Australia Director Penalty Notice Guide

the Director Penalty Notice (the "DPN") in Australia for the company directors and the officers. The guide covers: the DPN overview (the "the personal liability of the director for the company tax debts") — the DPN is the "notice issued by the ATO" to the "company director" making the director "personally liable" for the "unpaid company tax obligations" — the "PAYG withholding" (the "the tax withheld from the employee wages"), the "superannuation guarantee" (the "the SG contributions for the employees"), the "GST and the luxury car tax and the wine tax" (the "the indirect tax obligations"); the DPN allows the ATO to "recover the unpaid amounts directly from the director" (the "the personal assets and the director's bank accounts"); the DPN types (the "the 21-day notice" and the "the lockdown notice") — the "21-day DPN" (the "standard DPN") — the director has the "21 days" to: (a) "pay the debt in full", (b) "appoint the administrator" to the company, (c) "appoint the liquidator" to the company; if the director takes the "no action within 21 days", the ATO can "commence the recovery proceedings" against the director; the "lockdown DPN" (the "the immediate liability DPN") — the director is "immediately liable" for the "non-compliance" (the "the PAYG withholding or the SG has been unpaid for more than 3 months" and the "company is the six months overdue on the lodgement" or the "the ATO has issued the estimate"); the lockdown provisions remove the "defence of the director's reliance on the others" and the "defence of the illness or the absence".

DPN Triggers and the ATO Enforcement

PAYG withholding non-payment: The "PAYG withholding" (the "the tax withheld from the employee wages under the PAYG system") is the "trust money" held by the company for the ATO. The "director obligation" — the director must ensure that the "PAYG withholding is paid to the ATO by the due date" (the "the 21st of the month following the quarter"). The "director liability" — the "director is personally liable" for the "unpaid PAYG withholding" if the "company fails to pay".
Superannuation guarantee non-payment: The "superannuation guarantee" (the "the SG at 11.5% of the employee wages") must be paid to the "employee super fund" at the "quarterly due date" (the "the 28th day after the quarter end"). The "director liability" — the "director is personally liable" for the "unpaid SG charge" if the "company fails to pay the SG by the due date". The "SG charge" includes the "SG shortfall", the "interest at 10% per year" and the "administration fee of $20 per employee per quarter".
Lockdown provisions: The "lockdown" applies when: (a) the "company is more than 3 months overdue on the PAYG withholding or the SG payment" AND (b) the "company has not lodged the BAS or the SG statement for the relevant period within the 3 months of the due date". The "lockdown effect" — the "director cannot avoid the liability by the appointment of the administrator or the liquidator" — the "director remains personally liable even if the company enters the external administration".

For the GST and the BAS lodgement rules, see our BAS Guide →.

DPN Defences and the Director Remedies

Reasonable cause defence: The "reasonable cause" defence — the director must show that the "non-compliance was due to the illness or the other reasonable cause" and the "director took the reasonable steps to ensure the compliance". The "other reasonable cause" includes the "the serious illness, the travel, the natural disaster, the other exceptional circumstances". The "director's reliance on the staff or the advisors" is NOT the "reasonable cause" — the "director must supervise the delegation".
Appointment of the administrator or the liquidator: The "21-day DPN" can be "defeated" by the "appointment of the administrator" (the "the safe harbour for the company restructuring") or the "appointment of the liquidator" (the "the company is wound up"). The "director must act within the 21 days" — the "appointment must be made before the 21-day deadline". The "lockdown DPN" does NOT allow the "director to avoid the liability through the external administration".
Payment of the debt: The "full payment" of the "outstanding debt" within the "21-day period" removes the "director liability". The "part payment" does NOT reduce the "director liability" — the "director remains liable for the full unpaid amount". The "payment plan" with the ATO (the "the instalment arrangement") does NOT automatically remove the "director liability" — the "director must ensure the company complies with the payment plan".

For the tax debt collection and the ATO enforcement powers, see our Tax Debt Collection Guide →.

Director Obligations and the Compliance Best Practices

PAYG withholding compliance: The director should ensure that the "company lodges the BAS on time" (the "the quarterly or the monthly BAS") and "pays the PAYG withholding by the due date". The "segregated bank account" — the "PAYG withholding should be held in the separate account" until the "payment to the ATO". The "regular review" — the "director should review the BAS lodgement status" each month.
SG compliance: The "director must ensure the company pays the SG to the employee super funds by the quarterly due date". The "SG clearing house" (the "the ATO Small Business Superannuation Clearing House" or the "commercial clearing house") can be used to "automate the SG payments". The "SG contribution" must be "received by the super fund" before the "due date" — the "payment by the due date is not sufficient if the super fund does not receive the contribution on time".
ATO notifications and the estimates: The ATO may issue the "estimate of the director liability" (the "the ATO estimate of the unpaid PAYG withholding or the SG") which becomes the "director liability" unless the director "disputes the estimate" within the "21 days". The "director should monitor the ATO portal" (the "the ATO Business Portal" or the "myGovID") for the "any ATO notices" and the "pending DPNs".

For the hiring employees and the PAYG withholding obligations, see our Hiring Employees Guide →.