Important: If you have received a director penalty notice, the 21 days are already running. Call (02) 9233 7737 for a free initial phone consultation.
A director penalty notice (DPN) from the Australian Taxation Office (ATO) can make you personally liable for your company’s unpaid tax. The ATO must give you a notice before it can sue you for the penalty, and it can start court proceedings 21 days after the notice is issued. What you can do in that time depends on the type of notice.
Our lawyers can advise company directors across Sydney and NSW, from helping you to understand the notice to assessing whether a defence is available.
A Director Penalty Notice (“DPN”) is a written notice from the ATO directing a director to pay a debt or that they will become personally liable for a penalty equal to an amount their company has not paid. The regime is in Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth).
The law requires the directors of a company to cause the company to pay certain amounts to the ATO on time. These include PAYG withholding, superannuation guarantee charge (SGC) and GST.
If the company does not pay, each director becomes liable for a penalty equal to the unpaid amount. That liability arises before any notice is sent. The notice is what allows the ATO to begin court proceedings to recover it.
Three points can catch directors out:
The penalty equals the full unpaid amount, and it can be pursued against each director.
The ATO’s own estimate of unpaid PAYG withholding can be enough to found a penalty.
A person who becomes a director after an amount falls due can be liable if, 30 days after their appointment, the company has not paid, appointed an administrator or small business restructuring practitioner, or begun to be wound up.
The notice sets out the unpaid amount, that the directors are liable to pay the penalty of that amount, and explains the main circumstances in which the penalty is remitted.
There are two kinds of notices. Which one you receive depends on when the company reported the liability to the ATO, not on whether it was paid.
| Non-lockdown DPN | Lockdown DPN | |
|---|---|---|
| When it applies | PAYG withholding and GST were reported to the ATO within 3 months of the due date. For superannuation, the amount was reported by the superannuation due date (see below). | PAYG withholding or GST was reported more than 3 months after the due date, or not at all. For superannuation, the amount was reported late or not at all. |
| What can remove the penalty within 21 days | The company pays the debt, or an administrator, small business restructuring practitioner or liquidator is appointed. | Payment in full only. Appointing an administrator, restructuring practitioner or liquidator does not remove it. |
| A payment plan | Does not remove the penalty. | Payment is the only route, and the ATO decides whether to accept instalments. |
| Defences | May still be available. | May still be available. |
By the time a lockdown notice arrives, its type has already been fixed by lodgement dates that may be months old, which is why directors who lodge on time, even when they cannot yet pay, have more options.
Superannuation has a stricter deadline. For quarters up to 30 June 2026, there is no 3-month grace period: the superannuation guarantee charge statement had to be lodged by its due date, and a late statement locks the penalty down. From 1 July 2026, Payday Super replaced the SGC statement with new reporting and due-date rules, so the timing for each super amount needs to be checked carefully.
The 21 days run from the notice, not from the day you read it. The ATO treats a notice as given when it posts it to, or leaves it at, the address on record. That can be days before it reaches you.
Find the date printed on the notice and work out the last day.
Read which tax periods and amounts it covers, and whether it says lockdown.
Check when the company lodged each BAS and, for superannuation, each superannuation guarantee charge statement or disclosure.
Gather the company’s ATO correspondence, lodgement records, recent financial statements and a list of what it owes.
Speak to a lawyer, your accountant and, if needed, a registered liquidator or other insolvency practitioner on the same day.
Choosing administration, restructuring or liquidation is a commercial decision with consequences for employees, suppliers and the business. It needs advice, not a rushed call at the eleventh hour.
A penalty is remitted if the directors stop being under their obligation before the notice, or within 21 days after it. Under the legislation, the obligation ends when the company pays what it owes, when an administrator is appointed, when a small business restructuring practitioner is appointed, or when the company begins to be wound up.
In practice, the options within the 21 days are:
The company pays the debt in full
A voluntary administrator is appointed
A small business restructuring practitioner is appointed
The company is placed into liquidation
A payment plan with the ATO is not on this list and does not remove your personal liability under a non-lockdown DPN.
Citilawyers is a law firm; we are not insolvency practitioners. We can explain the options and the legal effect of each and assist in finding and working with insolvency practitioners. Where an appointment is required, we work with licensed insolvency practitioners.
If a penalty has not been remitted, section 269-35 of the Taxation Administration Act 1953 gives a director three possible defences.
Illness or other good reason – It would have been unreasonable to expect you to take part in managing the company, and you did not take part, at any time when you were a director and the obligation applied.
All reasonable steps taken – You took all reasonable steps to make sure the company paid, an administrator was appointed or the company began to be wound up, or there were no reasonable steps you could have taken. The decision-maker must consider when and for how long you were a director and took part in management, and all other relevant circumstances.
