The Director Penalty Notice (“DPN”) regime is administered by Division 269 of the Taxation Administration Act 1953 (Cth) (“the TAA”).

Directors are legally responsible for ensuring a company meets its taxation and superannuation lodgement and payment obligations.

Under the DPN regime, failure of a company to meet these obligations means directors can be held personally liable for a penalty in an amount equal to the amount that the company should have paid.

The DPN regime has, until recently, only applied to PAYG-w and Superannuation Guarantee Charge (“SGC”) amounts. Laws governing the DPN regime have evolved over the years:

  • In June 2012, the concept of a ‘lockdown DPN’ was born, making it easier for the Australian Taxation Office (“ATO”) to make directors personally liable for these debts, particularly where lodgement obligations are not complied with
  • From 1 April 2019, the exposure of a director to a lockdown DPN in respect of SGC amounts was changed from three months after the lodgement due date of the SGC statement to simply the day after the SGC statements are due (i.e. no three month grace period)
  • Following reforms associated with broader anti-phoenixing measures, a major update has been the inclusion of Goods & Services Tax (“GST”) into the scope of the regime from 1 April 2020, along with Wine Equalisation Tax (“WET) and Luxury Car Tax (“LCT”).  

The DPN regime serves to ensure that directors acquit their lodgement obligations on time and to safeguard against any delays in payment of PAYG-w, SGC, GST, WET and LCT.

How DPNs work

In accordance with Division 269 of the TAA, a director becomes liable to a parallel penalty at the end of the same period that the company should have settled its obligations for PAYG-w, SGC and GST (etc). In other words, the ATO does not need to issue a DPN for the director penalty amount to exist. The issuance of a DPN (i.e. the paperwork) is merely notification that enforcement actions are commencing.

The ATO follows a process for enforcement of the penalty by observing a 21 day notice period in which a director can take various courses of action. It is important to note that the 21 day notice period commences on the date of the DPN itself as opposed to the date of receipt by the director.

There are two types of DPN which are explored below.

Non-lock down DPNs

Non-lockdown DPNs occur in circumstances where a company has acquitted its BAS and SGC lodgement obligations (or they are not lodged more than three months late in respect of PAYG-w and GST etc – noting that SGC do not have a ‘grace period’ from 1 April 2019); however payment of the relevant liabilities have not been made.

The issuance of a DPN in these circumstances will give a director options to consider and address within the 21 day notice period as follows:

  • Pay the debt
  • Place the company into Voluntary Administration
  • Place the company into Liquidation

Lockdown DPNs

Lockdown DPNs occur in circumstances where a company has not acquitted its BAS lodgement obligations within three months of their due dates, or its SGC lodgement obligations on time, and payment of the relevant liabilities have not been made.

The issuance of a DPN in these circumstances will not give a director options to avoid personal liability as is the case with a non-lock down DPN.

In our experience, there are few directors who attend to the lodgement of SGC statements with the ATO in circumstances where superannuation is not paid to the relevant superannuation funds by the relevant due dates. There appears to be a general lack of awareness amongst directors around the matter and the responsibility to lodge SGC statements, resulting in automatic personal liability once the SGC statements become overdue.

It is worth noting that an additional month is granted where a Tax Agent is attending to the lodgements for a company.

Address for service

Directors often suspect that important correspondence pertaining to a company will be issued to its registered office; however given the personal nature of a DPN, it is issued to the director’s personal address as recorded on the Company’s Australian Securities & Investments Commission’s (“ASIC”) register.

It is not unusual in our experience for a DPN to go unopened for the full 21 day notice period, resulting, in the case of a non-lockdown DPN, personal liability at the expiry of that period.

We have encountered circumstances where family members have filed correspondence from the ATO containing a DPN in expectation of it containing ‘routine’ information, only to discover its true contents at a later time.

The critical point is that directors should open any correspondence received from the ATO, regardless of what they may perceive to be its contents.

We have also observed, in less frequent circumstances, that a DPN can be issued to the office of a company’s Tax Agent, as the ATO is empowered to do.

Importantly for Tax Agents, if a client changes their residential address, it is important that the change is reflected at ASIC. Consider the circumstances where a director moves house, you update your internal records for the issuance of invoices for your services etc, and fail to update the ASIC register. Such circumstances could result in reputational damage or potentially worse.

DPNs may be based on estimates

The ATO may make a reasonable estimate of the respective liabilities and a DPN may be issued based on those estimates.

