What Is a Director Penalty Notice and What To Do in 21 Days
Business Owners Hub
director penalty notice, lockdown DPN, 21 day deadline, defences, paying the debt
A director penalty notice turns a company tax debt into your personal debt. This guide explains when the 21 days starts, how to tell a lockdown notice from a non-lockdown one, what actually remits the penalty, the defences the law gives you, and when borrowing to pay the debt is sensible and when it is not.
Quick Answer
A director penalty notice makes a company director personally liable for unpaid company PAYG withholding, GST or super guarantee charge. The clock starts when the ATO posts it, not when you read it. Work out which type you hold, get advice today, and never assume a payment plan removes it.
Also called: DPN, directors penalty notice, ATO director penalty, director penalty notice from the ATO. All four names describe the same notice issued under the director penalty regime.
What is a director penalty notice?
A director penalty notice is a formal notice from the ATO telling a company director that they are personally liable for an amount the company has not paid: unpaid PAYG withholding, net GST or super guarantee charge. The penalty equals the company's unpaid amount, and the ATO can recover it from the director personally if it is not remitted within 21 days (ATO, Director penalties, last updated 16 April 2026, read 8 October 2026).
The notice is not a warning letter and it is not a demand for the company. It is the step that moves the debt from the company to you. The rules sit in Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Federal Register of Legislation, read 8 October 2026), and the ATO's own operating rules are set out in Practice Statement PS LA 2011/18 (ATO, read 8 October 2026).
The ATO is using the notice far more than it used to. The Tax Ombudsman's review of the ATO's administration of director penalty notices records more than 84,000 notices issued in the 2024-25 financial year, a 136 per cent increase on the previous year (Tax Ombudsman, terms of reference, published 31 August 2026, read 8 October 2026). A notice in the mail is no longer rare, and the ATO's follow-up after the 21 days is routine.
Two things decide everything that follows: which type of notice you hold, and how many of the 21 days are left. The rest of this guide works through both, then the question most directors ask next, which is whether a loan can pay the debt behind it.
Am I personally liable, and does it start before the notice arrives?
Yes. A director penalty is a parallel liability: the company still owes the amount, and you owe the same amount personally, from the day the company's liability fell due, not from the day the notice arrives. The notice is the ATO's step before it can recover the penalty from you, but the liability already exists (ATO, Director penalties, read 8 October 2026).
Parallel means every director owes the full amount, not a share of it. The ATO's own example makes it concrete: on a $4,000 unpaid PAYG withholding liability with 2 directors, each director is liable for $4,000, and a $1,000 payment by the company or by either director reduces every liability by $1,000 (ATO, Director penalties, read 8 October 2026). One director paying does not leave the others with a bigger share; it reduces the whole penalty for everyone.
This is why the notice can arrive after you have stopped being a director, or after the company has stopped trading. The question the ATO asks is whether you were a director on the day the liability fell due, or became one afterwards and did not act in time. The rules for new and resigned directors are below.
It is also why a director penalty notice is different from a director's guarantee. A guarantee is a contract you signed with a lender. A director penalty is a statutory liability the ATO can impose whether you signed anything or not.
When does the 21 days start?
The 21 days starts on the day the ATO posts the notice, or leaves it at your address registered with ASIC. It does not start when you open the envelope. The ATO's words are: "The 21 days starts on the day we post the DPN or leave the DPN at the address registered with ASIC" (ATO, Director penalties, read 8 October 2026).
Three practical consequences follow. First, postal time comes out of your 21 days, so a notice that reaches you on day 5 leaves 16 days. Second, the address that matters is your address on the ASIC register, not the company's registered office and not where you live now, so an old ASIC address can cost you the whole period without your knowing the notice exists. Third, the date on the notice is the date to count from, and the count includes weekends.
If you have moved and never updated your details with ASIC, do that today, and ask your accountant to check the ATO's correspondence preferences for the company at the same time. The question of a notice sent to an old address is answered in the questions below.
Is my notice lockdown or non-lockdown?
Your notice is non-lockdown if the company reported the amount in time, and lockdown if it did not. In time means within 3 months of the due date for PAYG withholding and net GST, and by the due date of the super guarantee statement for super guarantee charge. A non-lockdown penalty can be remitted by 4 actions. A lockdown penalty can only be remitted by paying the company's liability in full (ATO, Director penalties, read 8 October 2026).
