What is a Director Penalty Notice?
2024 Guide

There are two types of DPNs that the ATO can issue: non-lockdown DPNs and lockdown DPNs.

• Non-lockdown DPN: A non-lockdown DPN is issued when a company has lodged its tax and superannuation returns within the required timeframes but still has unpaid debts. This includes lodging business activity statements (BAS) and instalment activity statements (IAS) within 3 months and SGC statements by their due date. Directors have 21 days from the date of the notice to take one of the following actions to avoid personal liability:

• • Pay the debt;
  • Appoint a voluntary administrator;
  • Appoint a small business restructuring practitioner; or
  • Appoint a liquidator.

If a director takes one of these actions within the 21-day period, the penalty is remitted (i.e. cancelled). However, if no action is taken, the director may be held personally liable.

• Lockdown DPN: This notice is issued when a company has failed to lodge the required returns within the ATO’s timeframes, in addition to having unpaid debts. Unlike a non-lockdown DPN, directors cannot avoid personal liability by placing the company into administration or liquidation. The only way to remit the penalty is to pay the debt in full. Whilst it may be possible to enter into a payment arrangement with the ATO, the penalty will not be remitted unless/until the debt is paid in full

In both cases, it’s critical for directors to act quickly to minimise personal liability.

For a non-lockdown DPN, the director’s liability will apply to the company’s unpaid tax obligations if:

• PAYG withholding and GST were lodged within three months of the due date for BAS and IAS; and
• Superannuation was lodged by the due date for the SGC statement.

For a lockdown DPN, the director’s liability arises from unpaid tax obligations when lodgements were made after these timeframes.

To calculate personal liability for either a non-lockdown or lockdown DPN, you can use the company’s Integrated Client Account and, if applicable, the SGC account, along with the company’s lodgement history. This will show whether the unpaid obligations were lodged within or outside the required timeframes.

If unsure – contact the de Jonge Read team today to review your DPN and find out which penalty applies to your situation.

Once the ATO issues a DPN, it has several methods to recover unpaid company taxes from directors. These include:

• Issuing a garnishee notice
  The ATO can collect the debt directly from third parties who owe the director money, such as banks, financial institutions, or employers;
• Offsetting tax credits
  Any tax credits due to the director, such as an income tax refund, can be applied against the director penalty; and
• Commencing legal proceedings
  The ATO may take court action to recover the debt, which could lead to bankruptcy proceedings against the director.

It’s crucial to act immediately when a DPN is issued, as the clock starts ticking from the date on the notice, not when it’s received. Prevention is always better than cure—ensuring timely lodgement of tax obligations can help avoid a lockdown DPN.

Unsure what to do? Contact the de Jonge Read team today for expert guidance. We’ll help you or your clients navigate the best steps to manage director penalties effectively and avoid personal liability.

When a non-lockdown DPN is issued, the 21-day period is the limitation period for taking action. If you don’t act or comply within this time frame, the ATO may initiate recovery actions against you. Recently, we’ve seen cases where the ATO pursued director penalties for long-standing debts, even in situations where the company had already been liquidated years before. If no action is taken within the 21-day limitation period, the ATO will use the recovery methods mentioned above to enforce the penalties.

A DPN can be issued to any current or previous director of a company. Resigned directors may also be held liable if unpaid tax liabilities arose during their time as a director. In rare cases, de facto or “shadow” directors may receive a DPN.

New directors have a 30-day window to assess the company’s financial position and take action on any outstanding PAYG or SGC debts. During this period, they can pay the debts, appoint an administrator, engage a restructuring practitioner, or wind up the company. Resigning within this period does not remove the obligation to address pre-existing debts.

Yes, a former director can still be held personally liable for certain company tax debts through a DPN. If unpaid tax obligations, such as PAYG withholding or SGC, were incurred during the director’s tenure, the ATO can issue a DPN even after the director has resigned. The former director remains liable for these debts until they are resolved.

