Directors issued with penalty notices can no longer seek a payment arrangement to avoid personal liability attaching to them for unpaid company tax debts.

What is a Director Penalty Notice (DPN)?

If a company does not pay its pay as you go (PAYG), goods and services tax (GST) or superannuation guarantee charge (SGC) obligations, then the ATO can recover these amounts from a director(s) of the company personally.

A Director Penalty Notice (DPN) typically falls into two categories

  1. Non – lockdown – where the company has reported:
    • all GST and PAYG within 3 months;
    • all SGC within one month and 28 days after the end of the relevant quarter;
    • but not paid the corresponding liabilities.
  1. Lockdown – where the company has not met all its tax reporting within the above timeframes and has not paid the outstanding amounts.

Remission of the director penalties

If a director has received a lockdown DPN, they are personally liable for the tax debts of the company and can only remit the penalty by paying the debt in full.

With a non-lockdown DPN, the director has some choices.  Formerly, with a non-lockdown DPN, one of those choices was that the company could engage with the ATO to enter into a payment arrangement.  This is no longer the case.

The options available are:

  1. Pay the tax liabilities (PAYG, net GST and/ or SGC) in full;
  2. Appoint an administrator to the company;
  3. Appoint a small business restructuring practitioner;
  4. The company begins to be wound up.

This approach appears to be in line with the Full Court of the Federal Court’s decision in Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy [2020] FCAFC 5 wherein it was held that a payment arrangement does not stop the entire tax debt being due and payable.  Directors cannot consider a payment arrangement to be a waiver of the tax debt in full or variation of the time at which the debt is due and payable.

How is a DPN recovered?

The ATO will issue a DPN outlining the unpaid amounts and remission options available.  If the director fails to remit then the ATO can commence recovery against the director by:

  • A garnishee notice
  • Offsetting any tax credits owed to the director against the director penalties
  • Initiating legal recovery proceedings against the director

Once a DPN is issued, a director only has 21 days from the date of the notice to remit any director penalties on the DPN or make a decision about the company (if non-lockdown DPN).

If a company enters into and maintains a satisfactory arrangement to pay the entire company debt, the ATO will not seek to recover the debt from the director personally but may offset personal tax credits.  If the entire company debt is no longer under a payment arrangement then the ATO will commence action to recover the director penalty.


If you or a client has outstanding lodgements or has received a DPN, don’t delay in contacting us to discuss options available for the company and its director(s).


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