What should I do if I receive a director penalty notice?

A director penalty notice (DPN) is serious, but it comes with a set period in which you can act. The most important thing is to start now and not wait until close to the deadline. This page explains the first steps in plain terms. It is general information, not legal advice.

If you are not sure what a DPN is, start with what is a director penalty notice.

Step by step

1. Find the date on the notice. The ATO says the 21 days starts on the day it posts the DPN or leaves it at your address registered with ASIC. It does not start on the day you open it.
2. Work out your deadline. Count 21 days from that date and write the last day down. If you are unsure of the date, ask the ATO or your registered tax agent to confirm it. Plan to act well before that day, because appointing an administrator or restructuring practitioner takes time to arrange.
3. Check which debts it covers. The ATO says the notice sets out the unpaid amounts you are liable for and the remission options available to you. It can cover PAYG withholding, GST (including LCT and WET) and super guarantee charge.
4. Check the type of notice. Look at which remission options the notice lists. If it lists only full payment, the amounts were reported late or not reported, which is often called a lockdown DPN. If it lists the other options too, it is often called a standard DPN.
5. Gather the company’s records. Find the BAS lodgement dates, super guarantee charge statements, the company’s ATO account statement and any letters from the ATO.
6. Contact the ATO or a registered tax agent. Use the contact details on the notice, or ask your registered tax agent to contact the ATO for you. Confirm the amounts, the dates and what the ATO needs from you.
7. Get professional advice. Speak with a lawyer, a registered liquidator or a small business restructuring practitioner (see below) about which option suits the company.
8. Make a decision and act before the deadline. Keep copies of everything you send and receive.

Check the date and type of notice

The date

The 21-day period is fixed. The ATO says that if the penalty is not remitted within 21 days of the notice, it may take action against you to recover the director penalty amounts. That can include offsetting your tax refunds, issuing a garnishee notice to your bank or starting legal proceedings.

The type

The type of notice depends on when the company reported the debts:

Debt	What makes all options available	What limits you to paying in full
PAYG withholding and GST	Reported within 3 months of the due date	Reported more than 3 months after the due date, or not reported
Super guarantee charge	Reported by the SGC due date	Reported after the SGC due date, or not reported

The ATO also says estimated amounts, where the ATO estimated what the company owed because it didn’t report, are treated as never reported.

The options the ATO lists for remitting a penalty

The ATO says the penalty can be remitted within 21 days if the company does one of the following. For a lockdown DPN, only the first option applies.

The company pays the amount in full

This remits the penalty for every type of DPN. The ATO describes a director penalty as a parallel liability, so any payment made reduces both the company’s debt and your penalty by the same amount.

The company appoints an administrator

Voluntary administration is a formal insolvency process. Talk to a registered liquidator about what it involves for the company before you decide.

The company appoints a small business restructuring practitioner

Small business restructuring is a formal process in which an eligible company proposes a restructuring plan. ASIC says:

• only a person registered with ASIC as a registered liquidator can act as a restructuring practitioner
• the company’s total liabilities must not exceed $1 million on the day of the appointment
• before a plan is proposed, the company must have paid employee entitlements that are due and payable and lodged the documents required under tax laws

The company begins to be wound up

Winding up is the process of closing the company. It is a significant step, so talk to a registered liquidator and a lawyer first.

Will a payment plan help?

A payment plan is not one of the ways the ATO lists to remit a director penalty. Payments you make under a plan still reduce the debt, and ATO payment plans may help the company manage what it owes. Ask the ATO or your adviser how a plan would interact with the DPN before you rely on one. See ATO payment plans for business.

If you think you have a defence

The ATO accepts three defences: illness or another acceptable reason for not taking part in managing the company, taking all reasonable steps to have one of the four remission options happen, or, for GST and SGC only, a reasonably arguable application of the law with reasonable care. The ATO says relying on others, including fellow directors and advisers, is not a defence.

If you think a defence applies, the ATO asks you to contact it as soon as possible. A defence must be in writing and must say which of the three defences you rely on. Get legal advice before you lodge one.

When to get advice, and from whom

Get advice as soon as you receive a DPN, and in particular if:

• the company can’t pay the full amount within the 21 days
• you are considering an administrator, restructuring or winding up
• you think you have a defence
• there are several directors, or you have resigned or recently joined the company.

Who can help:

• A registered tax agent or BAS agent can confirm the debts, the reporting dates and the ATO account position.
• A lawyer can advise on your personal liability, any defence and your rights.
• A registered liquidator can explain voluntary administration and winding up, and what each would mean for the company.
• A small business restructuring practitioner, who must be a registered liquidator, can tell you whether the company is eligible for small business restructuring.
• The Small Business Debt Helpline on 1800 413 828 is a free, independent and confidential service. business.gov.au says its counsellors can help with understanding business and personal debts and options for payment arrangements with the ATO.

Important things to know

• Don’t ignore it. After 21 days the ATO may start recovering the penalty from you personally.
• Don’t wait until day 21. Advisers need time to review the company and make an appointment.
• Resigning won’t remove the penalty. The ATO says resigning does not remove your obligation or alleviate the penalty, and you remain liable after the company is deregistered.
• Each director can receive a DPN. The ATO says each director is likely to owe the same amount.
• Keep lodging. Reporting later amounts on time keeps more options open if another DPN is issued.
• Borrowing is not always the answer. Before taking on new debt to pay the ATO, read when borrowing is not the answer and talk to your adviser.
• Look after yourself. The Small Business Ombudsman (ASBFEO) lists free support for business owners under financial pressure, including NewAccess for Small Business, a free and confidential mental health service.