A director’s liability for unpaid company tax debts can extend beyond their resignation. If the company failed to lodge tax returns or statements on time, the ATO can issue a lockdown DPN, which holds the former director liable for the debts indefinitely. These debts remain collectable by the ATO unless they are paid in full or the company enters liquidation or voluntary administration within the DPN’s specified timeframe.

Directors should ensure all tax obligations are current before resigning to avoid ongoing personal liability.

The ATO issues a DPN by posting it to the director’s personal address registered with the Australian Securities and Investments Commission (ASIC). It’s important to note that the ATO considers the notice served from the date of posting, not when it’s received. Therefore, the 21-day compliance period starts from the date on the DPN.

Directors must ensure their address is always up-to-date with ASIC, as the ATO is not required to prove that the director received the DPN. If the DPN is not complied with within 21 days, the ATO can take action to recover the debt.

For non-lockdown DPNs, directors have one last chance to address their personal liability within the 21-day period.

The ATO’s concept of “parallel liability” means that all directors of a company share equal responsibility for unpaid tax debts, i.e. all directors are liable, in full, for the amount stated on the DPN. The ATO can recover the full amount from the company or any director, and payments made by either party will reduce the liability for all involved.

Yes, the ATO can issue a DPN after a company has gone into liquidation or other form of external administration.

However, whether the ATO can issue a DPN depends on the company’s tax lodgement history. If BAS or SGC Statements were lodged on time, the ATO can only issue a 21-day non-lockdown DPN, and this option is no longer available once the company is in liquidation or other form of external administration.

On the other hand, if BAS or SGC Statements were lodged late, the ATO can issue a lockdown DPN, which can be enforced at any time in the future, even after liquidation.

When a DPN is issued, it places the personal liability for certain unpaid company debts squarely on the director’s shoulders. Understanding the potential consequences and acting swiftly is crucial to safeguard both personal and business interests.

Key effects of a DPN:

• Personal Liability for Company Debts
  If the company fails to pay its debts (such as PAYG and superannuation), the director becomes personally liable.
• Restrictions on Restructuring
  Directors may face limits on company restructuring activities until the debt is resolved, which can hinder business recovery.
• Impact on Credit Rating
  Personal liability for unpaid debts can damage a director’s credit rating, affecting their ability to secure loans for personal or business purposes.
• Legal Action
  The ATO may take legal action against the director to recover unpaid debts.
• Increased Scrutiny: Receiving a DPN can attract further attention from regulatory authorities, as it indicates financial distress within the business.
• Disqualification as a Director
  Ongoing failure to address DPN obligations may result in disqualification from acting as a director.

If you receive a DPN, professional advice is essential to protect your position. Contact the de Jonge Read team today to explore your options and safeguard your financial future.

If a DPN is issued and the director fails to pay, the ATO can take personal action against the director to recover the company’s tax debt. The ATO has several enforcement options, such as issuing a Garnishee Notice to seize funds directly from the director’s personal bank accounts. Ultimately, the ATO can continue to pursue the director, potentially leading to bankruptcy if the debt remains unpaid.

In cases where there are multiple directors and only one pays the DPN, disputes can arise. The Taxation Act grants a “right of indemnity,” allowing the director who settled the DPN to seek recovery of the amounts paid from either the company or other directors who were equally responsible for the debt.

No, receiving a DPN doesn’t automatically result in bankruptcy. However, it does make the director personally liable for the debt outlined in the notice. If the director fails to pay, the ATO may take further action, which could eventually result in the director being declared bankrupt.

Take action now – contact the de Jonge Read team to explore your options and protect your financial future.

Directors have several options and defences available when facing a DPN, but it is crucial to act quickly. The two primary defences are illness and reasonable steps, but there are also other practical steps you can take to address the situation.

1. Illness or Justifiable Non-Participation
   A director can avoid personal liability if they are unable to take part in managing the company due to illness or another valid reason. This defence is challenging to establish, as the director must prove they were incapacitated for the entire period when the company’s tax liabilities accrued. Simply not being involved or relying on others (including fellow directors or advisors) is not a valid defence.

