The director penalty notice (DPN) regime is one of the Australian Taxation Office's most significant tools for recovering unpaid company tax debts. It allows the ATO to make company directors personally liable for certain company tax liabilities — PAYG withholding, superannuation guarantee charge (SGC), and, since 2012, net amounts of GST. For directors of companies in financial difficulty, the personal exposure created by the DPN regime is often more immediate and more serious than any creditor's claim.
What obligations are covered
The DPN regime currently applies to:
- PAYG withholding amounts (the tax withheld from employee wages that the company is required to remit to the ATO)
- Superannuation guarantee charge — the SGC is the penalty imposed when superannuation guarantee amounts are not paid by the quarterly due date
- Net GST amounts (the net amount payable on a BAS)
Lockdown DPNs
The most serious form of DPN is the lockdown (or non-remittable) DPN. A lockdown DPN is issued when the company has failed to report PAYG or SGC obligations within the required timeframe. Once a lockdown DPN is issued, there is no way to avoid personal liability by placing the company into administration or liquidation — the director remains personally liable for the full amount regardless of what happens to the company. Payment in full is the only way to discharge the liability.
Standard DPNs
A standard DPN is issued where the company has reported the obligation (lodged the BAS or IAS) but has not paid. In this case, the director has 21 days from the date of the notice to take one of the following steps to avoid personal liability: pay the outstanding amount; appoint an administrator to the company; begin a creditors voluntary liquidation; or have the company placed into receivership. If none of these steps are taken within 21 days, personal liability crystallises.
Who is a director for DPN purposes
The DPN regime applies to current directors at the time the obligation arose, and in some circumstances to shadow directors and to directors who were appointed after the obligation arose if they did not take action to resolve it. Resigning as a director after the DPN is issued does not avoid liability if the resignation occurs after the liability has already attached.
What directors should do
If a company has unpaid PAYG, SGC, or GST obligations, directors should seek advice immediately — before a DPN is issued if possible. Options include a payment arrangement with the ATO, voluntary administration, or liquidation. Acting early, before the lockdown conditions are met, preserves options. Waiting until a DPN arrives can eliminate them.
Contact Merion if you are a creditor seeking to understand the ATO's position in an insolvency, or if you need advice on how DPN exposure affects the viability of a recovery from a financially distressed debtor.