Director Penalty Notice: Acting for Company Clients

A director penalty notice gives the ATO a path to recover certain unpaid company debts from a director personally. Check the 21-day notice period immediately. The company’s reporting history decides whether insolvency action can still remit the penalty.

Why the ATO Issues a Director Penalty Notice

The notice tells a director that the ATO can recover unpaid company tax or super from them personally. The liability arises under the law before the notice arrives.

The covered debts include PAYG withholding, net GST and super guarantee charge (SGC), including relevant estimated liabilities. The penalty equals the unpaid company amount covered. Company income tax and PAYG instalments are different debts.

Payments against a covered company debt reduce the corresponding director penalties. Having several directors does not divide the debt into equal shares automatically. Each can face the full unpaid amount.

The ATO generally posts the notice to the director’s address held by ASIC or leaves it there. The notice is treated as given when posted or left, even if the director never opens it. An agent’s copy does not restart the period. See the ATO’s director penalties guidance.

A new director has 30 days after appointment to address debts already overdue through payment or a qualifying insolvency action. Resigning during that period does not remove the exposure. Former directors can remain liable for debts due during their appointment and certain later-due debts from periods when they held office.

Check the appointment and resignation evidence against each debt period. For older GST periods, the regime’s commencement boundary also matters. The ATO’s recovery practice statement sets out the applicable periods and former-director rules.

Lockdown and Non-Lockdown Notices Compared

A non-lockdown penalty retains insolvency remission options because the relevant amount was reported within the required window. A lockdown penalty loses those options because reporting was late, missing or insufficient.

Question	Non-lockdown penalty	Lockdown penalty
What decides the category?	The covered amount was reported within the applicable statutory window	The covered amount missed that window, remained unreported or exceeded the timely disclosure
Can payment clear it?	Payment reduces the penalty, with full payment clearing the covered liability	Payment reduces the penalty, with full payment clearing the covered liability
Can an insolvency appointment remit it?	Appoint an administrator or small business restructuring practitioner, or begin winding up, before the notice or within its 21-day period	Those actions do not remit the locked-down amount
What does the notice period do?	Limits the time available for an insolvency remission option	Gives notice before recovery proceedings, without reopening insolvency remission

The company must actually take the qualifying action. A meeting with an insolvency practitioner or an intention to liquidate is insufficient.

A notice can contain amounts with different reporting histories. Assess each amount instead of treating the whole notice as one category. A director penalty notice issued after liquidation still needs attention, particularly for locked-down amounts.

Lodgments That Keep Directors Out of a Lockdown Notice

Report company liabilities on time even when your client cannot pay them. Timely reporting preserves remission options, while waiting for cash can remove them.

For PAYG withholding and net GST, the usual lockdown boundary is three months after the applicable due day. Lodge the BAS or IAS with the correct amounts. PAYG withholding notified through Single Touch Payroll can also count under the legislation. Payroll reporting does not lodge the company’s GST return.

Use the actual due dates for the client and period, including the agent BAS lodgment program. Keep the ATO’s approval for any lodgment deferral. A pending request is not an approved extension.

The ATO says an approved agent-assessed deferral also extends the payment date to the deferred lodgment date. Record both dates and the approval’s scope. Other arrangements need their own terms checked. The ATO’s deferral rules explain the distinction.

For super covered by the former quarterly rules, lodge the SGC statement by its due date. The PAYG and GST three-month window does not apply to that statement.

Payday Super changes the charge and reporting for paydays covered by the new regime. Employers report qualifying earnings and super liability through STP. Super must generally reach the fund within seven business days. The ATO’s Payday Super guidance explains payment exceptions.

For director penalties, the Payday Super due day is the earlier charge payment day or the first day after 60 days from the qualifying earnings day. A voluntary disclosure statement lodged by that due day preserves insolvency remission only for the charge amount it discloses. See Division 269 and the Payday Super checklist. Keep legacy quarterly debts separate from payday debts.

In a hypothetical case, a company has no cash to pay its BAS. You lodge the correct amounts within the applicable window and retain the receipt. A later non-lockdown notice still permits a qualifying insolvency action within the notice period. Waiting beyond the reporting window removes that option.

What to Do When a Client Receives a Notice

Treat a forwarded director penalty notice as urgent work on the day it reaches your practice. Use the following steps to establish the deadline and available options.

