The Australian Taxation Office (ATO) has significantly increased its use of Director Penalty Notices (DPNs) as part of a broader effort to recover unpaid company tax debts.

In the 2024-25 financial year alone, the ATO issued more than 84,000 DPNs, representing a substantial increase on prior years and reflecting a more assertive approach to director liability.

For company directors, this trend is a timely reminder that operating through a company does not provide absolute protection from personal exposure, particularly where tax obligations are not properly managed.

What Is a Director Penalty Notice?

A Director Penalty Notice is a statutory enforcement tool that allows the ATO to make company directors personally liable for certain unpaid company tax liabilities. These include:

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

Where a company fails to meet its reporting or payment obligations, the ATO may issue a DPN to current and, in some cases, former directors. Once issued, the ATO can pursue recovery action against a director personally, including through garnishee notices or court proceedings.

Why DPNs Are a Serious Legal Risk

From a commercial legal perspective, DPNs are significant because they operate as a parallel liability. The director’s personal obligation exists alongside the company’s debt and is not automatically extinguished by insolvency, deregistration, or resignation as a director.

Importantly, directors can be held liable even if:

  • They were not involved in day‑to‑day management
  • They relied on accountants or bookkeepers
  • The company has ceased trading

This often surprises directors who assume their role is largely administrative or honorary.

Lockdown vs Non‑Lockdown DPNs

A critical legal distinction exists between non‑lockdown and lockdown DPNs.

  • Non‑Lockdown DPNs: these arise where the company has lodged its tax statements on time, but failed to pay. Directors generally have 21 days from the date of the notice to take specific actions – such as placing the company into voluntary administration or liquidation – to remit the penalty.
  • Lockdown DPNs: these apply where tax liabilities were not lodged within the required timeframes. In these cases, the director penalty becomes permanently fixed, and the only way to avoid personal liability is to pay the debt in full. Insolvency appointments will not remit the penalty.

Notably, entering into a payment plan does not remove a director penalty, regardless of the type of DPN issued.

New Directors and Historic Tax Debts

The director penalty regime is particularly strict for new appointees. A person who becomes a director can inherit liability for pre‑existing unpaid PAYG, GST, or SGC debts unless, within 30 days of appointment, they ensure the company takes remedial action such as payment or formal insolvency steps.

This highlights the importance of conducting proper due diligence before accepting a directorship, especially in small or closely held companies.

Practical Implications for Directors

For directors, DPNs transform tax compliance into a personal risk management issue. Key risk reduction strategies include:

  • Ensuring tax obligations are lodged on time, even if payment is not immediately possible
  • Actively monitoring ATO correspondence and running balances
  • Seeking legal advice early when cashflow issues arise
  • Avoiding informal or “nominee” directorship arrangements

Once a DPN is issued, options can narrow quickly, and delay may result in unavoidable personal exposure.

Stacey Brennan
Lawyer