Director Penalty Notices 

What are Director Penalty Notices? 

Director Penalty Notices (DPNs) are formal notices issued by the ATO to company directors who they believe have not complied with their obligations to remit either: 

• Pay As You Go (PAYG) withholding amounts; 
• Goods and Services Tax (GST); or  
• Superannuation Guarantee Charge (SGC) amounts.  

These notices make directors personally liable for certain unpaid debts of a company. This means that if the company fails to meet these tax obligations, the ATO can recover the debt by recovering the directors personal assets such as their home. In some instances, the ATO may even come after a director without first going after their company.   

The severity of DPNs lies in their potential to pierce the corporate veil, holding directors personally accountable for the company’s tax debts, which can lead to significant financial implications for the directors involved. 

What should I do if I get one? 

If the company is unable to pay its tax debts, directors should promptly appoint a voluntary administrator or liquidator to the company. This must be done within 21 days of receiving a DPN to avoid personal liability. If the company is experiencing financial difficulties, you may be able to negotiate a payment plan with the ATO to halt a DPN. 

Can I challenge an invalid Director Penalty Notice? 

Due to the severe implications of DPNs, the ATO must follow strict requirements when issuing them otherwise they may be invalidated. DPNs can be invalidated if they: 

• are not sent to a directors residential address as listed on the ASIC register for the company; 
• contain amounts that are expired, meaning that a time limit for recovering an amount has lapsed under the relevant Act; 
• contain amounts claimed that are incorrect. The ATO doesn’t provide a detailed breakdown of how the amount is calculated, and mistakes can occur. Therefore, it’s crucial for directors to request a detailed breakdown of the calculation and verify the figures. This may require a Freedom of Information (FOI) request. 

It is important to understand, invalidating a DPN will not discharge you of the tax debt, rather buy you some time before the ATO reissues the DPN correctly. The reissuing of the DPN resets the 21-day opportunity to appoint an administrator or liquidator over the company and prevent personal liability for the debts. 

What defences are available to me? 

If the DPN is valid and you failed to appoint an administrator or liquidator there are some defences available to you. It is a defence to a DPN if you can prove: 

• You were suffering from a severe illness or had ‘some other good reason’ that makes it unreasonable to expect you to have properly managed your company; 

• You took all reasonable steps to try and make your company meet its obligations, or to wind up the company, and there was nothing you could reasonably have done to make this happen; or  
• In relation specifically to Superannuation Guarantee Charges, you interpreted the relevant legislation in a way that was ‘reasonably arguable’. 

If any of these defences apply, then this may result in the DPN not imposing personal liability on you. It is critical that you present your defence to the ATO within the time limit – usually within 60 days of the DPN. 

If you have received a DPN you should act immediately. If you would like us to assist you with your DPN, please do not hesitate to contact us.