ATO Director Penalty Notice: What Every Company Director Needs To Know
- Future Accounting
- 20 hours ago
- 10 min read
Written by: Chris Mulcahy
How an ATO director penalty notice can affect you and what to do next
If your business trades through a company, you might assume the company is responsible for its own tax debts and that your personal assets are safe.
That’s only partly true.
The Australian Taxation Office (ATO) has special powers that allow it to make directors personally liable for certain unpaid tax and superannuation debts using an ATO director penalty notice (DPN).
For many family businesses and SMEs, an ATO director penalty notice is the moment when a quiet tax problem suddenly becomes very real at home.
This guide explains, in plain English, what a DPN is, how it works, and what you can do to protect yourself. The good news is that with clear information and timely advice, an ATO director penalty notice doesn’t have to derail your plans – and our team can guide you through your options.
Quick snapshot: Key points in 60 seconds
An ATO director penalty notice (DPN) is a formal notice from the ATO that can make you, as a director, personally responsible for certain company tax debts.
ATO director penalty notices cover unpaid:
PAYG withholding
Superannuation Guarantee Charge (SGC)
GST
There are two main types of ATO director penalty notice:
Non-lockdown DPN – you usually have 21 days to take action and potentially avoid personal liability.
Lockdown DPN – your personal liability is effectively “locked in”; in most cases, only paying the debt will fix it.
Whether your company lodges returns on time (even when it can’t pay) often determines which type of ATO director penalty notice you’ll face.
Ignoring an ATO director penalty notice can lead to:
Garnishee notices on your wages, bank accounts or money owed to you
Court action and, in serious cases, bankruptcy
The good news: with early advice and honest communication, many ATO director penalty notice situations can be managed or at least improved.
If any of this sounds familiar, now is a great time to talk to us before things escalate.
What is an ATO director penalty notice?
An ATO director penalty notice is a letter from the ATO that effectively says:
“Your company hasn’t met its obligations for certain taxes. Because you’re a director, we can now pursue you personally for this amount.”
The ATO director penalty notice doesn’t replace the company’s debt – it sits alongside it.
The ATO can chase:
The company; and
Any or all directors personally
until the debt is paid.
For example, if your company has $80,000 in unpaid PAYG and GST, that $80,000 can become your personal problem if the ATO issues an ATO director penalty notice and it isn’t dealt with properly.
Which debts can an ATO director penalty notice cover?
ATO director penalty notices apply to specific categories of tax and super that the ATO views as especially important, including:
PAYG withholding
Tax withheld from employees’ wages and certain contractor or director payments.
Superannuation Guarantee Charge (SGC)
Additional charges that arise when super is not paid on time and Superannuation Guarantee Charge statements are required.
GST
GST reported on your Business Activity Statements (for relevant periods).
These are often the areas where businesses fall behind when cashflow is tight – which is why the ATO director penalty notice regime hits many small and family businesses hardest.
The two types of ATO director penalty notice and why lodging on time matters
The law recognises two main types of ATO director penalty notice. The difference between them usually comes down to one crucial question:
Did the company lodge its BAS/SGC forms on time, even if it couldn’t pay?
Non-lockdown ATO director penalty notice (you still have options)
You’ll generally receive a non-lockdown ATO director penalty notice if:
Your company lodged its BAS/SGC forms on time (or within the allowed “grace” period); but
Has not paid the amounts due.
In this case, you usually have 21 days from the date on the notice (not the date you open it) to do one of the following:
Pay the debt in full; or
Appoint a small business restructuring practitioner; or
Appoint a voluntary administrator; or
Place the company into liquidation.
If one of these actions happens within the 21 days, your personal liability may be remitted (removed or reduced), depending on the circumstances.
Important: Simply entering into a payment plan with the ATO does not automatically remove your personal liability under an ATO director penalty notice. The 21-day deadline still matters.
Lockdown ATO director penalty notice (much harsher)
A lockdown ATO director penalty notice is much more serious.
