ATO Debt Recovery: Director’s Penalty Notice

In November 2021 the ATO indicated it would recommence debt recovery with a “tailored approach”. We expect with a backlog of some two years, there will be an increase in the number of DPNs issued in the coming months.

Director Penalty Notice

Consistent with Federal Government policies, during the COVID19 pandemic ATO debt recovery processes were essentially put on hold. This allowed business the ability to deal with other creditors during the pandemic to assist them to keep trading.

The consequence of this was that as at 30 June 2021 the debt owing to the ATO was $55 billion.

In November 2021 the ATO indicated it would recommence debt recovery with a “tailored approach”.

We have noticed in recent months an increase in the use by the ATO of garnishee notices and Director’s Penalty Notices (DPN) as a method of recovering some of the debt owing to them. We expect with a backlog of some two years, there will be an increase in the number of DPNs issued in the coming months.

What is a Directors Penalty Notice?

A DPN is a notice issued by the ATO to the directors of a company that has not met certain tax obligations. A DPN does not apply to all tax obligations but does apply to obligations in relation to PAYG withholding tax, GST, Luxury Car Tax, Wine Equalisation Tax and Superannuation Guarantee Charge.

A DPN advises the director of the tax obligation that has not been met by the company and that the director may become personally liable for the tax debt.

A DPN allows the director 21 days to respond in one of the ways mentioned in the notice, failing which the director wil be personally liable for the company’s tax debt and the ATO may commence proceedings to recover the debt.

How a director ought to respond to a DPN depends on the type of DPN which is issued. The type of DPN which is issued depends, in turn, on the nature of the tax obligation which has not been met.

A DPN may be either a:

  • Non-lockdown DPN; or
  • Lockdown DPN.

Non-lockdown DPN

A non-lockdown DPN is one where the company has complied with its reporting obligations but has not paid the tax that arises from that reporting. For example a non-lockdown DPN may be issued, where a company has lodged its BAS, IAS and SGC statements on time but has not paid the amounts those statements indicate are owing.

In these circumstances the director can avoid personal liability under the non-lockdown DPN if, within 21 days of the date of issue of the DPN, the company:

  1. pays the debt
  2. goes into administration
  3. appoints a small business restructuring practitioner, or
  4. goes into liquidation.

Interestingly, it was previously an option for a director to avoid personal liability to enter into a payment arrangement with the ATO. That is no longer an option.

Lockdown DPN:

A Lockdown DPN is issued when a company has not complied with its reporting requirements and has not paid the amounts due. A director served with a Lockdown DPN becomes personally liable for the penalty as soon as the Lockdown DPN is served on the director.

The only way for a director to comply with a Lockdown DPN is to pay or have the company pay the amount owing.

If a director fails to respond to a DPN?

If a director fails to take the steps identified above to comply with a DPN, there may be limited defences available if the ATO commences proceedings. These defences are quite restrictive and include:

a. Because of illness, or other good reason, the director did not take part in the management of the company and it would be unreasonable to expect the director to take part in the management of the company.

b. The director took all reasonable steps to ensure that they caused the company to do each of the following:

· comply with its taxation obligations; or

· appoint an administrator, liquidator or small business restructuring practitioner; or

there were no such steps that could be taken.

c. Where the company took reasonable care and applying law in respect of any outstanding superannuation guarantee charge (relevant only to SGC).

What to do if you receive a DPN

As described above, a director only has a short period of time to respond to a DPN.

A director should act quickly if that director receives a DPN.

For advice or information about DPNs, contact our Litigation and Dispute Resolution Partners Scott Eustace ( or Derek Finch (