Director responsibilities and Director Penalty Notices

As a director, it is your responsibility to ensure the company lodges and pays its company tax and superannuation obligations on time.  If these amounts remain un-lodged and unpaid, the director (current, past or future) may personally become liable for certain ATO debts incurred by the company.  

A Director Penalty Notice (DPN) can be issued by the Australian Taxation Office (ATO) to recover PAYG Withholding (PAYGW), Superannuation Guarantee Charge (SGC) and Goods and Services Tax (GST) from the director/s personally. There are 2 types of DPN’s, the traditional notice, a warning to the director where they have 21 days to act prior to becoming personally liable. The second is a lockdown penalty notice, which automatically creates a personal liability for the director. The type of DPN to be issued is based on a number of factors, including type of debt and lodgement history. 

Once a lockdown DPN is issued (or a traditional notice is not acted upon within 21 days), a parallel liability is formed, meaning the amount can be recovered from the company or the director/s. The director/s have 21 days to meet the requirements of the ATO from the date the DPN is issued. 

The type of debt and timing of lodgement will impact the available options for remitting the DPN. The preferred option for all circumstances is payment in full within 21 days. While this is difficult for many directors, a payment arrangement can also be arranged in certain circumstances, where accepted by the ATO. Often if the company has a less than satisfactory lodgement and payment history, a payment arrangement through the director/s may be preferred. Lastly, in some instances the ATO may also support entering the company into administration, winding up, or appointing a small business restructuring practitioner.  

Where the directors do not take appropriate action within 21 days, the ATO may recommence action against the director to recover the amounts outlined on the DPN. This may include issuing garnishee notices, offsetting any tax credits available, or initiating legal recovery proceedings against the director. 

We have recently seen the ATO issue a ‘lockdown’ Director Penalty Notice in relation to Superannuation for an already liquidated company.  This emphasises the importance of directors ensuring that even if the company does not pay, they cause the company to submit a Superannuation Guarantee Charge Statement on time so that the DPN does not become a ‘lockdown’ notice that cannot be avoided.  Thanks to the ‘Single Touch Payroll’ reporting system, the ATO now has up to date information about superannuation liabilities so knows when superannuation becomes overdue.  Directors need to take affirmative action to ensure the company complies.

If you are concerned that you have outstanding amounts owing to the ATO, or outstanding lodgements, we recommend discussing with your trusted Mazars advisor or contacting one of our specialists on the details below, to enact steps to reduce the risk of a DPN being issued. 

Author: Ashleigh Goodman

Updated: 28/11/2023

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