You’ll generally find yourself in lockdown territory when:
BAS/IAS for PAYG or GST were not lodged within 3 months of the due date; or
SGC statements were not lodged by their due date.
In a lockdown ATO director penalty notice scenario:
Appointing an administrator, liquidator or restructuring practitioner does not remove your personal liability.
In most cases, the only way to avoid or clear that personal liability is to pay the debt (or successfully argue a very limited defence).
This is why we consistently tell clients:
“Always lodge – even if you can’t pay.”
Not lodging, or lodging too late, is what turns a manageable problem into a lockdown ATO director penalty notice.
What happens if you ignore an ATO director penalty notice?
If you don’t take meaningful action within the relevant timeframe (or you’re already in a lockdown position), the ATO can treat the ATO director penalty notice amount like any other personal debt and may:
Issue garnishee notices, directing:
Your bank to pay money from your personal accounts
Your employer or contractor payer to divert part of your income
Other parties who owe you money to pay the ATO instead
Commence court proceedings to recover the debt
In serious cases, commence bankruptcy proceedings
The consequences can be significant:
Damage to your credit record
Increased stress and pressure on your family
Strain between co-directors and business partners
A DPN is absolutely not a letter to leave unopened in a drawer. If you’ve received an ATO director penalty notice, don’t panic, but don’t delay – reach out to us and we’ll walk you through your options.
New directors, resignations and ATO director penalty notices
New directors
If you become a new director of a company that already has unpaid PAYG, GST or super obligations, you’re stepping into an existing risk.
Typically, you have 30 days from your appointment to:
Make sure the company pays the outstanding debts; or
Place the company into external administration (restructuring, administration or liquidation)
before the ATO director penalty notice risk properly attaches to you.
Before you accept a directorship, you should insist on seeing:
ATO account balances
BAS and SGC lodgment history
Any ATO payment arrangements or disputes
Resigning directors
Resigning as a director does not wipe the slate clean.
If unpaid PAYG, GST or super arose while you were on the board, you may still be liable for those periods even after you step down. The ATO can issue an ATO director penalty notice to former directors in relation to those earlier debts.
If you are resigning, it’s wise to:
Ensure your concerns (if any) about tax and super are documented; and
Seek advice about your potential exposure.
Common traps we see with ATO director penalty notices
Across our client base of family businesses, farms, trades and professional services, we regularly see the following patterns leading to ATO director penalty notice risk:
Using the ATO as an “informal bank”
When cash is tight, it’s tempting to pay staff and suppliers first and let PAYG, GST and super “wait”. Over time, this can quietly build up to a very large ATO debt and increase the risk of an ATO director penalty notice.
Not lodging to avoid bad news
Some business owners delay lodging BAS or SGC statements because they’re worried about how big the debt will be. Unfortunately, non-lodgment is exactly what pushes you into lockdown ATO director penalty notice territory.
Fast growth, slow systems
The business grows quickly, but payroll, super and GST systems remain basic or manual. Errors and underpayments can creep in unnoticed for years, sometimes only coming to light when an ATO director penalty notice is issued.
“Silent” or “paper” directors
Spouses, parents or adult children often become directors “for estate planning” or banking reasons, with little day-to-day involvement. The law doesn’t distinguish between “active” and “silent” directors. If your name is on ASIC, you can be fully liable under an ATO director penalty notice.
Out-of-date ASIC details
ATO director penalty notices are sent to the address listed on the ASIC register. If that’s an old house, PO box or accountant’s address you no longer monitor, you may not see the notice — but the law treats it as if you did.
How to protect yourself as a director
Think of this as your ATO director penalty notice safety checklist.
Always lodge on time
Lodge BAS, IAS and SGC statements by their due dates, or as close as you can.
Even if you cannot pay in full, lodgment protects options and may prevent a lockdown ATO director penalty notice later.
Treat superannuation like wages
Super is part of paying your people properly, not an optional extra.