The test is applied amount by amount, so a single notice can hold both types. It turns on reporting, not payment: a company that lodged every activity statement within 3 months of its due date but paid nothing holds a non-lockdown notice. A company that paid some of the amount but lodged the statement 4 months late holds a lockdown notice for that amount.
| Liability | Non-lockdown if | Lockdown if | What remits a lockdown amount |
|---|---|---|---|
| PAYG withholding | Reported within 3 months of the due date | Reported more than 3 months after the due date, or never reported | Payment of the company liability in full, nothing else |
| Net GST | Reported within 3 months of the due date | Reported more than 3 months after the due date, or never reported | Payment in full, nothing else |
| Super guarantee charge | Super guarantee statement lodged by its due date | Statement lodged after the due date, or never lodged; an ATO estimate is treated as never reported | Payment in full, nothing else |
| New director, pre-appointment amounts | Reported within 3 months of the director's appointment | Reported more than 3 months after appointment, or never reported | Payment in full, nothing else |
How does the 3 month test work for PAYG withholding and GST?
For PAYG withholding and net GST, the company keeps the wider remission routes if the amount was reported within 3 months of its due date. A late activity statement does not close your options on its own; a statement that is more than 3 months late, or never lodged, does. The ATO applies this per period, so one late quarter can be locked down while the quarters around it are not.
Why is the super guarantee test stricter?
For super guarantee charge there is no 3 month grace. The super guarantee statement has to be lodged by its due date, and if the ATO has estimated the amount because no statement was lodged, the ATO treats it as never reported. In practice almost every super guarantee amount on a notice is a lockdown amount, which is why the super section of this guide matters so much.
How do you check which type you hold?
Put the notice beside the company's lodgement history, period by period. Your tax agent can pull the lodgement dates from the ATO portal in minutes. For each amount on the notice, note the due date, the date the statement was actually lodged, and whether the gap is inside or outside 3 months (or, for super, whether the statement was lodged by its due date at all). That one table decides which of the 4 remission actions are open to you, so it is the first thing an insolvency practitioner or solicitor will ask for.
What should you do in the 21 days?
Confirm the type of notice on day 1, get insolvency and legal advice by day 5, decide between paying and appointing by day 15, and leave the last week for the action itself, because an appointment or a payment made on day 22 is too late. The ATO lists 4 actions that remit a non-lockdown penalty inside the 21 days: the company pays the amount in full, an administrator is appointed, a small business restructuring practitioner is appointed, or the company begins to be wound up (ATO, Director penalties, read 8 October 2026).
- Day 1. Record the date on the notice and count 21 days from it. Check every amount and period against the company's lodgement history and mark each one lockdown or non-lockdown. Tell your co-directors; they hold the same liability.
- Days 2 to 5. Brief an insolvency practitioner or a solicitor who works in tax recovery, and your tax agent. Ask 3 questions: is the company viable, can it pay in full, and which remission actions are open given the lockdown split.
- Days 6 to 15. Decide. If the company can pay in full and is viable, arrange the funds, whether from cash, a shareholder or a loan. If it cannot, decide between voluntary administration, small business restructuring and winding up with your adviser. If a defence applies, start drafting it now.
- Days 16 to 21. Act. A payment must reach the ATO, or an appointment must be made, inside the period. Keep written proof of the date. Do not spend the last week waiting on a lender's answer or a practitioner's availability.
