In 2025, the Australian Taxation Office (ATO) has significantly increased its enforcement of Director Penalty Notices (DPNs), a tool that holds company directors personally liable for certain unpaid company tax debts. This heightened activity underscores the importance for directors to understand their responsibilities and the potential personal risks involved.
What is a Director Penalty Notice?
A Director Penalty Notice is issued by the ATO when a company fails to meet its tax obligations. Directors can become personally liable for:
- Pay As You Go (PAYG) withholding
- Superannuation Guarantee Charge (SGC)
- Goods and Services Tax (GST)
Once a DPN is issued, the ATO can take legal action to recover these amounts from the director personally.
Types of Director Penalty Notices
There are two types of DPNs:
1. Non-Lockdown DPNs
These apply when a company has lodged its Business Activity Statements (BAS) or superannuation statements on time but hasn't paid the debt. Directors have 21 days from the date of the notice to:
- Pay the debt
- Appoint a voluntary administrator
- Place the company into liquidation
- Enter into a Small Business Restructuring Plan
If no action is taken within the timeframe, the director becomes personally liable.
2. Lockdown DPNs
These apply when a company has not lodged its returns within required timeframes, typically within 3 months of the due date. In this case, the director becomes automatically and immediately liable, and the debt cannot be remitted, even if the company later enters administration or liquidation.
Why Are DPNs on the Rise?
In the 2025 financial year, the ATO issued 84,000 DPNs, a significant increase from the 26,700 issued the previous year. This surge reflects the ATO's intensified efforts to recover unpaid taxes, particularly those accumulated during the COVID-19 pandemic. The ATO is focusing on businesses with overdue tax liabilities, especially for superannuation and withheld PAYG tax obligations.
What Directors Should Do Now
To mitigate the risk of personal liability:
- Ensure timely lodgement of all ATO and superannuation obligations.
- Monitor cash flow and tax liabilities regularly.
- Seek professional advice early if the company is in financial distress.
- Act promptly if a DPN is issued; delay can eliminate options for avoiding personal liability.
- Understand your duties as a director, especially in relation to company solvency and tax compliance.
Even newly appointed directors can become liable for existing debts if they do not act within 30 days of their appointment.
How We Can Help
At McCarthy Durie Lawyers, we advise directors on how to:
- Respond effectively to a DPN
- Understand and manage personal exposure to ATO debts
- Take legal steps to protect themselves, including voluntary administration or safe harbour strategies
- Navigate disputes with the ATO or negotiate payment arrangements
If you've received a DPN or are concerned your company may be heading in that direction, it's critical to act early. The longer you wait, the fewer options you'll have.
Contact our litigation team today for practical legal advice tailored to your situation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
