Understanding ATO Director Penalty Notices – What Every Business Owner Should Know
Running a business is tough enough without unexpected letters from the Australian Tax Office (ATO) landing in your mailbox. One notice that has caught out many small and medium business owners is the Director Penalty Notice (DPN). If you’re a company director, it’s critical to understand what these are, how they work, and what you can (and can’t) do if one comes your way.
What is a Director Penalty Notice?
A DPN is a tool the ATO uses to make company directors personally liable for certain unpaid tax debts of their company. In particular, it covers PAYG withholding, GST, and superannuation guarantee charge obligations. The idea is simple: if the company doesn’t pay its obligations, directors can’t just walk away — the ATO can chase them personally.
How do they come about?
If a company fails to lodge and pay on time, the debt builds up with the ATO. After some time, if the company doesn’t engage or make arrangements, the ATO may issue a DPN. This isn’t just a warning — it’s a formal step that transfers the debt risk to the directors themselves.
The Two Types of DPNs
There are two flavours of DPNs, and the difference is critical:
- Non-Lockdown DPN
- Issued when the company has lodged its BAS and superannuation returns on time, but hasn’t paid the debts.
- Directors have 21 days from the date of the notice to take action. Options include: paying the debt, appointing a voluntary administrator, or placing the company into liquidation.
- If you act within that window, you can avoid personal liability.
- Lockdown DPN
- This is far tougher. It applies when the company hasn’t even lodged its BAS or superannuation returns within the required timeframe (generally three months after due dates).
- In this case, directors become automatically personally liable for the debt. Appointing an administrator or liquidator won’t remove the penalty. The only way out is to pay.
- This is why keeping lodgements up to date, even if you can’t pay, is absolutely vital.
Why does the ATO do this?
The ATO’s view is that PAYG, GST and super aren’t the company’s money — they belong to employees and the community. If businesses withhold tax or super but don’t pass it on, directors can’t expect to hide behind the company structure.
Key Takeaways for Directors
- Lodge on time: Even if you can’t pay right away, lodging within deadlines keeps options open.
- Don’t ignore notices: Once a DPN arrives, the clock is ticking. For a non-lockdown DPN, you only get 21 days.
- Get advice early: Insolvency and tax advisers can help you navigate your options and avoid worse outcomes.
Director Penalty Notices are a serious reminder that being a director carries responsibilities beyond day-to-day operations. Understanding the difference between lockdown and non-lockdown DPNs can be the difference between managing a company debt and wearing it personally.
If you’re a director worried about your company’s ATO obligations, don’t wait for a DPN to arrive. Talk to us today about how to stay compliant, protect yourself, and put a plan in place before problems escalate.