ATO cracking down on director penalties

30 May 2022

The Australian Tax Office (ATO) is ramping up its collection of overdue tax payments, including by serving Director Penalty Notices (DPNs) which were largely held in abeyance during the COVID-19 pandemic.

In recent weeks, up to 50,000 DPNs may already have been sent.

What is a DPN?

A DPN is a notice sent to a director of a company in accordance with Division 269 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) which makes directors personally responsible for certain kinds of tax obligations of a company.

These obligations include Pay As You Go (PAYG) withholding amounts, Superannuation Guarantee Charge (SGC) and Goods and Services Tax (GST) for which a company becomes liable.

Division 269 operates in the following way:

  • A director has an obligation to cause the company to comply with its obligation from the initial day on which the tax obligation accrues.
  • If the company fails to comply with its obligation by the end of the due day for payment, a penalty becomes due and payable by the director equal to the amount of the company’s obligation.
  • The Commissioner must serve a DPN before commencing proceedings to recover a penalty.

Directors need to be aware that their liability to pay director penalties will occur before any DPN is served. The issuing of a DPN is a procedural step only required of the ATO before it can commence proceedings against the director to recover penalties which have already accrued.

Lockdown or non-lockdown?

If a company has made timely reporting of its obligations (even if it has not paid them), the ATO will send what is called a ‘non-lockdown’ DPN.

This requires the company to have lodged its business activity statements (BAS) and instalment activity statements (IAS) within three months after the due date for lodgment, and its SGC statements within one month and 28 days after the end of the quarter to which the unpaid superannuation contributions relate.

A non-lockdown DPN gives the director the option of complying with the notice by appointing a voluntary administrator (VA), a small business restructuring practitioner (SBRP) or a liquidator within 21 days after the date on which the DPN was sent. Any penalty is then remitted (waived) by the ATO.

Critically, the period of 21 days to comply with a DPN cannot be extended. Any director receiving a DPN should immediately seek advice from an appropriately qualified professional. Appointing a VA, SBRP or liquidator on the 22nd day will be too late for the director to escape personal liability.

In the situation where a company has failed to report its obligations, the ATO will serve a lockdown DPN. If this happens, the only way for a director to comply with the notice is to pay (or cause the company to pay) the penalty amounts within the 21-day period.

To avoid the possibility of receiving a lockdown DPN, directors should ensure that the company always lodges its BAS, IAS and SGC statements on time even if the company is unable to pay the amounts owing on the day of lodgment.

Instalment agreements

The Commissioner will not commence proceedings against a director to recover a penalty while there is an instalment arrangement in place with the company, providing the company complies with the arrangement.

If the company defaults on the instalment arrangement, the Commissioner will be at liberty to proceed against the director.


There are only a limited number of defences which a director may be able to raise to avoid liability for failing to comply with a DPN.

The main defences are:

  1. An illness meant that it was unreasonable for the director to take part in the management of the company when the company failed to comply with its SGC and PAYG obligations.
  2. The director took all reasonable steps to ensure that the company complied with its obligations, but there were no reasonable steps that could have been taken to ensure that:
    1. the company complied with its obligation;
    2. an administrator was appointed to the company;
    3. a small business restructuring practitioner was appointed; or
    4. the company was wound up (i.e. a liquidator was appointed).

These defences are strictly applied.

For example, the director must have been incapacitated by illness throughout the relevant period when the company’s liabilities were incurred.

It is not a defence for the director not to have participated in management of the company or not have been aware of the outstanding obligations.


The receipt of a DPN carries profound and time-critical consequences. It is strongly recommended that a director receiving a DPN immediately seeks legal advice, including specialist insolvency advice.

Rigby Cooke Lawyers is a full commercial service law firm in Melbourne that can assist you in understanding what to do if you receive a DPN. If you require advice or assistance, please contact a member of our Insolvency & Reconstruction team.

1. DCT v Lesley Frances Robertson [2009] NSWSC 597.
2. https://www.ato.gov.au/Tax-professionals/Newsroom/Lodgment-and-payment/Director-penalty-notices/

Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.

Liability limited by a scheme approved under Professional Standards Legislation.

©2022 Rigby Cooke Lawyers