Director Penalty Notice (DPN)
What To Do in 21 Days

A DPN is issued by the ATO to hold company directors personally liable for unpaid company taxes and superannuation obligations. These include

• PAYG withholding, the tax withheld from employee wages
• GST, the net goods and services tax payable
• Superannuation Guarantee Charge (SGC), unpaid employee superannuation

When a company fails to meet these obligations, the ATO can recover the unpaid amounts directly from the directors.

DPNs have become one of the ATO’s main enforcement tools. In FY24-25 the ATO issued more than 84,000 of them, up from around 26,700 the year before, so this is an active and rising area of enforcement.

The ATO may issue either a non-lockdown or lockdown DPN, with the key difference being whether the tax obligation was reported within the required timeframe. There are scenarios where you can be issued both non-lockdown and lockdown DPNs for different amounts (see below for the differences between the two).

Ignoring a DPN can have serious consequences. Non-compliance may result in you becoming personally liable for the company’s tax debt. It’s crucial to act quickly if you receive a DPN, as personal liability is enforced through the notice. Taking prompt action can help mitigate potential penalties and protect your financial future.

If a DPN has arrived, call 1300 765 080 for a free, no-obligation conversation about your options.

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

Non-lockdown DPN. This 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 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 and until the debt is paid in full.

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

This is why lodging on time matters even when the company cannot pay. Lodging on time preserves your options.

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 work out personal liability for either type, you can use the company’s Integrated Client Account (its ATO account) and, if relevant, 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.

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. The 21-day period therefore 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, the 21-day period is your one last chance to address personal liability.

The safest step is to get clarity early. Call 1300 765 080 and we will help you confirm which type you have and what you can still do.

Start by finding the issue date on the notice and working out which type you have, because that decides which of the options below is open to you. Alongside any available defences, directors generally have the following options:

• Repay the debt in full. Paying the entire amount owed resolves the issue and removes personal liability;
• Enter an instalment agreement. You can arrange a payment plan with the ATO, though note this alone does not remit a DPN;
• Voluntary liquidation. Winding up the company’s affairs through liquidation is an option if resolving the debt is not feasible;
• Appoint an administrator. Entering voluntary administration allows for a structured process to manage the company’s debts; or
• Defend the notice. If you believe you have a valid defence, such as illness or taking reasonable steps, you can submit it to the ATO for consideration.

Timing is everything with a DPN, so the right move is to get advice quickly and confirm which of these protects you best.

Generally, not on its own. Entering a payment arrangement with the ATO after a DPN has issued does not remove your personal liability. With a lockdown DPN in particular, the penalty is only remitted once the debt is paid in full. A payment plan can help you manage the debt, but it is one of the most common and costly mistakes to rely on it as your response to the notice without first getting advice.

Directors have several defences available when facing a DPN, but it is crucial to act quickly. The main defences are:

• Illness or justifiable non-participation. A director can avoid personal liability if they could not take part in managing the company due to illness or another valid reason. This is hard to establish, as you must prove you were unable to be involved for the entire period the liabilities accrued. Simply not being involved, or relying on others, is not enough.
• Reasonable steps. You may have a defence if you took all reasonable steps to ensure the company paid the debt, appointed an administrator or restructuring practitioner, or began winding up, or if there were no reasonable steps you could have taken.
• Reasonably arguable position (super only). For the SGC, there may be a defence if the company treated the superannuation law as applying in a way that was reasonably arguable and took reasonable care.

These defences are fact-specific, generally need to cover the whole relevant period, and must be supported by evidence.

Common misconceptions. Two defences people assume they have, but don’t:

• “I never received it.” The ATO treats the notice as served once it is posted to your ASIC-registered address, whether or not it reaches you. A wrong address is not a defence.
• “I was only a director on paper.” Acting as a director in name only, for example to help a spouse, is not a defence. You would still need to prove it was unreasonable to expect your involvement due to illness or another valid reason.

If you believe you have a valid defence, it’s important to act promptly. How you submit it 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 in those proceedings.
• Other collection methods. If the ATO seeks to collect the penalty another way, such as a garnishee notice, you must act as quickly as possible to submit your defence.

