Does a Payment Plan Stop a Director Penalty Notice?
Entering an ATO payment plan does not remit a director penalty. What actually removes it, how lockdown notices differ, and where the money comes from.
Business Owners Hub
Director Penalty Notice · Payment Plan · Personal Liability
Entering a payment arrangement with the ATO does not remit a director penalty. The arrangement governs how the company debt is repaid, the notice governs your personal position, and the two run on separate tracks.
Quick Answer
Entering an ATO payment arrangement does not remit a director penalty, and a notice already issued keeps running to its own deadline. Payment of the liability is what remits the penalty. Where that has to be funded, it is usually done against property equity already held, and only where equity allows.
Also called: DPN, director penalty, director penalty notice from the ATO.
What does a payment plan actually change if a notice has issued?
A payment plan changes how the company repays its debt and nothing else, and that is the most common misconception directors bring into the conversation. The logic feels sound: you have engaged, you have committed to instalments, so the personal exposure should switch off.
Under the director penalty regime it does not work that way. Entering a payment arrangement does not remit the penalty. The arrangement governs how the company debt gets repaid. The notice governs your personal position. The two run on separate tracks and only one of them has a deadline attached to your own name.
The timing is where this becomes expensive. The 21 day period runs from the day the ATO posts the notice, or leaves it at the address registered with ASIC, and it does not pause while an arrangement is negotiated. A director who spends a fortnight talking to the ATO about instalments, then discovers the personal liability was never in scope of that conversation, has spent the only window that mattered. The ATO sets out its own position on when the period starts and on what remits the penalty on its director penalty regime page.
The mechanism, what actually applies
- The penalty is remitted when the liability is paid
- Amounts reported within 3 months of the due date keep the alternatives open
- The 21 days runs from the day the notice is posted
- Company debt and personal liability sit on separate tracks
- Liability can sit with each director in parallel
The myth, what directors assume
- A payment arrangement remits the penalty
- The clock starts when the envelope is opened
- Appointing an administrator always resolves it
- Resigning removes exposure for earlier periods
- Engaging with the ATO is the same as paying
This post deals with that single question and its funding consequence. For the regime itself, the notice types, and the full sequence inside the notice period, read the director penalty notice guide. For where this notice sits against every other deadline you might be holding, our map of how many days each debt notice gives you is the wider picture.
What actually remits a director penalty?
A director penalty is remitted when the liability is paid, and on a non-lockdown notice it may also be remitted by one of the statutory alternatives taken inside the notice period. Those alternatives sit in the notice itself and they are the ATO's to explain, not a broker's.
| Action taken | Non-lockdown notice | Lockdown notice |
|---|---|---|
| Enter an ATO payment arrangement | Does not remit the penalty | Does not remit the penalty |
| Pay the liability in full | Remits the penalty | Remits the penalty |
| Appoint a voluntary administrator | Available as a statutory alternative inside the notice period | Does not remit the penalty |
| Appoint a small business restructuring practitioner | Available as a statutory alternative inside the notice period | Does not remit the penalty |
| Begin winding up the company | Available as a statutory alternative inside the notice period | Does not remit the penalty |
| Lodge a successful defence | Removes the liability, decided on the statutory grounds rather than by anything you fund | Removes the liability, decided on the statutory grounds rather than by anything you fund |
| Take no action inside the period | Penalty stands and recovery may follow | Penalty stands and recovery may follow |
Read down the right hand column and the point lands on its own. On a lockdown notice, payment is the only action inside the period that remits the penalty. That is why a director penalty notice so often turns into a funding question rather than a legal one.
There is one route that sits outside the table entirely, and it is the reason the funding conversation should never be the first one. The regime carries defences. A director is not liable where, for the whole of the relevant period, they did not take part in management because of illness or another acceptable reason, or where they took all reasonable steps to have the company pay, appoint an administrator, appoint a small business restructuring practitioner, or begin winding up.
For unpaid super guarantee charge or GST there is a further defence where the company applied the relevant Act in a way that could reasonably be argued was correct and took reasonable care. Whether any of that is open to you is a legal question for a solicitor or registered adviser reading your own notice, not one a broker can answer, and review rights run 60 days from a garnishee or from written evidence that part of the penalty has been recovered.
