Director penalty notices: when the company's tax debt becomes yours

A director penalty notice (DPN) is the ATO's way of collecting a company's unpaid PAYG withholding, GST or super guarantee charge from its directors personally. After the ATO issues the notice, the director has 21 days to have the penalty remitted. Once a liability has gone unreported for 3 months, the only way out is to pay it. For a foreign-owned company with a single local director, the timing gap between overseas management and Australian deadlines is where most DPNs start.

What the regime covers

The ATO's director penalty page lists three company liabilities that can become "director penalties":

The GST and SGC start points come from the ATO's practice statement PS LA 2011/18, which explains how the ATO runs the regime under Division 269 of Schedule 1 to the Taxation Administration Act 1953.

A director penalty is a parallel liability. Each director owes the same amount as the company, and a payment by anyone reduces everyone's balance. With two directors and $40,000 of unpaid GST, the ATO can chase either of them for the whole $40,000. PS LA 2011/18 says it weighs each director's capacity to pay and any defences when choosing whom to pursue. A resident director with Australian assets is often the easiest one to reach.

The 21-day clock

The ATO must give the notice before it can sue or garnishee. The rules that catch people out:

• Where it goes. For a current director, the ATO generally sends the DPN to the address registered for that director with ASIC, or to the last address it knows if there isn't one. It may also send a copy to the director's registered tax agent.
• When the clock starts. The 21 days run from the day the ATO posts the notice or leaves it at that address, not from the day you open it. A director whose ASIC address is an old flat in Melbourne can lose most of the window without knowing.
• What remits the penalty. Inside the 21 days, and only for amounts that were reported on time, the penalty is remitted if the company pays in full, appoints an administrator, appoints a small business restructuring practitioner, or begins to be wound up.

Keeping officeholder addresses current is a 28-day ASIC obligation in its own right. See appointing or removing a director for the mechanics.

Lockdown: the 3-month line

The most important date isn't on the notice. It's 3 months after the original due date.

PAYG withholding and GST. If the amount is reported to the ATO within 3 months of its due date, all four remission options stay open. If it's reported later, or never, the penalty is "locked down", and only paying the company debt in full remits it. Putting the company into administration or liquidation no longer helps.

SGC. For super, the line was the SGC statement due date itself, with no 3-month grace. A statement lodged late, or never lodged, meant only payment would remit the penalty.

Estimates. If the company doesn't report, the ATO can estimate the unpaid amount and issue DPNs on the estimate. The ATO treats estimated amounts as never reported, so they are locked down from the start.

A worked timeline (hypothetical): say a company's quarter ends on 30 September and its BAS is due on 28 October, as in the ATO's own example. If that BAS, with its GST and PAYG withholding, is still unlodged at the end of 28 January, both liabilities are locked down. A DPN that arrives in March can then only be remitted by paying.

Payday Super changed the super side

From 1 July 2026, employers no longer lodge a super guarantee statement for paydays where super is short or late. Under the ATO's Payday Super guidance, the ATO now calculates the charge and issues a notice of assessment, and the charge is due on the day of the assessment. Super is still within the director penalty regime, but the ATO's DPN page still describes lockdown by reference to SGC statements. How lockdown works for post-July 2026 paydays is a question for your tax adviser. Our Payday Super guide covers the payroll side.

New directors inherit the history

This is the trap for anyone joining an existing company, including a replacement resident director.

1. The 30-day rule. A new director becomes personally liable for PAYG withholding, GST and SGC that fell due before their appointment unless, within 30 days of appointment, the company pays in full, appoints an administrator or small business restructuring practitioner, or is wound up.
2. Resigning doesn't escape it. The ATO says a director who resigns inside those 30 days may still be liable for the pre-appointment amounts.
3. The 3-month concession. Under paragraph 61 of PS LA 2011/18, PAYG withholding and GST penalties are not locked down for a new director if every outstanding lodgement, including ones due before the appointment, is made within 3 months of the appointment. The concession does not apply to SGC amounts payable on or after 1 July 2018.

So before any director accepts an appointment, get the company's ATO integrated client account, its BAS lodgement history and its super payment records. We do this at onboarding, and it's one reason we won't appoint until the tax position is clear.

Leaving the board

A former director remains liable for penalties on company liabilities that were due before the resignation date. They are also liable for amounts that fell due afterwards but relate to their time in office: PAYG withholding if the first withholding event in the period happened before they resigned, and GST or SGC if the reporting period ended before they resigned. The ATO's own example has a director resigning on 1 October and still receiving a DPN for the September quarter's GST. Liability also survives deregistration of the company. Timing a resignation properly is covered in director resignation.

Defences

You are not liable for a director penalty if, for the whole period since the obligation arose, one of these applies:

• you didn't take part in managing the company, and it would have been unreasonable to expect you to, because of illness or another acceptable reason
• you took all reasonable steps to get the company to pay, appoint an administrator or restructuring practitioner, or start winding up, or there were no reasonable steps you could have taken
• for GST or SGC only, the company took a reasonably arguable position on the law and took reasonable care in applying it.

The ATO cites case law that relying on fellow directors or advisers is not a defence, and that simply not participating in management will usually itself breach a director's duty. A defence goes to the Commissioner in writing. To keep court review open under the Administrative Decisions (Judicial Review) Act 1977, lodge it within 60 days of receiving a garnishee notice or written notice that the ATO has recovered some of the penalty.

A second sting: PAYG withholding credits

Directors who are paid by the company face another consequence. PS LA 2011/18 explains that under Subdivision 18-D, a director (or an associate) of a company that hasn't paid its PAYG withholding may have to pay PAYG withholding non-compliance tax. In effect, this claws back the credit for tax the company withheld from their own pay but never sent to the ATO.

How a foreign-owned company stays clear

• Give the Australian director read access to BAS, IAS, single touch payroll and super payment status every month, not at year end.
• Lodge on time even when you can't pay. Reporting on time keeps the remission options open, while not lodging takes them away.
• Treat ATO correspondence addressed to directors as urgent and forward it the same day.
• If cash is short, talk to an insolvency or restructuring adviser early. Our insolvent trading and safe harbour guide explains why tax lodgements also decide whether safe harbour is available.

Your accountant handles the lodgements themselves. Our role is to track lodgement status against the 3-month line using the compliance calendar and escalate before it passes. We don't give tax advice. For the broader picture, see company tax obligations for foreign-owned companies.

This is general information as at 27 October 2026. It isn't tax, legal or financial advice, so check your position with a registered tax agent.

General information about Australian law and practice, not legal or tax advice for your circumstances. Check the official sources, or ask your adviser, before you act.