A director penalty notice has landed. Here is what it means for you

The envelope has your name on it, not the company’s. That is the first thing worth noticing about a director penalty notice, and it is the reason the news lands so hard. The ATO is telling you that a slice of the company’s tax debt is now yours.

It feels like a verdict. It is closer to a countdown with several ways out, provided you work out which ones are open to you before the days run down. This guide sets out what the notice covers, why two apparently identical letters can leave you with very different choices, and how owners usually get through the 21 days.

What does a director penalty notice actually say?

A DPN sets out the unpaid amounts the ATO says the company owes and the steps you can take to have your personal penalty cancelled. The ATO’s own wording is that you have 21 days to take one of those steps, and that the period starts on the day it posts the notice, or leaves it at your address on the ASIC register.

Three company debts can be pushed onto directors this way:

• PAYG withholding, the tax taken out of wages and contractor payments.
• GST, the net amount reported on the company’s BAS.
• Super guarantee charge, which applies when employee super hasn’t been paid correctly or on time.

Company income tax is not on the list. The logic is that the first three are, in effect, money the company held on trust for someone else. If you want the definition in short form, the glossary entry for a director penalty notice has it.

Why do some notices leave you with more choices than others?

This is the part most people miss, and it is where the next three months of your life are decided. The ATO sorts notices into two kinds.

	Non-lockdown DPN	Lockdown DPN
When it applies	The company reported the amounts on time, broadly within three months of the due date	The company reported late, or has not reported at all
Pay the debt in full	Removes the penalty	Removes the penalty
Appoint a voluntary administrator	Removes the penalty	Does not remove it
Appoint a small business restructuring practitioner	Removes the penalty	Does not remove it
Wind the company up	Removes the penalty	Does not remove it

The practical lesson sits upstream of any letter. Lodging a BAS on time, even when you cannot pay it, keeps the less severe path open. A company that lodges a statement four months late has quietly turned a future DPN into a lockdown one, and a lodgement can feel harmless while you are juggling a dozen other things. If you have unlodged statements today, lodging them is still worth doing: it stops the position getting worse, and it is something the ATO expects before it discusses almost any arrangement.

Where statements were never lodged, the ATO can also work from its own estimate of what the company owes, and an estimate can be larger than reality. Lodging the real figures is the way to correct it.

Which exits are open to you in the 21 days?

If your notice is non-lockdown, you are choosing between four exits.

1. Pay. Clear the company’s debt in full, or the part the notice relates to. Simple, final, and often the one that keeps the company alive.
2. Voluntary administration. The company appoints an administrator, which freezes most creditor action while someone independent looks at the company’s options.
3. Small business restructuring. For eligible companies, a restructuring practitioner helps put a plan to creditors. ASIC explains who qualifies, including a ceiling on the company’s total liabilities.
4. Liquidation. Winding the company up. It ends the company, so it is a decision about the business, not just the notice.

If your notice is lockdown, the second to fourth exits do not remove your personal penalty. Payment is the route that works, and you may still choose a formal process for other reasons, such as dealing with other creditors. A registered liquidator or insolvency practitioner can tell you honestly which mix applies; many offer a first conversation at no charge.

What about a payment plan? This is where the commentary online contradicts itself. Some law firms list an ATO payment arrangement among the options; others say a company plan does not cancel a director’s personal liability. The ATO’s formal list of remission steps is the four above. If you are leaning on a plan, ask the ATO to confirm in writing what it means for your personal exposure, and keep the reply. Our guide to ATO payment plans covers how plans work in general.

Who can be caught, and what surprises people?

Several details tend to land badly because nobody mentioned them in advance.

• New directors inherit debts. Someone appointed to the board can become liable for amounts that remain unpaid 30 days after their appointment. Before you accept a directorship, ask to see the company’s ATO account.
• Resigning is not a reset. Stepping down does not remove liability for amounts that fell due while you were a director, and a notice can still arrive after you have left.
• Your register address is the delivery point. If you moved house and never updated ASIC, the letter went to the old address and the clock started anyway.
• Your own refunds are fair game. Once a penalty is payable, the ATO can offset amounts it owes you personally, including refunds, against it.
• It follows the money, not the title. A silent or nominee director carries the same exposure as the person running the business.

There is also a wider debate. The Inspector-General of Taxation and Tax Ombudsman announced a review of how the ATO administers DPNs in early September 2026, looking at whether directors get timely information, whether individual circumstances are considered, and how vulnerable or coerced directors are treated. The review does not suspend the regime, and its recommendations are not binding, so it should not shape your decision this month.

How does an owner usually get through the 21 days?

Here is a plain, invented scenario to show the shape of it. A Perth landscaping company owes about $62k across three quarters of PAYG withholding and GST. The statements were lodged, about six weeks late each time, so the notice is non-lockdown. The director is also a guarantor on a bank facility and does not want to lose the company.

• Day 1 to 2: the director rings their accountant and the ATO, confirms the exact amount and the notice date, and checks that every statement is lodged.
• Day 3 to 5: three options go on the table: wind the company up and accept the end of the business, put it into a restructuring plan, or find the money to clear the withholding and GST.
• Day 6 to 14: because the company has $410k of contracted work booked, the director decides to pay. The bank says it cannot extend the facility on this timetable, which is a fair answer from a bank working to its own policies. A property-secured loan is arranged against the director’s home.
• Day 15 to 19: funds settle, the ATO is paid, and the penalty is cancelled with days to spare.

That was an expensive route, and it is not always the right one. A company with no profitable work might reasonably choose the formal exits. What matters is that the choice was made with a clear head and a calendar, not on day 20.

What should you not do?

• Do not leave the letter on the bench. Even an hour spent reading the dates changes what you can do.
• Do not assume the accountant has it. Ask directly, and ask whether every BAS is lodged.
• Do not move assets out of the company. Transfers made to dodge creditors can be reversed and can create bigger problems.
• Do not stop paying current PAYG and GST while you fix the old debt. A new quarter of arrears can generate a fresh notice.
• Do not borrow without comparing the total cost. Urgency pushes people towards the first offer. Lay offers side by side in dollars, including fees; the loan cost comparison calculator does that.

For free, independent support, the Small Business Debt Helpline offers confidential financial counselling and can help you prepare for the call to the ATO.

If cash is the only thing standing between you and a cancelled penalty, it is worth seeing what funding looks like before you decide, which is the purpose of funding for a director penalty notice. You can start that with a short enquiry while you take advice on the rest.

Could funding get you through the notice?

Banks are often the cheapest money in the country, and when a bank can lend against your position inside 21 days, take that offer seriously. If yours has already said no, or says it cannot move that quickly, that is common, and it is not a judgement of you or your business.

We help directors in this spot, and a notice does not scare us off. Our enquiry takes about a minute and your credit file is left alone while you ask. We do not push your details out to a crowd of lenders, so your phone stays quiet apart from one call. A real person reads your situation and rings you back. Please put in the real amount, the date on the notice and whether your statements are lodged, so we can point you at the right option first time and not the third.

Start the enquiry before the days run out →