It is also why the honest framing has to be narrow. Paying is one option with a cost. It is available only where there is genuine capacity or equity behind it, it does not fix a solvency problem, and nothing in this post should be read as saying borrowing to clear a tax liability is generally the right move. Speak to your accountant or a registered adviser before acting on any of it.
Which type of notice are you holding?
Which type you hold turns on how promptly the company reported the relevant liabilities, and the reporting test is not the same for every liability. Lockdown and non-lockdown are practitioner shorthand rather than ATO wording, and they are simply how the industry labels the two outcomes.
For pay as you go withholding and net GST, the statutory alternatives stay open where the amount was reported within 3 months of the due date, or within 3 months of appointment in the case of a new director. Reported later than that, or never reported at all, and the notice locks down so payment is what is left.
Superannuation guarantee charge runs on a stricter test again. There the alternatives stay open only where the amount was reported by the SGC due date, with no three month grace at all. So a late activity statement does not automatically close your options, while an unlodged super statement usually does.
One rule cuts across both tests. Where the company did not report and the ATO issued its own estimate of the unpaid amount, that estimate is treated as an amount never reported. It applies to pay as you go withholding, net GST and super guarantee charge alike, so an estimate puts the notice in lockdown whatever is lodged afterwards.
The regime reaches unpaid pay as you go withholding, net GST and superannuation guarantee amounts. Superannuation moved to a payday cycle on 1 July 2026, with contributions now having to reach the employee’s fund within 7 business days of each payday rather than being paid on the old quarterly due dates, so the reporting rhythm on the super side is tighter than many directors are used to. That matters here only because reporting currency is what separates the two notice types.
Source: About payday super, Australian Taxation Office, as at August 2026.
We do not cite legislative subsection numbers here and neither should any adviser summarising this from a blog post. The notice you hold states its own type and its own dates, and those dates govern. The director penalty notice glossary entry holds the short definition if you need it in one line.
What are your options inside the 21 days?
Your options inside the 21 day period depend entirely on which notice type you are holding, and the sequence for each is set out in full in the director penalty notice guide. Rather than repeat that ground, here is what a finance broker adds to it.
Every one of those options except payment leaves the company's future in someone else's hands, and payment is the only one that requires money to exist by a fixed date. So the practical move is to run two workstreams at once from day one.
Your accountant or registered adviser works the notice. In parallel, someone establishes whether funding is even possible, because what lenders actually look at first is the security position rather than the notice, and that assessment takes days the notice period does not spare once it starts late. A funding path discovered on day 18 is usually a funding path that cannot settle.
One of those statutory alternatives is beginning to wind the company up, which starts a very different process with its own timetable. If a creditor has already moved first, what you can fund once a winding up application is filed covers that stage. If the company debt itself also needs an arrangement, the mechanics sit in the guide to loans and ATO tax debt, and it remains a separate question from the notice.
Where does the money come from if you have to pay it?
Where a director penalty has to be paid and the business cannot fund it from trading cash, the money almost always comes from equity release against property already owned, where equity allows. Nothing else moves at the speed a notice period requires.
Unsecured business credit is assessed on trading performance, and a company sitting on unpaid liabilities of this kind is rarely showing the trading performance that would support it. Property equity is the asset that is already there.
That usually means a second mortgage registered behind the existing first mortgage, or private lending where the timetable is short. Major banks will generally not entertain a cash-out request whose stated purpose is a tax liability, so that is the realistic lane, with pricing that reflects the risk and terms that vary by lender.
Illustrative: what the equity has to carry
Take a director holding a lockdown notice where payment is the only route. The property is worth an estimated $1.2m and the existing first mortgage is around $700,000, leaving roughly $500,000 of gross equity on paper.
A property-secured facility will not lend against all of that. Once the lender's own loan-to-value position, the payout figure on the first mortgage, establishment and valuation costs and an interest reserve are taken out, the amount that can realistically be released is materially less than the gross equity figure, and it varies by lender.
The point is not the numbers, which are illustrative only and move with the valuation, the rate, the existing balance and the term. The point is that gross equity is not the number to plan around. Ask for the releasable figure early, because that is the one that decides whether the notice can be answered at all.
On a file like this, what lenders actually look at first is not the tax position at all. It is the equity: what the property is worth, what sits ahead of the new mortgage, and whether there is a credible exit. The tax liability is the reason for the request, not the security for it. The second mortgage glossary entry covers how the structure ranks, and what lenders check on a second mortgage business loan covers the assessment in detail.
