Director Penalty Notices


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 PAYG-w and Superannuation Guarantee Charge (“SGC”) obligations.

Under the DPN regime, failure to do so means directors can be personally liable for the amounts of PAYG-w and SGC that the company should have paid.

Laws governing the regime were amended in June 2012, 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.

The DPN regime helps to ensure directors acquit their lodgement obligations on time and to safeguard against any delays in payment of PAYG-w and SGC.

In accordance with Division 269 of the TAA, a director becomes liable for a penalty at the end of the same period that the company should have settled its obligations for PAYG-w and/or SGC (noting that GST is not subject to DPNs). In other words, the ATO does not need to issue a DPN for the penalty to exist. The issuance of a DPN 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); 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 and SGC lodgement obligations within three months of their due dates 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 taxpayers 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 three month period has elapsed and a DPN has been issued.

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

If a company fails to comply with its PAYG-w and SGC reporting obligations, 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 liabili


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’

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.

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.

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