| Document | Why it matters | Who holds it |
|---|---|---|
| The notice itself, with its date | Sets the 21 days and lists every amount and period | You; your co-directors should each have one |
| Lodgement history for every period on the notice | Decides the lockdown split, amount by amount | Tax agent, from the ATO portal |
| ATO integrated client account and payout figure | Shows the live balance, interest and any payment plan | Tax agent, or the ATO directly |
| Super guarantee statements and payroll records | Shows whether super amounts were reported by their due dates | Payroll provider, bookkeeper |
| Current financials, bank statements, aged debtors | Answer the viability question for a practitioner or a lender | Accountant, your accounting software |
| Property titles, mortgage statements, valuations | Show whether equity exists to fund payment in full | You, your broker |
| Action | Remits a non-lockdown penalty? | Remits a lockdown penalty? | What it needs |
|---|---|---|---|
| Company pays the liability in full | Yes | Yes, the only route | Cleared funds reaching the ATO inside the 21 days |
| Administrator appointed | Yes | No | A board resolution and a registered liquidator who consents to act, before day 21 ends |
| Small business restructuring practitioner appointed | Yes | No | Total liabilities of $1 million or less and the other eligibility rules; a registered liquidator appointed in writing |
| Company begins to be wound up | Yes | No | A members' resolution or a court order; the company does not survive |
| ATO payment plan | No | No | Not on the ATO's remission list; it manages the company debt and leaves the penalty in place |
| Part payment | No, but it reduces the amount | No, but it reduces the amount | Every dollar paid by the company or any director reduces every parallel liability by that dollar |
Small business restructuring is the route most directors have not heard of. It is a formal process under which a registered liquidator helps the company propose a restructuring plan to creditors while the directors stay in control. Eligibility is assessed on the day of appointment: total liabilities must not exceed $1 million, the company and its recent directors cannot have used restructuring or simplified liquidation in the previous 7 years, and the proposal period runs for 20 business days from the start of the restructuring, extendable once by up to 10 business days (ASIC, small business restructuring, last updated 18 June 2025, read 8 October 2026). Lodgements have to be up to date and employee entitlements paid before a plan can be put to creditors, which rules it out for some of the companies that need it most.
The 4 actions are the ATO's list, and it is short on purpose. Negotiating, lodging the missing statements, or promising to pay next month are all sensible things to do, but none of them remits a director penalty.
Does an ATO payment plan stop a director penalty notice?
No. An ATO payment plan is not one of the 4 actions that remit a director penalty, so entering one, or already being on one, leaves the penalty in place and the 21 days running (ATO, Director penalties, read 8 October 2026). A plan manages the company's debt; it does not change your personal liability for it.
That said, a plan still matters. The ATO is less likely to take recovery action against a director whose company is on a plan it is meeting, and a plan that is complied with counts as effectively engaging with the ATO for the purposes of business tax debt disclosure. What a plan does and does not change once a notice has issued, and where the money for the penalty comes from if you have to pay it, is covered in does a payment plan stop a director penalty notice.
Does a director penalty notice cover unpaid super?
Yes. Super guarantee charge is one of the 3 liabilities a director penalty notice can cover, and it is the one most likely to be locked down, because the super guarantee statement has to be lodged by its due date to keep the wider remission routes open (ATO, Director penalties, read 8 October 2026).
Payday Super raises the stakes from 1 July 2026. Employers must now get super contributions to the employee's fund within 7 business days of paying wages, with limited exceptions such as a new employee's first contribution (ATO, About Payday Super, last updated 10 August 2026, read 8 October 2026). A quarterly habit of catching up on super no longer exists, so a shortfall becomes a super guarantee charge liability, and a director penalty exposure, far sooner than it did.
For a director worried about super, the first step is the same as for GST: have your tax agent confirm whether a super guarantee statement was lodged for each period and when. If it was not, assume the amount is locked down and plan on paying it in full, because an administrator or restructuring practitioner cannot remit it.
What defences exist, and how do you lodge one?
The law gives you 3 defences to a director penalty, and if one succeeds you do not have to pay. They are lodged in writing to the Commissioner. The defences are narrow, and relying on another director or on your accountant is not one of them (ATO, Director penalties, read 8 October 2026).
What are the 3 defences?
- Illness or another acceptable reason. You did not take part in managing the company because of illness or some other acceptable reason, and it would have been unreasonable to expect you to. It has to cover the whole period, not part of it.
- All reasonable steps. You took all reasonable steps to ensure the company paid the amount, or appointed an administrator or a small business restructuring practitioner, or began winding up, or there were no reasonable steps you could have taken.
- Reasonably arguable position. For super guarantee charge and GST only: the company applied the law in a way that could reasonably be argued was correct, and took reasonable care in doing so.
The ATO's page is explicit that relying on others, including fellow directors and professional advisers, is not a defence. A director who signed what the accountant put in front of them and never looked at the ATO account has not taken all reasonable steps.
What review rights do you have, and how long do they last?
