What is a Director Penalty?

What is a Director Penalty?

As a company director, you are legally responsible for ensuring that your business meets its tax and superannuation obligations. This includes timely reporting and payment of:

• PAYG Withholding
• Goods and Services Tax (GST)
• Superannuation Guarantee Charge (SGC)

If your company fails to meet these obligations, the ATO may issue a Director Penalty Notice, making you personally liable for these unpaid amounts—even if you are no longer a director.

What Triggers a Director Penalty Notice?

A DPN can be issued if:

• BAS, IAS, or SGC statements are not lodged on time
• The company fails to pay amounts owing
• A payment arrangement is not kept or defaulted

It’s crucial to note that once a DPN is issued, the ATO can recover the debt by:

• Offsetting your personal tax credits
• Issuing a garnishee notice
• Commencing legal action

Why Lodging on Time Matters

Even if your company can’t pay the full amount by the due date, lodging your returns on time is essential. Timely lodgement provides options for remitting the penalty, such as appointing an administrator or entering a small business restructuring arrangement. If returns are more than 3 months overdue, the only way to remit the penalty is by paying the debt in full.

Payment Plans – Keep Them on Track

If you’ve arranged a payment plan with the ATO, it’s vital to keep to the agreed schedule. Defaulting on an arrangement can lead to the issue of a DPN and escalate recovery action against you personally.

New Directors – Extra Caution Required

If you’re newly appointed as a director, you can still become liable for unpaid debts that arose before your appointment unless the company:

• Pays the debt
• Appoints an administrator
• Enters restructuring
• Begins winding up
  … all within 30 days of your appointment.

What to Do If You Receive a DPN

Once issued, you have 21 days to act:

• Pay the outstanding debt in full, or
• Engage with the ATO and negotiate a suitable resolution

Failure to act within this timeframe may lead to direct recovery actions against you personally.

We strongly recommend:

• Reviewing your company’s lodgement and payment history
• Keeping BAS and SGC obligations up to date
• Contacting us immediately if you experience cash flow difficulties

You can find more information about the director penalty regime here:
ATO Director Penalty Regime

Please don’t hesitate to get in touch if you would like us to review your current position or assist with ATO obligations and lodgements.