Your defence must be in writing and include all relevant information, supporting documentation, and a clear outline of your argument. It can be submitted to the ATO directly or through your tax agent.

Once a DPN is in force and unpaid, the ATO has several ways to recover the money from you personally:

• Garnishee notice. The ATO can collect the debt directly from third parties who owe you money, such as your bank or an employer;
• Offsetting tax credits. Any tax credit due to you, such as an income tax refund, can be applied against the director penalty; and
• Legal proceedings. The ATO can take court action to recover the debt, which could lead to bankruptcy proceedings against you.

The clock starts ticking from the date on the notice, not when you receive it, so it’s crucial to act immediately. Prevention is always better than cure, and lodging tax obligations on time helps you avoid a lockdown DPN in the first place.

No, receiving a DPN doesn’t automatically result in bankruptcy. However, it does make you personally liable for the debt outlined in the notice. If the debt is not paid, the ATO may take further action, such as a garnishee notice or court proceedings, which could eventually result in you being declared bankrupt. A company liquidation is also not the same as personal bankruptcy, and the two carry very different consequences.

When a DPN is issued, it places personal liability for certain unpaid company debts squarely on your shoulders. The key effects are:

• Personal liability for company debts. If the company doesn’t pay debts such as PAYG and superannuation, you become personally liable;
• Restrictions on restructuring. You may face limits on company restructuring until the debt is resolved, which can hinder recovery;
• Impact on credit rating. Personal liability for unpaid debts can damage your credit rating, affecting future borrowing;
• Legal action. The ATO may take legal action against you to recover unpaid debts;
• Increased scrutiny. A DPN can attract further attention from regulators, as it signals financial distress; and
• Disqualification as a director. Ongoing failure to address DPN obligations may result in disqualification from acting as a director.

Yes. Resigning does not erase your liability for tax debts that arose during your time as a director. If unpaid obligations such as PAYG withholding or SGC were incurred while you were in the role, the ATO can issue a DPN even after you have resigned, and you remain liable until those debts are resolved.

Where the company failed to lodge on time, a lockdown DPN can hold a former director liable indefinitely. These debts stay collectable unless they are paid in full, or the company enters liquidation or voluntary administration within the DPN’s timeframe. The practical lesson is to make sure all tax obligations are current before you resign, not after.

A DPN can be issued to any current or previous director, and in rare cases to de facto or “shadow” directors, meaning people who act as directors without being formally appointed.

New directors are not exempt either. A new director has a 30-day window from appointment to assess the company’s position and act 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 window does not remove the obligation to deal with pre-existing debts.

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.

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 the other directors who were equally responsible for the debt.

Yes, the ATO can issue a DPN after a company has gone into liquidation or another form of external administration. However, whether it can depends on the company’s tax lodgement history. If BAS or SGC statements were lodged on time, the ATO could only ever issue a 21-day non-lockdown DPN, and that option is no longer available once the company is in liquidation. 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.

Yes, it can. If the ATO has issued a 21-day non-lockdown DPN, one way to avoid personal liability is to place the company into Small Business Restructuring within the 21 days. For an eligible company this is often an effective way to manage the situation and protect yourself from personal liability. (See our Small Business Restructuring page for how it works.)

No, Safe Harbour does not protect you from a DPN. Safe Harbour gives directors some protection from personal liability for insolvent trading while they pursue a genuine restructuring. It does not offer protection from a Director Penalty Notice, so it is not the answer to a DPN on its own.

If you or your client is dealing with outstanding ATO debts, unpaid superannuation, or has received a DPN, our team is here to help. de Jonge Read® has guided more than 7,500 business owners and directors through financial distress since 2006. We will review the company’s position, explain the best options in plain terms, and, if you would like us to act, work to the best possible outcome on a fixed-fee, fixed-time basis.

Directors have a limited window to respond. Don’t wait for the 21 days to run down. Call 1300 765 080 or book your free, no-obligation consultation.

This page provides general information only and does not take into account your personal circumstances. It is not legal, financial or tax advice. Please obtain advice tailored to your situation before acting. Last updated: June 2026.