If you lodge a defence within 60 days of receiving a garnishee notice, or of written confirmation from the ATO that it has recovered part of the penalty, the ATO's decision on it can be reviewed by a court under the Administrative Decisions (Judicial Review) Act 1977. The ATO can still consider a defence lodged after the 60 days, but its decision is then not reviewable under that Act (ATO, Director penalties, read 8 October 2026). Separately, the Tax Ombudsman takes complaints about how the ATO has administered a notice, and its current review of director penalty notice administration is examining whether the ATO's communications and follow-up are fair, with a report expected in April 2027 (Tax Ombudsman, terms of reference, read 8 October 2026).
A defence is legal work. The practitioners who do it are listed in who to call, and it should be started inside the 21 days, not after the ATO has moved to recovery.
What if you are a new director, or you resign?
A new director has 30 days from appointment to escape penalties for amounts that fell due before they joined, and resigning does not clear a penalty for amounts that fell due while you were a director. Both rules are action based: what matters is what the company did, and when, not what you intended (ATO, Director penalties, read 8 October 2026).
What does a new director have to do in 30 days?
You are not liable for amounts due before your appointment if, within 30 days of being appointed, the company pays the amount in full, appoints an administrator, appoints a small business restructuring practitioner, or begins to be wound up. Resigning inside the 30 days does not do it; the ATO's page says you may still be liable for the pre-appointment amounts if you resign within that window. Before accepting a directorship, ask for the company's ATO integrated client account, lodgement history and super position, because the 30 days starts whether or not you knew about the debt.
Does resigning as a director stop a DPN?
No. You remain liable for penalties on amounts that fell due while you were a director, and for amounts that fell due after you resigned where the underlying liability arose before your resignation. A notice can be issued to a former director months after they left. Resignation changes nothing about amounts already on foot; what changes your position is one of the 4 remission actions, or a defence.
Can you borrow to pay the debt behind a DPN?
Sometimes, and only where paying the company's liability in full is the right answer. A loan is a way to fund one of the 4 remission actions, usually payment in full by the company; it is not a remission action itself. It fits a viable company with a clear reason the debt arose, property equity to secure the loan, and a credible way to repay it. It does not fit a company that cannot trade its way out, because then the loan adds a second creditor to a problem that needed an insolvency practitioner.
Lending to a company for its tax debt is business-purpose credit, and the National Credit Code applies only where credit is provided wholly or predominantly for personal, domestic or household purposes, or for residential investment property (ASIC, National Credit Code, last updated 1 August 2025, read 8 October 2026). The family home securing the loan does not change that. The full set of routes, costs and lender checks for an ATO debt is in getting a loan to pay an ATO debt; this section covers what is different when a director penalty notice is already on foot.
What does a lender see when a director holds a DPN?
A director penalty notice does not appear on your personal credit file, and the ATO does not report it to credit reporting bodies. What a lender sees is the ATO statement of account you supply, the lodgement history, and any business tax debt the ATO has reported. The ATO reports a business tax debt to credit reporting bureaus only where the business has an ABN, at least $100,000 is overdue by more than 90 days, the business is not engaging with the ATO to manage the debt, and there is no active Tax Ombudsman complaint about the intent to report, after giving 28 days' notice (ATO, Disclosure of business tax debts, last updated 15 October 2025, read 8 October 2026). How that disclosure reads from the credit desk is covered in business tax debt on the credit file.
So the notice itself is not the problem on the file; the debt behind it is. Specialist and private lenders will usually ask for the notice, the statement of account, every lodgement, a written explanation of why the debt arose and why it will not recur, and evidence that the company can service the new loan. The ATO's general interest charge of 11.51 per cent a year for October to December 2026, compounding daily and no longer deductible, is part of that explanation, because it is what the company has been paying by not paying (ATO, GIC rates, read 8 October 2026). The comparison against a loan is worked through in working capital loan vs ATO interest.
How much equity, and what exit, does a tax debt loan need?