Two honest limits. Where there is no equity, there is generally no funding path here, and the conversation belongs entirely with your accountant and an insolvency practitioner. And where the company is insolvent rather than illiquid, funding is the wrong instrument regardless of equity, because releasing equity against your own property to pay a penalty in a business that cannot trade forward converts a company problem into a personal one.
If you are weighing this against other obligations, which debt to clear first when cash is tight is the more useful starting point, and what lenders need first when you are borrowing against tax debt sets out the evidence that gets asked for.
Are you personally liable, and does that follow you?
A director penalty is a personal liability, which is the entire point of the regime, and it can sit with each director of the company in parallel rather than being divided between them. Where there is more than one director, each can be pursued for the full amount, and payment by one is what reduces the exposure of the others.
That parallel structure is why these notices tend to surface disagreements between directors that had been comfortably parked. Where the relationship between directors is part of the problem, that is a conversation for a solicitor as well as an accountant, because the exposure is personal and the interests are not always aligned.
Two boundaries are worth stating plainly. Resigning does not clear exposure for periods when you were in office, and resigning inside a new director's first 30 days does not clear the amounts that were already due when they were appointed.
A new director escapes those earlier amounts only by ensuring, within 30 days of appointment, that the company does one of four things: pays the outstanding amount in full, appoints an administrator, appoints a small business restructuring practitioner, or is wound up. Doing nothing is what creates the liability, which is the trap in accepting a directorship in a company whose lodgements you have not checked. Whether a live arrangement reads differently on your own home loan file is a separate question again.
A director penalty is also a different thing from a director's guarantee given to a lender, which is contractual and sits with that lender. Both can be live at once, and on a funding file both get looked at. If a business tax debt has also been reported to a credit bureau, that is a third exposure again. What none of this replaces is advice on your own notice, from your accountant or a registered adviser, with the notice in front of them.
A payment arrangement and a director penalty notice answer different questions. The arrangement is about how the company repays. The notice is about whether you personally owe the amount, and entering a payment arrangement does not remit the penalty.
On a non-lockdown notice the statutory alternatives sit alongside payment inside the notice period. On a lockdown notice, payment is what is left. Where that payment has to be funded, it comes from equity release against property already owned, where equity allows, and it is one option with a cost rather than a fix for a business that cannot trade forward.
Key takeaway: Work the notice and the funding question in parallel from day one, because the 21 days runs from the day the notice is posted and a funding path found late is usually a funding path that cannot settle.Frequently Asked Questions
A payment plan entered with the ATO does not remit a director penalty, because entering a payment arrangement does not remit the penalty under the director penalty regime. The penalty is remitted when the liability is paid, or, on a non-lockdown notice, by one of the statutory alternatives taken inside the notice period. An arrangement can still be the right commercial step for the company debt, but it is a separate decision from the notice, and the notice keeps running to its own deadline.
If you have received a DPN, the first step is to confirm the date on the notice rather than the date you opened it, because the 21 days runs from the day the ATO posts it. The second step is to establish whether the underlying amounts were reported within 3 months of the due date, since that decides which options remain open. Speak to your accountant immediately, and check our map of how many days each notice gives you if more than one has arrived.
A lockdown director penalty notice is practitioner shorthand, not ATO wording, for a notice issued where the company reported the relevant liabilities late or not at all. On this type of notice the statutory alternatives inside the notice period are not available, and the penalty is remitted when the liability is paid. Where pay as you go withholding or net GST was reported within 3 months of the due date, the notice is the non-lockdown type and more options remain open, as the glossary entry sets out.
A second mortgage loan can be used to fund a director penalty payout where there is real equity in property already owned and the position stacks up behind the existing first mortgage. It is one option with a cost, not a general recommendation, and pricing and timing vary by lender. It is also the wrong instrument where the company is insolvent rather than illiquid, because releasing equity against your own property does not fix a solvency problem.
The director penalty is remitted when the liability is paid, which is the outcome directors are usually asking about when they ask whether the notice is withdrawn. Payment is the one route that works on both a lockdown and a non-lockdown notice. Confirm the position in writing with the ATO through your accountant or registered adviser rather than assuming the file is closed once funds have cleared, and if the company debt is also sitting on the commercial credit file, check that separately.
FBAA Accredited
