amounts are PAYG withholding or GST the company reported within three months of the due date and SGC for quarters ending on or before 30 June 2026 reported by the SGC statement due date. The penalty on them can be remitted within 21 days of the notice by payment in full, the appointment of an administrator, the appointment of a small business restructuring practitioner or the commencement of winding up.
Lockdown amounts are PAYG withholding or GST reported more than three months after the due date or never reported and SGC for those quarters reported after the SGC statement due date or never reported. Only payment of the company's liability in full remits the penalty on them. Administration, restructuring and liquidation do not remit a locked down penalty; money the ATO actually receives from the company reduces it and the balance stays with you.
Where the company never lodged, the ATO can estimate the liability and issue a notice on the estimate. The law treats estimated amounts as never reported, which puts them in lockdown from the start, although the figure itself can still be disputed. The rule that follows is to lodge on time even when the company cannot pay, because lodgement is what keeps remission open.
Payday super began on 1 July 2026 under the Treasury Laws Amendment (Payday Superannuation) Act 2025 (Cth). From that date a company has to get each superannuation contribution into the employee's fund within seven business days of payday, so super exposure arises pay run by pay run rather than quarter by quarter. For super on paydays from 1 July 2026, do not assume that the old quarterly SGC statement dates decide whether an amount is locked down. Whether that super is locked down needs to be checked payday by payday under the amended legislation before you rely on any remission option, and that check belongs in the first few days rather than the last.
The Three Defences
The illness defence applies where you did not take part in managing the company during the relevant period and it would have been unreasonable to expect you to because of illness or another good reason. A director in name only, including a spouse who sat on the board but took no part in running the company, is not who this protects. The courts have treated non-participation as itself a breach of the duty, in cases such as Deputy Commissioner of Taxation v Robertson [2009] NSWSC 597.
The all reasonable steps defence applies where you took all reasonable steps to have the company pay, appoint an administrator or restructuring practitioner or begin winding up. It also applies where no such step was open to you. Relying on a co-director, accountant or bookkeeper does not meet this test. Agitating for payment and then stopping when outvoted usually does not either.
The reasonably arguable position defence, which is available for SGC and GST only, applies where the company applied the law in a way that was reasonably arguable and took reasonable care in doing so. The usual territory is a genuine, documented decision that workers were contractors rather than employees which later proved wrong.
A defence is put to the ATO in writing, identifying which one you rely on, and can also be raised in recovery proceedings. Whether your facts fit any of these needs advice on the documents, and the answer shapes everything else you do in the 21 days.
Where Directors Lose Their Options
The ATO is usually willing to talk and the 21 days does not stop while it does. For amounts that are not locked down, a constructive conversation that runs to day 22 leaves you with a crystallised personal debt and no appointment.
The notice is addressed to you and is recoverable from your personal assets, whatever the company does. The unpaid tax and late lodgements behind it are also classic indicators of insolvency, so the duty to prevent insolvent trading and the safe harbour conditions need to be reviewed in the same fortnight.
A debt that predates your appointment is not safe ground. A new director becomes liable for amounts due before they joined unless, within 30 days of the appointment, the company pays, appoints an administrator or restructuring practitioner or begins winding up. Resigning inside the 30 days does not avoid it.
An out-of-date ASIC address can cost you the whole 21 days. The ATO can validly give a notice to the address on the register, let the 21 days expire and move to recovery without you ever seeing it. Checking the register is the simplest protection a director has.
How We Can Help
Astris Law acts for Brisbane directors who have received a DPN. Jamie Nuich works through the notice with you to settle the true deadline, classify each amount as remittable or locked down from the lodgement history and test the ATO's figures, including any estimates. The advice then turns to which of payment, administration, small business restructuring or liquidation the company's position supports, whether a defence is open and worth putting to the ATO and how to deal with the ATO on locked down amounts. Where the company decides on an appointment, we work with your accountant and the insolvency practitioner on timing, because the appointment has to commence inside the 21 days to remit the penalty.
Frequently Asked Questions
What is a director penalty notice?
A notice from the Australian Taxation Office (ATO) under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth) telling a director that the ATO intends to recover a director penalty, which is a personal liability equal to the company's unpaid PAYG withholding, GST or superannuation guarantee charge. The ATO must give the notice and wait 21 days before recovering the penalty from you. The notice sets out the amounts the ATO says are unpaid, and whether each one can still be remitted or is locked down follows from when the company reported it.
Does the 21 days run from when I received the notice?
No. It runs from the day the ATO posted the notice or left it at your address on the ASIC register, and the law displaces the usual presumption about when posted documents arrive. If the notice went to a former home or an old accountant's office, the 21 days still started on the posting date.
Can I avoid a director penalty notice by resigning?
No. Resignation does not remit a penalty and does not remove liability for amounts that were due while you were a director. Liability can also attach to some amounts that fall due after you leave, depending on when in the relevant period you resigned, and the test is not the same for every kind of liability. Resigning usually makes things worse, because you lose the ability to cause the company to pay or to make the appointment that would have remitted a penalty that is not locked down.
What happens to the director penalty if the company goes into liquidation?
It depends on timing and on whether the amounts are locked down. For amounts that are not locked down, the penalty is remitted if winding up begins within the 21 days. For locked down amounts, liquidation does not remit the penalty, although money the ATO receives from the company reduces it. Liquidation or deregistration after the 21 days does not extinguish a penalty that has already crystallised.
Can I get a payment plan for a director penalty?
The ATO can agree to payment arrangements for director penalty liabilities, and an engaged director with a credible proposal is in a different position to one who has gone quiet. An arrangement is not remission, though. For amounts that are not locked down the penalty is only remitted by payment in full or an appointment within the 21 days, so a plan entered in week two and defaulted later leaves the penalty alive. Whether to ask for one, and what to offer, turns on the company's numbers, which need to be seen before anyone can sensibly say.
Is it a defence that my accountant or co-director handled the tax?
Generally not. The courts have held, in cases such as Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113, decided under the earlier form of the director penalty provisions, that relying on others, including fellow directors and professional advisers, does not discharge a director's duty, and that staying out of the company's management is usually itself a breach rather than an excuse. The three statutory defences are illness or another good reason for non-participation, taking all reasonable steps and, for SGC and GST only, a reasonably arguable position taken with reasonable care.
The 21 days runs from the day the ATO posted the notice, not from the day it arrived.
Don't wait until your options narrow.
If a DPN has arrived, the most useful first conversation covers the date on the notice, the company's lodgement history and what you want to happen to the company. Call Jamie Nuich at Astris Law and talk the situation through.