Property equity is what makes a fast loan possible, and an exit is what makes it sensible. A second mortgage or a caveat loan over a property with usable equity can settle inside the 21 days where a bank cannot, and the lender pays the ATO directly at settlement so the remission action is documented on the day. The exit is the plan for repaying that loan: a refinance once the lodgements are clean and the ATO account is at zero, a sale, or trading cash flow over a short term. A short-term loan with no exit is the file most likely to end badly, which is why a lender will ask for the exit before the amount.
| Test | Finance may fit if | Insolvency advice first if |
|---|---|---|
| Type of notice | Non-lockdown, or lockdown with an amount the company can pay in full | Lockdown amount the company cannot pay in full by any route |
| Viability | Trading profitably now, and the debt came from one event: a late payer, a bad year, a lost customer | Losing money, or the ATO debt is the result of using tax money as working capital for a long time |
| Lodgements | Every return and statement lodged, or able to be lodged this week | Multiple periods unlodged and the figures unknown |
| Security | Usable equity in business, investment or residential property, with the first mortgagee's position understood | No property, or equity already fully used |
| Exit | A dated plan to refinance, sell or repay from cash flow inside the loan term | No way to repay the loan other than more borrowing |
| Time left | Enough days for a lender to assess and settle, or the funds can be sourced another way inside the period | Fewer days than any lender needs; an appointment may be the only act that fits the time |
When is a loan the wrong answer to a DPN?
A loan is the wrong answer when the company is not viable, when the notice is locked down and the company cannot pay the whole amount, or when the loan would be secured on the family home to buy a few months for a business that will fail anyway. In those files the realistic path is an appointment or a defence, and the sooner a registered liquidator or solicitor is in the room, the more options survive. ASIC's guidance for directors of companies in financial difficulty, including safe harbour and the duty not to trade while insolvent, is the starting point (ASIC, insolvency for directors, read 8 October 2026).
From the broker's desk, indicative only
Based on Switchboard broker files where a director penalty notice was on foot when the enquiry came in, 2026. As of October 2026.
- The files that settle inside the period are the ones where the lodgement history is already clean and the director can explain the debt in one page. The files that stall are the ones where the first question, lockdown or not, cannot be answered.
- Lenders do not price the notice; they price the security, the exit and the reason the debt arose. A notice on a viable company with equity is a fundable file. A notice on a company that cannot show where repayments come from is not, at any rate.
- The most common mistake is spending the first 10 days asking lenders and the last 10 days asking practitioners. The order should be the other way around.
Observations from files we have worked on, not a quote, not an offer and not an indication of approval. Outcomes depend on the lender, the security, your lodgements and your circumstances, and change often.
What happens after the 21 days?
If the penalty is not remitted within 21 days of the notice, the ATO can recover the amount from you personally. Its page lists 3 routes: offsetting your own tax refunds or credits against the penalty, firmer action, and legal action (ATO, Director penalties, read 8 October 2026). None of them needs a court order to begin, and the first one happens automatically.
Firmer action includes a garnishee notice. A garnishee notice directs a third party that holds or owes you money to pay the ATO instead of you: your bank, your employer, a trade debtor, a merchant card provider, or the solicitor or purchaser in a sale of your property. The ATO sends a warning letter first, serves you a copy of the notice, and the notice can continue until the full amount is paid unless the ATO varies or withdraws it (ATO, Garnishee notice, last updated 5 January 2026, read 8 October 2026). What to do when one lands on a personal account is covered in responding to an ATO garnishee notice.
Legal action means the ATO sues you for the penalty as a debt and, with a judgment, can move to bankruptcy proceedings against you, which is where the family home comes into play. On the company side, the same unpaid liability can be pursued through a creditor's statutory demand and then a winding up application. The two tracks run in parallel: the company's liability and your penalty are the same money, and the ATO can chase both.
The 60 day review window described in the defences section is counted from a garnishee notice or from written confirmation of recovery, so the arrival of either is also the start of a deadline, not only the start of enforcement.
Who should you call, and what does each person do?