Reasonably arguable position – For superannuation guarantee charge and GST (including luxury car tax and wine equalisation tax), you are not liable to the extent the penalty came from the company treating the law in a reasonably arguable way, and the company took reasonable care.
The NSW Court of Appeal has said the reasonable steps defence must cover the whole period from when the obligation arose until the notice expired: Canty v Deputy Commissioner of Taxation [2005] NSWCA 84. Resigning part-way through that period did not change this. Canty was decided under the earlier version of the provisions, but it is still cited on the point.
In court, the director must prove the defence. Where the ATO recovers without going to court, section 269-35(4A) gives you 60 days from being notified to give the ATO information, and the ATO decides on that information. What you provide in that window sets the scope of the defence, so do not leave it until the last week.
After the 21 days the ATO can start proceedings in court. It also has its own recovery tools, including garnishee notices and applying a director’s personal tax refund against the penalty. The ATO says it can collect the penalty this way even without issuing a notice. In Brown v Commissioner of Taxation [2020] FCA 817, the ATO had applied a director’s income tax refund to the penalty, and it accepted that the amount would have to be returned if the director established a defence. Justice Kerr found that the delegate’s reasons failed to reference s 269-35(3), which sets out mandatory statutory factors that must be considered when analysing what constitutes “reasonable steps”. The decision was set aside and sent back to the ATO to decide again.
The lesson is practical. Once the ATO notifies you in writing that it has recovered an amount, for example by keeping your tax refund, the 60-day window to put your defence to the ATO has started.
If you join a company after an amount has fallen due, you become liable if, 30 days after your appointment, the company has still not paid, appointed an administrator or small business restructuring practitioner, or begun to be wound up. Do not assume that resigning inside those 30 days avoids liability. It is important that you get advice first before committing to become a director.
Resigning does not remove liability for amounts that were already due. New directors should get advice, to review the company’s position with the ATO, including its lodgement history, within days of appointment.
The sole director of a Sydney electrical contractor lodges the company’s activity statements late for two quarters while waiting for customers to pay. More than three months after the due dates, the ATO has still not received the reports, and it issues a notice for the unpaid PAYG withholding. Because the amounts were not reported in time, this is likely to be a lockdown notice. Appointing an administrator would not remove the penalty. The director’s real choices are to pay or to establish a defence.
This example is hypothetical and not a client matter.
A client was appointed director of a company. The company had various unpaid tax obligations to the ATO of over $1M. The newly appointed director was not aware of the debt until they received a DPN from the ATO, but did not act within the 21-day period. Whether they had a defence would have turned on when and for how long they were a director, how much they took part in management, and what they did once they knew. However, as they were out of time and the 21-day period to act on a Director Penalty Notice (DPN) expired without the director taking required action (such as paying the debt, appointing a voluntary administrator, appointing a small business restructuring practitioner, or winding up the company), the option to have the penalty remitted was lost, and the director remained personally liable unless a defence could be established.
The ATO then moved to recover the debt directly from the director personally by issuing garnishee notices to the director’s personal bank account.
Missing the 21-day deadline severely narrowed the practical relief. Not knowing about the debt, or not acting in time, does not by itself remove the penalty.
As the legal representative we had to formally request the ATO to exercise its administrative discretion to pause (stay) recovery action or vary the garnishee notice in line with the ATO’s practice statements on debt collection and garnishee notices (PS LA 2011/14 and PS LA 2011/18).
The outcome is still pending.
We act for directors personally.
Reviewing the notice, its dates, tax periods and amounts
Identifying the type of notice and the options still open
Assessing whether a defence is available, and preparing the information to give the ATO within the 60-day window
Dealing with the ATO on your behalf
Working with your accountant and any insolvency practitioner
Our insolvency and bankruptcy lawyers advise on the wider options for a company in financial distress. For the duties directors owe more generally, including insolvent trading, see our corporate governance lawyers Sydney page and our article on directors’ duties. If the ATO is also pressing the company with a statutory demand, see our statutory demand lawyers page. If the matter moves into court, our litigation lawyers Sydney page explains how we run proceedings.
The director penalty provisions are in Division 269 of Schedule 1 to the Taxation Administration Act 1953 on the Federal Register of Legislation, and the ATO publishes its own guidance on director penalty notices.
Our director penalty notice lawyers act for company directors throughout Sydney and across New South Wales, including Parramatta, Chatswood, North Sydney, Liverpool, Penrith, Ryde, Bondi Junction, Inner West, Sutherland Shire, Hornsby, Burwood, Bankstown, Manly, and Newtown, as well as clients in regional NSW. Because the 21-day period is short, most DPN matters can be handled by phone, email and electronic document exchange.
Received a director penalty notice? The 21 days are already running. Call (02) 9233 7737 for a free initial phone consultation.