Director Penalty Notice (“Dpn”)


Companies with employees have a legal responsibility to withhold Pay As You Go (PAYG) from employees wages and to report and remit these withholdings to the Australian Taxation Office (ATO) to enable the employee to meet their taxation obligations.

Employing companies also have a responsibility to remit the Superannuation Guarantee Charge (SGC) in respect of the employee wages.

Company directors have a legal responsibility to ensure that their company reports and pays its PAYG withholding and SGC obligations.

If a director of a company fails to report and pay the company’s PAYG withholding or SGC liability in full they may become personally liable in respect of those obligations and in some instances the personally liability is automatic, by operation of law.  Personal liability does not extend to unreported and unpaid Goods and Services Tax.  However it should be noted that the ATO has the ability to allocate receipts at its discretion.

The director’s obligation to meet the outstanding liabilities arises the day after the due date the PAYG or SGC was required to be paid.  However for the ATO to commence any proceedings to recover the outstanding liabilities it is required to issue a Director Penalty Notice (DPN), formally titled “Notice of Director’s Liability to Pay a Penalty to the Commissioner of Taxation”.

The DPN provides a twenty one (21) day time period for compliance with the notice and the ATO cannot commence further proceedings until the 21 day time period has expired.  The 21 days for compliance commences on the day the notice is dated.

Types of DPN’s

There are two types of DPN’s issued by the ATO, non-lockdown and lockdown.

A non-lockdown DPN is issued to directors where the company has reported its PAYG and/or SGC obligations within three months of the due date but the obligations remain unpaid.

A lockdown DPN is issued to directors where the company has failed to report its PAYG and/or SGC obligations within three months of the due date and the debts remain unpaid.

In instances where the company fails to lodge, the ATO can issue estimates and subsequently issue a lockdown DPN based on those estimates.  This may be reduced if it is established the actual debt is less, but does not remove the obligation.

Under a lockdown DPN the directors are unable to have the personal liability remitted (cancelled).  The only option is to pay.

Under a non-lockdown DPN the directors are able to pay the outstanding debt or have the personal liability remitted by appointing a voluntary administrator or a liquidator to the company within the 21 day time period.

New directors

A new director to a company has 30 days from the date of their appointment before any pre existing liability can attach to them.  If the company has significant outstanding PAYG and/or SGC liabilities a new director can have any personal liability remitted if within 30 days of their appointment the company pays the debt, they resign as a director, or appoints a voluntary administrator or liquidator.  After this time the new director becomes personally liable for a debt incurred prior to their appointment.

Former directors

The ATO can issue a DPN to any former directors that were appointed at the time the outstanding debt was incurred.

Deregistered Company Issue

In some instances directors allow companies to be deregistered by ASIC after non lodgement and payment of their annual return fees.  In instances where the company is deregistered and the ATO has issued a DPN, the ability to appoint an external administrator to have the liability remitted within the 21 day time frame is severely hampered as the company would be required to be reinstated by an order of the court.


A director will not be liable for a DPN if:

  • because of illness or for some other good reason, you did not take part (and it would have been unreasonable to expect you to take part) in the management of the company
  • you took all reasonable steps to ensure that one of the following three things happened
    • the company paid the amount outstanding
    • an administrator was appointed to the company
    • the directors began winding up the company
  • none of the above steps were available to you
  • in the case of an unpaid SGC liability, the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued was in accordance with the Act, and took reasonable care in applying that Act.

Note, that not having received the DPN is not a defence as the ATO will utilise the records of the company maintained on the ASIC database and it is the director’s obligation to ensure that the database is up to date.  This can be extremely troublesome for directors that have resigned and do not have any control over the updating of the register.  Accordingly it is prudent for outgoing directors to ensure that all obligations to the ATO are met at the time of their resignation.

Key Points

  1. Lodge all IAS, BAS and SGC statements within three months of their due date even if payment cannot be made.
  2. Communicate early with the ATO and seek formal lodgement extensions if required.
  3. Potential consequences for employers of contractors if the ATO determines that they are deemed employees for SGC purposes. See
  4. If you are entering, exiting or deregistering a company be mindful of any PAYG or SGC outstanding.