1. Save every page and the envelope. Record the issue date, posting or delivery information and when the director received it. Calculate the 21-day period from when the notice was given, with legal help if service is disputed.
2. Confirm authenticity through an independently obtained ATO contact channel. Do not rely on payment links or phone numbers in a suspicious message. In Online services for agents, match the company’s accounts and periods to the notice.
3. Check your authority separately for the company and the director. Acting for the company does not automatically authorise access to the director’s personal tax affairs.
4. Build a schedule of each debt, due day, reporting date and payment. Retain BAS, IAS, STP and super disclosure receipts. Identify locked-down amounts and any ATO estimates.
5. Explain the available payment and remission options to the director. If the company cannot pay or insolvency action is being considered, refer immediately to a registered insolvency practitioner. Refer disputed liability, service and possible defences to a lawyer.
6. Record the advice, the director’s instructions and who owns the next action. Keep dated evidence of payment or appointment. Confirm the relevant accounts reflect the outcome and retain written ATO correspondence.

If the notice period has expired, escalate immediately. Later liquidation does not restore an expired remission option. Payment and any available statutory defence still need assessment.

Director Penalty Notice Payment Plan

An ATO payment plan does not itself remit a director penalty or stop the notice period. Separate the company’s instalment arrangement from the director’s personal liability.

A workable plan can help a company repay debt and maintain contact with the ATO. Actual payments reduce the balance and the corresponding director penalties. General interest charge ordinarily continues on unpaid company debt, so agreeing to instalments does not itself reduce or freeze interest.

If your client misses instalments or fails to meet the plan’s conditions, the arrangement can default and recovery can resume. Keep ongoing tax and super obligations in the cash forecast. The ATO’s payment plan guidance explains the conditions.

Document what the ATO has agreed about recovery of each liability. Do not tell a director that a company payment plan protects them from a notice deadline.

Director Penalty Notice Defences

A director needs evidence that meets a statutory defence, not simply an explanation of why the company ran out of money.

Defence	What the director needs to establish	Useful evidence to gather
Illness or another good reason	Participation in management was unreasonable and the director did not participate during the relevant period	Medical evidence, the period affected and management records
All reasonable steps	Every reasonable step was taken towards payment or a qualifying insolvency action, or no reasonable steps were available	Board records, cash forecasts, payment efforts and correspondence with advisers
Reasonably arguable treatment	For SGC or assessed net GST, the company took reasonable care and applied the law in a reasonably arguable way	Contemporaneous advice, calculations and records supporting the legal treatment

The reasonably arguable defence requires reasonable care as well as an arguable position. Delegating everything to another director does not by itself establish a defence.

For non-court recovery, section 269-35 sets a 60-day information period for the illness and reasonable-steps defences. It starts with the relevant garnishee notice or written notification that the ATO has recovered a penalty amount. It is separate from the DPN’s 21-day period.

Raise a possible defence promptly through a lawyer. The ATO can consider a submission outside the 60-day period, but that affects judicial review rights. Court recovery proceedings have their own defence requirements. The ATO’s director penalty guidance explains written submissions.

What to Collect at Onboarding From Company Clients

Ask about director penalties before your practice takes responsibility for the company’s next lodgment. A new engagement does not erase the client’s earlier debts or reporting failures.

Add these questions to the company form:

• Has any current or former director received a director penalty notice? Request the complete notice and envelope.
• Which BAS, IAS, SGC statements or Payday Super disclosures remain outstanding?
• What company tax and super debts exist, including estimated amounts?
• Is there an ATO payment plan, and has the company met every instalment and ongoing obligation?
• When did each director join or leave, and what residential address has the company notified to ASIC?

Confirm address information from the client’s authorised company records and lodgment receipts. ASIC’s public company extracts omit officeholder addresses, so purchasing an extract does not establish the director’s recorded residential address. See ASIC’s company register guidance.

Put any needed ASIC address update on a separate action list. Collect each director ID alongside the director’s details, while keeping appointment evidence and tax debt records separate.

In Tax Genie, your practice can add these questions to its own company form beside the director ID and address questions. Tax Genie sends automatic reminders for missing answers and documents. Give every notice a staff owner and urgent due date, then resolve the reporting history and legal options before the notice period ends.