The Australian Taxation Office (ATO) is ramping up its enforcement and debt recovery efforts in a bid to claw back mounting tax debts. In a May 2025 address, Commissioner of Taxation Rob Heffren highlighted, "While all tax owed remains a priority, the ATO is focusing on unpaid superannuation, Pay As You Go (PAYG) withholding, and Goods and Services Tax (GST) collected from customers but not passed on to the Government."
The ATO's debt book, the total tax debt currently owed to the Commonwealth, has surged to over $105 billion, the highest on record. That figure now represents more than 16% of the Commonwealth's total revenue for 2024–25, a staggering liability that is drawing intense focus from the ATO. $46.4 billion of that debt is considered collectible, almost double what it was in 2019.
The Inspector General of Taxation (IGoT) and Tax Ombudsman, Ruth Owen's Final Report on Letters from ATO (July 2025) stressed that while the General Interest Charge (GIC) is an important tool to deter late payment, it should not penalise taxpayers with genuine reasons for delays. This review comes as a major change took effect from 1 July 2025—interest charged by the ATO for late or underpaid tax will no longer be tax deductible, increasing the cost of carrying a tax debt.
ATO increase in debt recovery
ATO's Deputy Commissioner, Vivek Chaudhary in his Lodge and Pay speech at the Tax Institute's Tax Summit on 7 September 2023 reinforced the message that:
"As a consequence of our more lenient approach during the pandemic, we have seen an increased expectation that interest and penalties will be remitted.. we are returning to normal debt collection now... to bring collectable debt down..."
The ATO is under increasing pressure to reduce the growing debt burden and are responding with stronger, more targeted enforcement. We are seeing a clear escalation in the use of its extensive statutory powers, including:
- Garnishee Notices: Claiming funds directly from business bank accounts or debtors.
- Tax Debt Disclosure: Reporting businesses to credit agencies, damaging credit ratings and reputations.
- Debt Collection Agencies: Engaging third-party firms to pursue outstanding tax debts.
- Wind-Up Applications: Forcing non-compliant businesses into liquidation.
- Bankruptcy Notices: Issued to individuals owing more than $10,000, potentially triggering bankruptcy proceedings.
- Departure Prohibition Orders: Preventing individuals with significant debts from leaving the country.
Mr Chaudhary highlighted in his 2023 Lodge & Pay speech, "You will have seen more activity ..., with an increase in firmer actions, and a willingness to escalate to legal actions, for large debts especially those who are choosing not to engage."
Where taxpayers fail to engage or allow debts to compound, the ATO are issuing DPNs to hold directors personally liable for unpaid GST, PAYG and superannuation. In the income year ended 30 June 2024 alone, the ATO issued 26,702 DPNs with an estimated value of $4 billion.
What is a Director Penalty Notice (DPN)?
DPNs may be issued to company directors if a company fails to pay its PAYG, Superannuation Guarantee Charge (SGC) or GST liabilities by the due date. Under the DPN, the directors of that company will be held personally liable for the sum of the unpaid liabilities. This liability is called a director penalty.
Director penalties are not just limited to current directors of a company. The ATO has the power to issue DPNs to former directors of a company who have resigned from their office. The former directors will remain liable for director penalties of the company in certain circumstances, including some debts that occur even after a company has been deregistered. Newly appointed directors can also be made liable for company debts, even if those debts were due before their appointment.
Why directors must keep ASIC records up to date
Before the ATO can commence proceedings against the directors to enforce recovery of the director penalty, it is legally required to issue a DPN to the directors.
The ATO issues DPNs to the address listed for each director on the Australian Securities and Investments Commission (ASIC) register. If this address is outdated, the director may not receive the notice in time, putting them at risk of non-compliance. The law deems the notice as served on the date it is posted or delivered to the registered address. From that date, directors have just 21 days to take action. Failure to act within this window can result in serious financial and legal consequences.
Scrutiny by the IGoT and Ombudsman
The ATO sends over 140 million letters and messages to taxpayers each year.
The Tax Ombudsman has called on the ATO to make its letters easier for everyone to understand—no matter a person's background, education, or circumstances—and to make sure important information reaches the right person at the right time. The report recommends that the ATO:
- Use plain, clear language and update letter templates so they include helpful standard information for diverse readers.
- Test letters with a variety of taxpayers and tax professionals to ensure they are clear and useful, and act on the feedback received.
- Apply taxpayers' and tax agents' communication preferences to all correspondence.
