"The ATO has sent me a Director Penalty Notice for my company's unpaid super and PAYG. Am I personally liable — and what can I actually do about it?"
This is one of the most stressful letters a small business owner can receive, and we see it more often than you'd think across Werribee, Hoppers Crossing, Tarneit and the wider western suburbs. The short answer is: yes, a Director Penalty Notice (DPN) can make you personally liable for certain company tax debts — the corporate veil does not protect you here. But what happens next depends enormously on which type of DPN you've received, when the underlying lodgments were made, and how fast you act.
Let's unpack it properly.
What a DPN actually is
Under the director penalty regime in the Taxation Administration Act, company directors have a positive legal duty to ensure the company meets certain reporting and payment obligations. If the company fails to pay, the ATO can issue a penalty equal to the unpaid amount to each director personally, and then collect it from them directly — through garnishee notices, offsetting your personal tax refunds, or legal proceedings.
The obligations covered by the DPN regime are:
- PAYG withholding — tax withheld from employee wages that wasn't remitted to the ATO
- Superannuation guarantee charge (SGC) — unpaid or late employee super, including the interest and administration components
- GST (and related amounts such as luxury car tax and wine equalisation tax), which were brought into the regime from 1 April 2020
Note what's not on that list: company income tax, and penalties or general interest charge on the company's own income tax debt. A DPN is specifically about amounts the company collected or held on behalf of others — employees' tax, employees' super, and GST collected from customers.
The critical distinction: non-lockdown vs lockdown DPNs
This is the single most important thing to identify on your notice, because it determines whether you have a way out.
Non-lockdown DPN
You'll receive a non-lockdown DPN where the company lodged its BAS, instalment activity statements or superannuation guarantee statements on time (broadly, within three months of the due date for PAYG and GST, or by the lodgment due date for SGC) but simply didn't pay.
With a non-lockdown DPN, you have 21 days from the date of the notice to take one of the following steps to have the penalty remitted:
- Pay the company's debt in full
- Appoint an administrator to the company
- Appoint a small business restructuring practitioner
- Begin winding the company up (appoint a liquidator)
Entering a payment arrangement with the ATO does not remit the penalty. It may stop active recovery while you comply, but the director penalty legally remains on foot until the debt is actually paid.
Lockdown DPN
A lockdown DPN applies where the company failed to lodge within the relevant timeframe. In that case the penalty is "locked down" — appointing an administrator or liquidator will not make it go away. The only realistic way out is payment of the debt, or successfully establishing a statutory defence.
This is why we hammer the point with every company client: lodge on time even if you can't pay. Lodging a nil-cash BAS or an SGC statement you can't fund feels pointless in the moment, but it is the difference between having four options and having almost none.
The 21 days start from the date on the notice — not the day you read it
The ATO issues DPNs to the director's address held on the ASIC register, and the 21-day period runs from the date of the notice, not from when it lands in your letterbox. If your ASIC address is an old rental in Altona from three moves ago, the clock can expire before you've even seen the envelope. Two practical takeaways:
- Keep your ASIC-registered residential address current — always.
- If a DPN arrives, bring it to your accountant the same week. Not the same month.
"I resigned as a director — surely I'm off the hook?"
Usually not. You remain liable for penalties relating to obligations that fell due while you were a director, and resignation doesn't erase them. And if the company's debt was still outstanding when you resigned, liability can continue to accrue in certain circumstances.
There's also a trap for new directors. If you join a company that already has unpaid PAYG withholding, super or GST, you generally get a 30-day grace period after appointment — but if the debt is still unpaid after that, you can become personally liable for obligations that arose before you ever signed anything. Before you accept a directorship, get a proper look at the company's ATO integrated client account and SGC position. "I didn't know" is not a defence.
The statutory defences
The law does provide defences, but they are narrow and the onus of proof sits with you:
- Illness or other good reason — you did not take part in the management of the company during the relevant period because of illness or some other acceptable reason. Vague disengagement or "my business partner handled the books" is not enough.
- All reasonable steps — you took all reasonable steps to ensure the company paid the amount, appointed an administrator or restructuring practitioner, or began winding up; or there were no such steps you could have taken.
- Superannuation-specific defence — for SGC, where the company treated the Superannuation Guarantee (Administration) Act as applying in a way that was reasonably arguable (for example, a genuine and well-supported contractor classification question).
Contemporaneous evidence is everything here: board minutes, emails to your accountant, medical records, records of attempts to raise funds or chase debtors. Defences built after the notice arrives rarely stand up.
What we do when a client brings us a DPN
- Identify the type — lockdown or non-lockdown, and for which obligations and periods.
- Verify the numbers — DPNs are sometimes based on ATO estimates where lodgments are missing. Correct lodgments can materially reduce the penalty amount.
- Check the lodgment history — a DPN issued as a lockdown notice when lodgments were in fact made on time can be challenged.
- Map the options against the 21-day window — including whether small business restructuring is genuinely viable, working alongside an insolvency practitioner where needed.
- Deal with the ATO in writing and lodge everything outstanding, quickly.
The prevention lesson
Almost every lockdown DPN we see traces back to the same habit: falling behind on lodgment because there was no money to pay. Separate those two decisions. Lodge every BAS and SGC statement on time, treat PAYG withholding and super as money that was never yours, and talk to us the moment cash flow tightens — not eighteen months later.
If a DPN has arrived, or you're a director of a company with unpaid super or activity statements, contact ProPartners Accountants & Advisers in Werribee. With director penalties, days matter.