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03 October 2023

It Depends – I have received a Director Penalty Notice, what are my options?

Authored by: Jack Colley
In this edition of ‘It depends’, lawyer Jack Colley talks about director penalty notices (DPNs). Jack explains what DPNs are, the difference between lockdown and non-lockdown DPNs and what your options are if you receive one from the ATO.

Video transcript

Welcome to It depends. Today, we’re talking about director penalty notices. One of the ATO’s debt recovery options is issuing director penalty notices or DPNs to directors of companies where they have outstanding GST, super guarantee, or PAYG withholding amounts.

What is a DPN?

Companies have a wide variety of reporting requirements to the ATO. The most common of these, and frequent, is the business activity statement or BAS. One of the ATO’s tools to ensure that companies comply with their obligations to pay amounts that have been reported in the BAS is by issuing director penalty notices. The effect of the DPN is to make company directors personally liable for certain tax related amounts. Broadly, the ATO may issue a DPN where a company has unpaid superannuation guarantee amounts, GST, and PAYG withholding amounts.

What is the difference between a lockdown DPN and a non-lockdown DPN?

There are two types of director penalty notices, lockdown DPNs and non-lockdown DPNs. The difference between a lockdown and a non-lockdown DPN is the options available to the director after they’ve been issued the DPN. Under a non-lockdown DPN, to avoid personal liability for the amounts owing, directors may cause the company to comply with its obligations and pay the amounts owing or put the company into voluntary administration or liquidation. Under a lockdown DPN, the only option available to company directors to avoid personal liabilities for the amounts owing by the company is to cause the company to pay the amounts owing.

What are my options?

When you receive a director penalty notice, you have 21 days to file a defence to the DPN. There are some limited defences to the DPN and these include, where because of illness or some other reason, it would have been unreasonable to expect a company director to participate in the management of the company and they did not participate as a manager of the company at the time that the director penalties relate to, the director took all reasonable steps to ensure that the company complied with its obligations or there were not reasonable steps that could have been taken, or in relation to GST or superannuation guarantee amounts, the company took a position that was reasonably arguable under the relevant legislation. If you do not have a defence of the DPN in the case of a non-lockdown DPN, you may look at putting the company into voluntary administration or liquidation if the company cannot pay  the amount owing. Under a lockdown DPN, if you do not have a defence to the DPN, to avoid personal liability the only option is to cause the company to pay the amount owing to the ATO. If you have been issued with a director penalty notice and would like assistance dealing with the ATO please reach out to a member of our team.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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