Call a registered liquidator or an insolvency solicitor first, your tax agent the same day, and a broker only once you know the notice type and the company's viability. Each one answers a different question, and the order matters because the 21 days is short.
| Who | What they answer | When to call |
|---|---|---|
| Tax agent or accountant | Which amounts were reported when; the lockdown split; the ATO account position; lodging anything outstanding | Day 1 |
| Registered liquidator or restructuring practitioner | Whether the company is viable; administration, small business restructuring or winding up; whether an appointment inside the 21 days is the right act | Days 1 to 5 |
| Solicitor in tax or insolvency | Defences, review rights, the notice's validity and service, dealing with the ATO's legal action | Days 1 to 5, and immediately if a defence applies |
| The ATO | A current statement of account and payout figure; a payment plan for the company debt; your objection and complaint channels | After advice, so you know what you are asking for |
| Finance broker | Whether a loan can fund payment in full inside the period, on what security and with what exit | Once viability and the notice type are confirmed |
| Free help | The Small Business Debt Helpline for business debt and the National Debt Helpline for personal debt, both free and independent | Any time, especially where paying for advice is itself a problem |
The Tax Ombudsman is the complaint channel for how the ATO has handled your notice, not a defence to it. The ATO's own hardship and debt pages apply to the company's debt, not to the penalty, and the Business Owners Hub collects the Switchboard guides on each stage of an ATO debt.
A director penalty notice is a personal liability with a 21 day clock that starts when the ATO posts it. Non-lockdown amounts can be remitted by payment in full, administration, small business restructuring or winding up. Lockdown amounts can only be remitted by payment in full. A payment plan remits nothing. Three statutory defences exist and are lodged in writing. Finance funds payment in full for a viable company with equity and an exit; for a company that cannot pay, the answer is an appointment or a defence, not a loan.
Key takeaway: work out which type of notice you hold on day 1, get insolvency and legal advice in the first week, and act inside the 21 days, because nothing done on day 22 remits a director penalty.Questions directors ask about a DPN
If the amounts are non-lockdown, appointing an administrator or a small business restructuring practitioner, or beginning to wind the company up, remits the penalty without payment. If they are locked down, only payment in full remits it, and part payment reduces the amount but does not remove the penalty. A defence may apply. Get insolvency advice inside the 21 days; the options are set out in where the money comes from after a DPN.
Yes. The lockdown test is applied amount by amount, so a notice can hold a non-lockdown PAYG withholding amount for one quarter and a lockdown super guarantee amount for the same quarter. Treat each line separately: the remission actions that work for the non-lockdown amounts do nothing for the locked down ones. The period by period check is described in the director penalty notice entry.
The notice is still effective. The ATO's 21 days runs from the day it posts the notice to, or leaves it at, your address registered with ASIC, whether or not you live there. If you find out late, act immediately, get legal advice on whether service was valid, and update your ASIC details the same day. Another ATO notice that follows the same address rules is the intent to disclose notice.
Yes. A director penalty is a parallel liability, so each director who was a director when the amount fell due owes the full amount, not a share. A payment by the company or by any one director reduces the liability of every director by the same amount. Directors who have given a director's guarantee to a lender carry that separately.
Not directly, and not inside the 21 days. After the period, the ATO can sue for the penalty, obtain judgment and move to bankruptcy proceedings, and a bankruptcy trustee can deal with your interest in a home. A garnishee notice can also catch the proceeds of a sale. The sequence from notice to recovery is set out in what an ATO garnishee notice does.
Yes, if the penalty is not remitted and not paid. The ATO can take legal action for the penalty as a personal debt and, with a judgment, pursue bankruptcy. Bankruptcy also disqualifies you from managing a company. Where the company itself cannot pay, the same debt can be pursued through a winding up application against the company at the same time.
No. A director penalty is a civil liability for money; it is not a criminal charge. Criminal consequences arise from different conduct, such as deliberately withholding super or trading while insolvent in a way that breaches directors' duties, and ASIC rather than the ATO pursues those. If you are worried about conduct as well as the debt, a solicitor is the right call, and the statutory demand guide covers the company side.
No. Safe harbour protects a director from personal liability for insolvent trading while a restructuring course of action is being pursued; it is not one of the actions that remit a director penalty. A company in safe harbour still has to pay, appoint or wind up inside the 21 days to clear a non-lockdown penalty. The distinction matters most when liquidation of the company is being weighed against trading on.
No. The ATO does not report a director penalty notice to credit reporting bodies, and it does not appear on your personal credit file. What can be reported is the company's business tax debt, where at least $100,000 is overdue by more than 90 days and the company is not engaging with the ATO. Lenders will still ask for the notice and the ATO account, as explained in loans to pay an ATO debt.
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