Quick answer
Under the director penalty regime, the ATO can send a director a notice that turns certain unpaid company tax, namely PAYG withholding, GST and super guarantee charge, into a personal debt. You usually have about 21 days to respond, and what you can do depends on whether the company reported those amounts on time. Call an accountant, lawyer or insolvency practitioner the day it arrives, because waiting can close off options.
Key points
- A DPN can turn some company tax debts into a director's personal debt.
- It reaches unpaid PAYG withholding, GST and super guarantee charge.
- The response window is short, usually around 21 days.
- Get qualified advice the same day.
Directors are used to hearing that a company stands on its own and its debts belong to it, not to them. The director penalty regime is where that comfort runs out. It lets the ATO pursue directors personally for particular tax debts the company has not paid. For anyone on the board of a small company, it is worth understanding before a notice ever turns up, and moving fast if one does.
The three debts that matter
Only certain company obligations fall inside the regime. In practice they are:
- Super guarantee charge, meaning unpaid employee super plus the extra charges that come with it.
- PAYG withholding, the tax taken out of staff pay.
- GST collected on sales.
The common thread is that the company is holding this money for someone else, whether employees or the ATO. The regime is there to stop it being used as working capital. The full rules are on the ATO’s director penalty regime page.
What the notice actually means
A DPN tells a director they now face a personal penalty that matches what the company owes in those categories. The response window is short, usually around 21 days. Depending on the facts, a director may be able to clear the penalty by having the company pay, or by bringing in a voluntary administrator, a small business restructuring practitioner or a liquidator. Which of those doors stays open turns largely on whether the company told the ATO about the amounts on time.
Lodging late narrows your choices
Think of two cafe companies, both unable to pay their GST. One lodged every BAS on the due date anyway; the other let lodgements slide for months. If DPNs arrive, the first company’s directors generally have more ways out. For the second, reporting that came too late can mean the penalty can only be removed by paying it. That is the practical reason to keep lodging on time even in a quarter where you cannot pay a cent.
Joining or leaving the board
A person who becomes a director can pick up liability for amounts the company already owed if those debts are not sorted out within a period after they are appointed. So before saying yes to a board seat, ask to see the company’s tax position. Stepping down does not automatically wipe out liability for debts that built up during your time as a director, either.
Concerned about tax building up in your company? Talk to an adviser first, and if funding might be part of the answer, start a 60-second enquiry. Enquiring involves no credit check.
If a DPN lands on your desk
- Read it that day. The timeframe begins quickly and does not wait for you to open the mail.
- Ring an adviser, whether your accountant, a registered insolvency practitioner or a lawyer.
- Check the figures and dates against the ATO’s records.
- Work out which options apply given the notice type and your lodgement history.
- Act before the deadline.
Unsure who to call first? The Small Business Debt Helpline provides free financial counselling and can help you get started.
Where funding fits
Paying what is owed is one of the recognised ways to deal with a DPN. Sometimes a business loan can supply the cash to clear PAYG withholding, GST or super quickly, taking away the personal exposure. Whether that is sensible depends on the whole company. If the company cannot pay its debts as they fall due, borrowing to pay selected creditors may be the wrong move. Take advice before using funding this way. Our pages on business loans with ATO debt and ATO payment plan or business loan explain the trade-offs.
Stopping the debt before it starts
Most DPN problems are avoidable with a few habits:
- Keep lodging on time. BAS and super reporting should go in by the due date even when the money is not there.
- Park the tax money. Move GST, PAYG withholding and super into a separate account as they arise. See setting aside tax from every sale.
- Pay super on payday. Payday Super applies from 1 July 2026; our Payday Super and cash flow guide covers the change.
- Talk to the ATO early if you are falling behind, before balances snowball.
- Watch the broader picture for signs of financial strain. See signs business debt needs restructuring.
The wider duties of a director
DPNs sit next to other legal duties, including the duty not to let the company keep trading while insolvent. ASIC’s insolvency information for directors explains those obligations. When a company is under pressure, directors should get advice early about their duties and the paths available, small business restructuring among them.
Paper trails help
Keep a simple log of when each BAS and super report was lodged and paid, any arrangement made with the ATO, and the advice you received. If a DPN ever arrives, your adviser can use it to establish your options in minutes rather than days. The same records show a lender that tax is under control when the company applies for funding.
Check your address with ASIC
Notices generally go to the address ASIC holds for you. If that address is old, the notice may never reach you, but the clock can still run. Update your ASIC details whenever you move, clear your mail regularly and let your accountant know. An unopened envelope at a former address can quietly cost you options.
Every director shares the risk
Where a company has several directors, each one can be personally liable. A DPN is therefore every director’s concern, not only the one who looks after the books. Agree how lodgements and payments are handled, share the tax position at each board meeting and decide together when balances start to climb. A director who stays out of the day-to-day finances should still insist on regular updates, because not knowing is not a defence the law accepts.
Restructuring for viable companies
Small business restructuring is a formal process for eligible companies that can keep trading but cannot pay what they owe. A restructuring practitioner helps the company put a plan to creditors while the directors remain in charge. ASIC explains eligibility and the process. It is one option an adviser may raise after a DPN or during wider financial stress.
An illustrative example
Take a Brisbane restaurant company that fell behind on GST and PAYG withholding through a tough winter but never missed a BAS lodgement. A DPN arrived and the two directors called their accountant that afternoon. Because every lodgement had been on time, they had several paths. Trading was steady and the company was viable, so they combined an arrangement with the ATO with a short-term loan that paid the PAYG withholding straight away, ending their personal exposure on that part.
Look after yourself and the company
If company tax is starting to pile up, move early: get advice, keep lodging and think about whether funding could clear the obligations that carry personal risk. Enquiring involves no credit check, your details are not spread across a crowd of lenders, and a real person reads what you send. Apply now.
Frequently asked questions
Which debts can a director penalty notice cover?
Three company obligations: PAYG withholding, GST and the super guarantee charge. The ATO's director penalty regime page, linked below, has the official detail.
How long do I have to respond to a DPN?
Usually around 21 days, though the choices open to you depend on which kind of notice it is and whether the company's lodgements were on time. Check the date on the notice and get advice straight away.
Can new directors be liable?
Yes. Someone who joins the board can become liable for amounts already owing if they are not resolved within a set period after appointment, so look at the tax position before you accept the role.
Can a loan help with a DPN?
Clearing the debt is one recognised way to respond, and borrowing can sometimes provide the cash. Speak to an adviser first, because the company's solvency and the deadline both matter.
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