If you are the director of a company that can’t pay its tax debts, then the ATO may issue a Director’s Penalty Notice (DPN). The effect of the DPN is that it may make you personally liable for the tax debt.

The types of tax debts currently covered by the DPN are Pay As You Go Withholding (PAYG), Superannuation Guarantee Charge (SGC), and Goods and Services Tax (GST). Currently, company Income Tax is not covered.

There are two types of DPNs: one called a non-lockdown DPN and the other a lockdown DPN.

The non-lockdown DPN is issued where a company lodges its Activity Statement within three months of the due date or lodges its SGC Charge Statement within one month of the due date, and the debt remains unpaid. A non-lockdown DPN allows the director to potentially avoid the unpaid tax debt by doing any of the following within 21 days from the date of the notice:

• Paying the debt in full.
• Appointing a voluntary administrator.
• Appointing a small business restructuring practitioner.
• Appointing a liquidator.

Failure to do one of these within the timeframe means that the debt cannot be remitted other than by paying the debt in full. The debt may be avoided if one of the limited defences can be established.

The lockdown DPN is issued where the company does not notify the ATO of the debt within the timeframes (as above). The lockdown DPN can only be avoided by paying the debt in full.

Be aware that if you have an unpaid DPN, the ATO may offset the debt against other personal refunds or garnish personal bank accounts.

In the 2023 financial year, the ATO issued over 20,000 DPNs.