Allocation of payments

A critical point to consider is the allocation of payments made to the ATO. These matters are dealt with by Division 2 of Part IIB of the TAA and PSLA 2011/20.

Consider the following circumstances-

  • A taxpayer has a historical RBA deficit, comprised of GST, PAYG-w, penalties and interest
  • A payment plan is in place to address the historical debt and there is a condition that ongoing BASs are lodged and paid on time
  • The taxpayer complies, making payment of the agreed monthly amounts and adheres to ongoing lodgement obligations

One might presume that the payment made pursuant to the payment plan would be allocated equally across the respective debts associated with GST, PAYG-w, penalties and interest. One might also presume that the payment of ongoing obligations would be allocated directly to the liability associated with the respective lodgements as they arise.

PSLA 2011/20 and specifically, section 8AAZLE of the TAA, cover the following ground-

  • Common law provides that a person who owes two or more debts to the same person, in this case GST, PAYG-w, penalties and interest, the debtor is entitled to nominate that a payment applies to one debt and not another
  • In the case of an ongoing BAS payment, it is clear that a payment made corresponds with a specific liability
  • If a debtor does not specify where the payment should be allocated at the time of payment, the creditor, in this case the ATO, is entitled to make the decision as to allocation of the payment

PSLA 2011/20 says that the ATO will usually allocate payments in accordance with directions, on the basis that the payment discharges the full amount of the liability

Having said that, section 8AAZLE of the TAA gives the ATO discretion to allocate payments contrary to directions, specifically in instances “Where an account reconciliation is required to isolate certain components (for example, in the case of director penalty liabilities)”.

PSLA 2011/20 goes on to say that unless there is a valid reason to do so, the ATO policy for allocating a payment for which no direction is received, is-

  • All payments will be allocated to the earliest (oldest) debts within an account
  • Except where the payment relates to a ‘Listed Payment’

Listed Payments, amongst other elements, importantly include-

  • Arrangements to pay tax-related liabilities by instalments, allocated in accordance with the arrangement, or by default as follows:
    • Net GST
    • Assessed net fuel amounts greater than zero
    • FBT instalments
    • PAYG-w
    • Deferred company and superannuation funds instalments
    • PAYG instalments
    • Administrative penalties, including General Interest Charge for late payment

In summary, the allocation of payments made to the ATO will have a material impact on the issuance of a DPN, and given the discretion afforded by section 8AAZLE, payment directions given to the ATO may have little bearing on DPN risk mitigation.

Having said that, with the recent introduction of GST etc to the DPN regime, this issue will become less relevant as we move forward.


There are defences available to directors who are exposed to a DPN liability as set out below-

  • The director did not take part (and it would have been unreasonable to expect the director to take part) in the management of the company during the relevant period because of illness or other acceptable reason
  • The director took all reasonable steps, unless there were no reasonable steps the director could have taken, to ensure that one of the following three things happened
    • the company paid the amount outstanding
    • an administrator was appointed to the company
    • the directors began winding up the company (within the meaning of the Corporations Act 2001)
  • In the case of an unpaid SGC liability – the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued, was in accordance with the law, and took reasonable care in applying that Act

Other important points

  • The appointment of a Receiver or Receiver and Manager will not extinguish the exposure to a DPN. As noted above, the appointments needed to extinguish a DPN must be Administration (i.e. the appointment of a Voluntary Administrator) or wound up (i.e. the appointment of a Liquidator). If a company is in Receivership, and a non-lockdown DPN is received by a Director, it will necessary to appoint a Voluntary Administrator or a Liquidator within 21 days of the date of the DPN to avoid the personal liability of the said Director. As Administrators and Liquidators are typically remunerated out of the assets of the insolvent entity (and in the case where a Receiver is appointed, these assets are usually under the control of the Receiver) it may be necessary to indemnify an Administrator or Liquidator for their fees in order to appoint an Administrator or a Liquidator – thus avoiding the potential personal liability referred to in the DPN.
  • A DPN may be issued after a company is stuck off the ASIC register. The company does not legally exist. Once a company is struck off the ASIC register the appointment of a Voluntary Administrator or Liquidator is not practically available to avoid the potential personal liability referred to in the DPN.
  • We have encountered individuals who had received a DPN several years ago (with no recovery enforcement action from the ATO at the time), only to have the ATO to resurrect the recovery and enforcement process referred to in the DPN.
  • Finally, in our experience, it is difficult to predict when a DPN might be issued, or when recovery action may be commenced for a DPN where no action is taken by the Director during the 21 day period referred to in the DPN.
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