Director Penalty Notices (DPNs) are used by the ATO to recover unpaid tax and superannuation debts from company directors. In the 2022-2023 financial year, it issued more than 23,000 DPNs to individual company directors, covering more than 17,000 companies. And it’s been reported the ATO is issuing an average of 60 DPNs per day in a bid to collect the whopping $52 billion in tax owed by small business. That’s why it’s crucial to know how you can reduce the risk of this happening to you.

Understanding DPNs

A DPN is a formal notice issued by the ATO to directors of a company to make them personally liable for, among other things, unpaid super, PAYG and GST. There are two types of DPNs: lockdown and non-lockdown DPNs.

1. A lockdown DPN is issued when:
   • the company has failed to lodge its BAS within three months of the due lodgement date, or the Superannuation Guarantee Charge (SGC) statement by the lodgement due date.
   • the debt has not been paid.
2. A non-lockdown DPN is issued where the company has lodged its BAS within three months of the due lodgement date or its SGC statement on time, but the obligations remain unpaid.

What to do if you receive a DPN

The law provides some defences against a DPN. These include:

1. Illness – although the illness must be for the entire time a director was unable to manage the company.
2. Reasonable steps

Directors must show they tried to

• pay the tax debt
• put the company into administration
• engage a small business restructuring practitioner
• appoint a liquidator; or
• there were no steps that could be taken.

Must-dos for new directors

Before becoming a company director, it’s important to check if the company has any unpaid or unreported PAYG, GST and super liabilities. Once appointed, you become personally liable for any unpaid amounts – even for periods prior to your appointment.

You can avoid becoming liable for director penalties that were due before your appointment if within 30 days of your appointment, the company does one of the following:

• pays its debts in full for PAYG, net GST from 1 April 2020, and super from 1 April 2012
• appoints an administrator
• appoints a small business restructuring practitioner
• starts to be wound up (goes into liquidation).

Note that even if you resign as a director within the 30-day period, you will still be liable for these unpaid liabilities. DPN liabilities are joint and several. If there is more than one director, the ATO may choose to pursue one director rather than another for the full amount.

If you resign as a director, you remain liable for director penalties for liabilities of the company that were due before the date of your resignation.

7 tips to help directors manage ATO and DPN risks

1. Lodge on time (or at least less than 3 months after the lodgement due date)
2. Maintain current address details with ASIC
3. Open and read all ATO correspondence – seek help if you don’t understand anything
4. Engage with the ATO – do not ignore them
5. Watch for solvency warning signs
6. Communicate regularly and meaningfully with your advisers
7. Seek advice if you suspect your business is experiencing financial difficulty

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