For company directors there is often a no more serious and life changing letter than a Director Penalty Notices (DPN) from the ATO. If everything has been lodged correctly, you have 21 Days from the date of the letter to avoid personal liability.
Understanding Director Penalty Notices (DPNs) is critical to avoiding becoming personally liabile for unpaid company taxes. Knowing how DPNs work and how to respond can help directors protect themselves and their businesses.
What Is a Director Penalty Notice (DPN)?
The Australian Taxation Office (ATO) can issue a DPN when a company fails to meet its tax obligations, making directors personally liable for unpaid Pay As You Go (PAYG) withholding, Superannuation Guarantee Charge (SGC), and Goods and Services Tax (GST).
A Director Penalty Notice is a formal notice from the ATO that holds directors personally responsible for a company’s unpaid tax liabilities. There are two types of DPNs:
Non-Lockdown DPN – If tax obligations are reported on time but remain unpaid, directors have the option to either pay the debt, place the company into administration, appoint a liquidator, or commence an SBR, to avoid personal liability.
Lockdown DPN – If tax obligations are not reported within the required timeframe, personal liability is automatically locked in, meaning directors cannot avoid responsibility, even if the company is later placed into administration or liquidation.
How to Avoid Personal Liability Under a DPN
Stay Up to Date with Tax Lodgements
Ensure all Business Activity Statements (BAS), PAYG, and Superannuation Guarantee Charge (SGC) lodgements are submitted on time, even if the company cannot pay the amounts due. Timely reporting prevents debts from becoming lockdown DPNs.
Monitor and Address Tax Debts Early
If your company is struggling to pay tax liabilities, engage with the ATO early to negotiate payment plans. Proactive communication can prevent escalation and potential issuance of a DPN.
Consider Small Business Restructuring (SBR) or Voluntary Administration
If tax debts become unmanageable, exploring options like Small Business Restructuring (SBR) or Voluntary Administration can help restructure debts before a DPN is issued.
Understand Your Personal Risk as a Director
Directors can be held personally liable even after resigning if tax obligations were outstanding during their tenure. Ensure tax compliance before stepping down from directorship.
Act Immediately if a DPN is received.
If you receive a DPN, immediate action is crucial. Consulting an insolvency expert can help you understand your options and minimize personal exposure. The 21 day clock starts on the date the DPN is issued by the ATO, often several days before it is received in the post. Don't delay.
What to Do If You Receive a DPN
If you receive a DPN, time is critical. Depending on the type of notice, you may need to take action within 21 days to avoid personal liability. Ignoring the notice can lead to serious personal financial consequences, including legal action and bankruptcy.
How Resolv Can Help
At Resolv, we assist company directors in managing tax debts, responding to DPNs, and exploring restructuring solutions. If you’re concerned about personal liability, contact us for expert guidance on your next steps.
Facing a DPN? Don’t wait—get in touch with Resolv today for confidential advice.