If you can’t pay super:
Talk to your accountant immediately; and
Lodge any required SGC forms on time, even if it hurts.
Keep an eye on your ATO position
At least quarterly, the board should review:
Current ATO balances for PAYG, GST and super
Lodgment status for BAS and SGC
Any payment arrangements – and whether they’re realistic
This shouldn’t sit only with the “finance director” or bookkeeper. Every director has personal skin in the game when it comes to an ATO director penalty notice.
Keep ASIC details up to date
Make sure your address and contact details with ASIC are correct.
Open and action ATO mail promptly, especially anything marked as urgent or related to an ATO director penalty notice.
Ask the hard questions early
If you suspect the company cannot pay its debts as they fall due, it may be time to discuss:
Small Business Restructuring
Voluntary Administration
Liquidation
These are confronting conversations, but getting early professional advice almost always leads to better outcomes than waiting for the ATO to escalate or issue an ATO director penalty notice.
Proactive action
If you’re worried about ATO debt or an ATO director penalty notice – or you’ve already received one – the most important step is to act early. We take a calm, practical approach to what can feel like a stressful situation.
We can help you:
Assess your risk
Review your PAYG, GST and super position
Identify any periods at risk of lockdown versus non-lockdown ATO director penalty notices
Prioritise your next steps
What needs to be lodged immediately
Which debts should be dealt with first
What realistic options exist for payment or restructuring
Coordinate other specialists
Work alongside insolvency practitioners and tax lawyers where appropriate to get you clear, well-rounded advice
Improve your systems going forward
Implement better processes for payroll, super and GST
Set up regular ATO health checks so problems don’t build up again
If you’ve received an ATO director penalty notice, time is critical – but you’re not alone. Book an appointment with Future Accounting Group today so we can help you understand your position and map out your next steps with confidence.
Frequently asked questions about ATO director penalty notices
If the company goes into liquidation, am I safe from an ATO director penalty notice?
Not always. For some non-lockdown ATO director penalty notices, appointing a liquidator or administrator within the 21-day window can help remit your personal liability. For lockdown ATO director penalty notices, liquidation does not remove your personal liability. The debt generally remains your problem until it’s paid or otherwise resolved.
Can I just set up a new company and walk away from the old one?
Simply starting a new company does not make an existing ATO director penalty notice go away. The ATO can still pursue you personally for amounts under an ATO director penalty notice, even if the old company stops trading. There are also provisions aimed at preventing repeated “phoenixing” of companies. Always seek advice before making big structural changes.
I only became a director because my partner asked me to sign. Does that matter?
In short, no. The law does not distinguish between “hands-on” and “hands-off” directors. If you are legally recorded as a director, you carry legal responsibilities and you can be personally liable under the ATO director penalty notice regime. If you’re a director in name only, you should urgently understand the company’s tax and super position, and get advice on your risk and what can be done.
Christmas & New Year trading
Many businesses feel the cashflow squeeze most in the lead-up to Christmas and over the New Year period. Extra stock, holiday pay, reduced trading days and slower debtor payments can all put pressure on your bank balance – and it can be tempting to let PAYG, GST or super “wait until things pick up”.
Instead of using the ATO as an informal bank, start planning now for cashflow pressure over the holiday period. If you know money will be tight over Christmas and New Year, talk to us early so we can help you map out your tax and super obligations, smooth out your cashflow and reduce the risk of an ATO director penalty notice landing in the middle of the holidays. A short planning appointment now can make a big difference to your peace of mind over the festive season.
If you would like to discuss your situation or need further information about how the ATO director penalty notice rules might affect you, this is a great time to start planning. We can step you through our Future Prosperity Process, review whether your current structure is still the right fit, and even consider whether you really need more than one director. We’ll also help you plan ahead for cashflow pressure over the Christmas and New Year period and get on the front foot with the ATO if required. Please contact the team at Future Accounting Group using the contact details on our website and book an appointment. We’re here to help you understand your options, protect your position and take the next steps with confidence.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
