Key points
- A DPN can make directors personally liable for unpaid PAYG withholding, GST and super guarantee charge.
- The 21 days run from when the ATO posts the notice to your ASIC address, not from when you read it.
- Get advice from your accountant or an insolvency professional immediately.
A director penalty notice (DPN) is one of the most serious letters a company director can receive from the ATO. It can make you personally liable for some of the company's tax debts. The good news is that, in many cases, acting quickly can still remove the penalty. The bad news is that the clock starts earlier than most directors assume.
What a DPN covers
Under the director penalty regime, directors can become personally liable for certain unpaid company amounts, including PAYG withholding, GST and the super guarantee charge. The ATO calls these amounts director penalties. A DPN is the notice that lets the ATO start recovering them from you personally.
The 21 days start when the ATO sends it
The ATO can recover the penalty 21 days after it issues the DPN. The 21 days start on the day the ATO posts the notice, or leaves it at your address registered with ASIC, not the day you open it. If your ASIC address is out of date, the window can close before you see the letter. Check that your details with ASIC are current.
Non-lockdown and lockdown DPNs
| Feature | Non-lockdown DPN | Lockdown DPN |
|---|---|---|
| When it's issued | The company reported the amounts on time but hasn't paid them | The company didn't report the amounts on time (generally within three months of the due date) |
| Ways to remit the penalty within 21 days | Pay the debt, appoint an administrator, appoint a small business restructuring practitioner, or begin winding up | Generally only by paying the debt |
This is why lodging on time matters even when you can't pay. Lodging keeps more options open if a DPN ever arrives.
Defences
Directors may have a defence in limited situations, for example where illness or another good reason stopped them taking part in managing the company, or where they took all reasonable steps to make sure the company paid or entered administration. Defences are technical, and your lawyer or insolvency adviser should assess them.
Where finance can fit
Paying the debt in full within the 21 days removes the penalty. For companies that are viable but short of cash, a fast loan can make that possible. The usual route is a loan secured by property, because those lenders can move within days:
- Caveat loans can sometimes settle within a few business days of a complete application.
- Private first or second mortgages take a little longer but allow larger amounts and longer terms.
Unsecured lending is harder at this point, because many lenders see a DPN as a red flag. And if the company can't trade its way out, borrowing to pay the ATO only shifts the problem. That's exactly the question to put to your accountant or insolvency adviser before you apply.
Steps to take today
- Note the date on the notice and work out the 21-day deadline from that date.
- Call your accountant, lawyer or insolvency practitioner.
- Get every outstanding lodgement done.
- If finance is an option, gather property details, the ATO statement and recent bank statements, and talk to a broker straight away.
General information only. It doesn't take your circumstances into account and isn't tax, legal or financial advice. Speak to your accountant or a lawyer about your situation.