Refresher: Director Penalty Notices (DPN)

The Current Environment of DPNs

The Australian Taxation Office (ATO) is continuing its firmer recovery action subsequent to the COVID-19 Period in 2025, and seeking to recover a previously reported $34 billion in taxation debt from the SME sector.

It is now as important as ever for Directors, accountants and advisors to be aware of a Director’s personal exposure by way of a Director Penalty Notice (DPN), one of the suite of recovery mechanisms available to the ATO.

It has been reported that the ATO issued 26,702 DPNs covering corporate debt totalling approximately $4.4 billion in the financial year ended 30 June 2024. Similarly, the ATO’s enforcement efforts through other means, such as winding up applications and garnishee orders, have increased.

What is a Director Penalty Notice (DPN)?

A DPN is a notice issued by the ATO, pursuant to Division 269 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (“the TA Act”), to a Director that may make them personally liable for outstanding company taxation liabilities.

The relevant company taxation liabilities a Director can be made personally liable by the ATO for include:

1. Goods and Services Tax (GST), including Luxury Car Tax (LCT) and Wine Equalisation Tax (WET);
2. Pay as you Go Withholding Tax (PAYG); and Superannuation Guarantee Charges (SGC).

Ignoring a DPN can have significant consequences for Directors, with the possibility that they become personally liable for the outstanding taxation liabilities, allowing the ATO to seek recovery and enforcement by them against the Director in their personal capacity.

Types of DPNs

There are two types of DPN that the ATO can issue to directors, being the following:

Non-Lockdown DPN

The non-lockdown DPN is issuable by the ATO in circumstances where the company has lodged its taxation lodgements within the prescribed periods (generally three months after the actual due date), however the associated liability remains unpaid.

A non-lockdown DPN provides a Director with a period of 21 days (NB, calendar days) for compliance by taking one of the following steps:

1. Paying the debt in full;
2. Appointing a Voluntary Administrator;

• Appointing a Small Business Restructuring Practitioner; or
• Entering into Liquidation.

Failure to comply with one of the above steps will result in the Director being personally liable for the amount associated with the non-lockdown DPN.

Lockdown DPN

The lockdown DPN can be issued by the ATO for company debts if a company has failed to lodge the required return within the specified timeframes (again generally three months after the actual due date), and the associated liability remains outstanding

The only option available to a Director and company to deal with a lockdown DPN is to pay the debt in full.

Defences to a DPN

Division 269-35 of the TA Act provides certain defences to a Director in receipt of a DPN. These defences are summarised as follows:

1. The Director did not take part (or it would have been unreasonable to expect them to take part) in the management of the company during the relevant period because of illness or some other good reason;
2. The Director took all reasonable steps for the company to meet its tax obligations;

• The Director took all reasonable steps to appoint an external administrator (i.e. Voluntary Administrator, Small Business Restructuring Practitioner or Liquidator) to the Company.

What to do about a DPN?

If you receive a Director Penalty Notice from the ATO, it is important to consider your personal exposure and risk as soon as possible.

We recommend contacting your professional advisors (which may include accountants, business advisors and solicitors) as a matter of urgency, to ensure any personal exposure can be considered, a commercially-sound strategy developed, and appropriate steps undertaken within any DPN timeframe.

If you need legal advice concerning your exposure to a DPN (or potential exposure) and the appropriate strategy moving forward, please contact Chamberlains Law Firm. We’re with you.