Australian Tax Office Crackdown on Director Penalty Notices

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A Director Penalty Notice (DPN) is a formal notice the ATO issues to a company director personally, making them liable for the company’s unpaid PAYG withholding, superannuation guarantee charge (SGC) or GST debts. A non-lockdown DPN gives directors 21 days from the date of the notice to pay the debt in full, appoint an administrator or small business restructuring practitioner, or wind up the company to avoid personal liability. A lockdown DPN, issued when BAS, IAS or SGC statements are more than three months overdue, makes the director personally liable immediately, with the debt payable in full as the only way to remit it. In the 2024-25 financial year, the ATO issued 84,529 DPNs to around 64,000 companies, pursuing an estimated $5.5 billion in unpaid liabilities, more than triple the 26,702 notices issued in 2023-24. Directors who receive a DPN should seek legal advice immediately, as the 21-day window to act is strict and non-negotiable.

The Australian Taxation Office’s recovery actions are back post-pandemic with a vengeance. The ATO has continued to intensify its use of director penalty notices, issuing 84,529 DPNs to approximately 64,000 companies in the 2024-25 financial year, pursuing an estimated $5.5 billion in unpaid liabilities. This is more than triple the 26,702 notices issued in 2023-24 (worth an estimated $4 billion), a 136% year-on-year increase. 

The escalation forms part of a broader debt recovery push. The ATO has reported more than $34.7 billion in collectable debt owed by small businesses alone, and issued over 15,000 garnishee notices in the 2024-25 financial year. The scale of this activity has prompted the Australian Taxation Ombudsman to launch a formal review into the ATO’s administration of DPNs, examining whether directors are given adequate information about their obligations and options, and whether vulnerable directors (including those affected by illness, coercion or financial abuse) are treated fairly. Submissions to that review closed for comment in September 2026, with findings expected in 2027. Directors should not wait for the outcome of that review before acting, as the existing DPN regime remains in full force.

DIRECTOR PENALTY NOTICES

It is no secret that directors have statutory obligations to ensure their company meets its Pay As You Go (PAYG) withholding, Superannuation Guarantee Charge (SGC) or Goods and Services Tax (GST) obligations.

However, if the company fails to meet its taxation obligations, or meaningfully engage with the ATO in relation to any liabilities, the ATO has a range of enforcement actions at its disposal to claw back outstanding debts, including exposing company directors to personal liability through director penalty notices.

A director penalty notice (DPN) is a formal notice issued by the ATO to company directors when their company has defaulted on its tax obligations. It represents a last-resort attempt by the ATO to force the company’s hand in light of non-compliance.

There are two types of DPNs, namely:

• Non-lockdown DPNs; and
• Lockdown DPNs.

NON-LOCKDOWN DPNs

Non-lockdown DPNs are issued to a company director where the company has lodged its BAS, IAS or SGC statements, but the debt remains unpaid.

Importantly, non-lockdown DPNs provide company directors with 21 days of the date of the DPN to either:

1. Satisfy the debt, in full, or negotiate a payment plan with the ATO;
2. Appoint an administrator or small business restructuring practitioner;
3. Wind up the company; or
4. Attempt to defend the DPN.

Provided that the director engages with one of the above within the 21-day period, their personal liability is taken to have been remitted. However, a director’s failure to act in accordance with the above within the nominated period “locks down” their liability, meaning it becomes a permanent personal debt that the ATO can pursue through various enforcement mechanisms.

LOCKDOWN DPNs

The ATO will issue a lockdown DPN to a company director where a company has failed to lodge its BAS, IAS or SGC statements within three months of the lodgement due date.

Unlike the non-lockdown DPN, directors who receive a lockdown DPN are held personally liable for the outstanding debt upon receipt. As such, the only avenue for directors to remit the penalty is to pay the outstanding debt to the ATO in full.

DEFENCES

Depending upon your individual circumstances, directors may have various defences available to offset or discharge personal liability. Relevantly, defences to a DPN may include:

1. Illness, where there was a justifiable non-participation by the director in the management of the company during the period in which the liabilities accrued; or
2. All reasonable steps, where the director must demonstrate that they took all reasonable steps to ensure the company paid its debts, appointed an administrator or small business restructuring practitioner, or commenced the winding-up process.

ATO’S ENFORCEMENT METHODS

If directors fail to comply with a DPN, and the aforementioned defences are not applicable, they should brace themselves for retaliatory action. In that regard, the ATO may employ several recovery mechanisms, including:

Issuing garnishee notices to freeze and collect funds from the director’s accounts;
Offsetting personal tax credits against the unpaid amounts; or
Commencing legal action against the director personally.

With more than 15,000 garnishee notices issued in the 2024-25 financial year alone, the ATO’s willingness to use these mechanisms should not be underestimated. In light of the above, the liabilities imposed on directors can be burdensome, such that it is crucial to engage a qualified taxation lawyer, agent, or insolvency practitioner as a matter of priority, following receipt of a DPN.

RAMSDEN LAWYERS – HOW WE CAN HELP

In light of the ATO’s aggressiveness towards debt recovery, acting proactively is more effective than acting reactively. The ATO’s position is unequivocal, and your response should be equally as decisive.

If you have received a DPN, or are navigating an outstanding taxation liability, we encourage you to seek legal advice as a matter of priority. Our Litigation and Dispute Resolution Division has specific expertise in navigating tax disputes, and we are happy to arrange an obligation-free initial consultation to assist you in navigating the relevant legislation for your circumstances.

The content of this article is intended to provide general guidance to the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.