2. Reasonable Steps
   Directors may also defend a DPN by showing they took all reasonable steps to resolve the company’s tax liabilities, including:

• • Paying the debt in full;
  • Appointing an administrator or a small business restructuring practitioner; or
  • Voluntarily winding up the company.

If these steps were taken but the issue remained unresolved, the director could still have a valid defence.

Common Misconceptions about DPN Defences

1. Not receiving the DPN
   The ATO considers the notice served once it is posted to the director’s registered address with ASIC, regardless of whether the director receives it. Failure to update your ASIC address is not a valid defence.
2. Spouse’s company
   Simply acting as a director in name only, such as helping a spouse, is not a valid defence. The law requires you to prove it was unreasonable to expect your involvement due to illness or another valid reason.

Don’t wait for things to escalate. Take immediate steps to protect your financial position. Contact the de Jonge Read team today to explore possible defences and the best course of action. Let us guide you through the process and help you avoid personal liability.

In addition to possible defences, directors have the following options when issued with a DPN:

1. Repay the debt in full
   Paying the entire amount owed will resolve the issue and remove personal liability;
2. Enter an instalment agreement
   You can arrange a payment plan or a non-formal agreement with the ATO to pay the debt in instalments;
3. Voluntary liquidation
   Winding up your company’s affairs through liquidation is another option if resolving the debt is not feasible;
4. Appoint an administrator
   Entering voluntary administration allows for a structured process to manage the company’s debts; or
5. Defend the notice
   If you believe you have a valid defence, such as illness or taking reasonable steps, you can submit this defence to the ATO for consideration.

It’s essential to act quickly when dealing with a DPN, as timing is key. Contact the de Jonge Read team immediately to evaluate your options and secure the best outcome for you. Our experienced team will guide you through this challenging process, whether it involves resolving the debt, defending the notice, or seeking remission of the DPN. We’ll ensure you take the right steps to protect yourself and your business.

Don’t ignore a DPN—reach out to us today for expert guidance in navigating this complex process and finding the right solution for your situation.

If you believe you have a valid defence against a DPN, it’s important to act promptly. The process for submitting a defence depends on how the ATO is seeking to collect the penalty:

• Court Proceedings: If the Commissioner takes the matter to court to recover the penalty, you can raise and prove your defence during those proceedings.
• Other Collection Methods: If the ATO seeks to collect the penalty through other means, such as issuing a garnishee notice, you must act as quickly as possible to address to submit your defence and address the situation.

Your defence must be submitted in writing and include all relevant information, supporting documentation, and a clear outline of your argument.

A defence can be submitted to the ATO directly or through your tax agent. To ensure the best chance of success, let the de Jonge Read team guide you through the entire process, ensuring all necessary details outlining your defence are thoroughly covered. Contact us today for expert support.

Yes, it can. If the ATO has issued a 21-day non-lockdown DPN, one option to avoid personal liability is to place the company into SBR This is often an effective strategy for managing the situation and protecting yourself from personal liability.

If you’ve received a DPN, contact the de Jonge Read team today to find out if SBR is the right option for you, and we will ensure you take the necessary steps to protect yourself and your business.

No, Safe Harbour does not protect you from a DPN. Safe Harbour is designed to give companies some flexibility while they restructure and primarily protects directors from personal liability for insolvent trading laws. However, it does not offer protection from DPNs.

Take action now – contact the de Jonge Read team today to explore your options and safeguard your business.

If you or your client is dealing with outstanding ATO debts, unpaid superannuation obligations, or has received a DPN, our de Jonge Read team is here to help.

Our team can review the company’s financial situation and provide expert advice on the best options suited to your circumstances.

Directors have a limited window to respond to a DPN, and failing to act can result in personal liability for significant company debts, potentially impacting personal finances.

Take action now – contact our team today to discuss the best course of action and protect your client’s financial future.