The Ombudsman urges the ATO to work more closely with tax agents and individuals to confirm the correct address and delivery method for each letter, reducing the risk of important messages going missing. These changes aim to reduce confusion, stress, and delays—helping taxpayers know exactly what to do and when to do it.
I've been issued a DPN – what do I do?
There are two types of DPNs – lockdown DPNs, and non-lockdown DPNs. The main difference between these two kinds of DPNs are the options available to the director on receiving the DPN.
Lockdown DPNs are issued in circumstances where a company has not reported and paid its outstanding PAYG, GST and SGC more than three months after the due date.
Non-lockdown DPNs are issued where the PAYG, GST and SGC statements are reported within three months of the due date, but there are outstanding liabilities.
There are four ways to deal with a DPN. The company can:
- pay its debts in full;
- appoint an administrator under section 436A, 436B or 436C of the Corporations Act 2001 (Act);
- appoint a small business restructuring practitioner under section 453B of the Act; or
- begin to wind up the company (within the meaning of the Act).
However, the final three options are only available to directors who have received a non-lockdown DPN.
For a lockdown DPN, where the company has not notified the ATO of its debt within 3 months of the due date and made no payments of its liabilities, the only option the director has upon receipt of a DPN is to pay the debt in full. This can be done by agreement to pay through a payment arrangement over time.
Once a DPN has been issued, directors have 21 days to take the above actions. If the DPN is not complied with within 21 days, the ATO may commence proceedings against the director(s) to recover the director penalty. The ATO has powers to:
- issue garnishee notices to recover the director penalty;
- offset the director's personal tax credits against the director penalty; or
- initiate legal proceedings against the director.
Importantly, a director penalty is a 'parallel liability' – meaning that the ATO may seek to recover the director penalty equally from the company itself, or the directors (whether all directors, or in different proportions depending on the personal circumstances of each director). If a DPN is issued, the ATO generally will not enforce the DPN if a payment arrangement is in place and not in default.
As mentioned above, the ATO cannot commence court proceedings to recover a director penalty until 21 days after the DPN is issued.
To recover a DPN, the ATO may also avail itself of self-help remedies (such as issuing a garnishee order or retaining tax refunds). If the ATO gives you notice of its intention to do this, you will have 60 days in which to write to the ATO to advise them of any defences you have to the DPN.
Defences to DPNs
There are limited defences available to directors who have been issued with a DPN.
Defences must be lodged in writing to the ATO within 60 days after the director has been informed that the ATO has recovered (or taken steps to recover) some or all of the director penalty. Defences may also be raised where the ATO has commenced recovery proceedings against the director.
The three defences to DPNs are set out in section 269-35 of Schedule 1 to the Taxation Administration Act 1953 (Cth) as follows:
- Illness – The director did not take part in the management of the company, and it would have been unreasonable to expect that the director take part in the management of the company, due to illness or some other good reason.
- All reasonable steps – All reasonable
steps were taken by the director to ensure that:
- the company pays the liability;
- an administrator is appointed under section 436A, 436B or 436C of the Corporations Act 2001;
- a small business restructuring practitioner is appointed under section 453B of that Act;
- the company begins to be wound up (within the meaning of the Corporations Act 2001).
Otherwise, it must be shown that there were no reasonable steps that could have been taken by the director to ensure that any of the above events could occur.
In determining what are "reasonable steps" for the purpose of the above, the courts will have regard to when and for how long you were a director and took part in the management of the company, and all other relevant circumstances.
- Reasonably arguable position – This defence is only available in relation to SGC liabilities or net GST amounts, where the company has treated the superannuation administration or GST legislation as applying in a way that was reasonably arguable, and the company took reasonable care in applying the legislation.
Key takeaway and action points: navigating the ATO's intensified debt recovery landscape
The ATO has significantly ramped up its debt recovery efforts with an aggressive enforcement strategy. This crackdown includes a surge in Director Penalty Notices (DPNs), which now carry serious personal liability risks for company directors. With over 26,000 DPNs issued in the past year alone, directors face strict 21-day deadlines and limited defences, making timely, informed action critical.
In today's changing tax environment, directors and advisers must prioritise early engagement with tax specialists to assess exposure, respond effectively to DPNs, and explore practical solutions. These may include negotiating payment arrangements, disputing liabilities where appropriate, seeking approval from the finance minister to waive debt or considering restructuring or insolvency options to safeguard personal and business interests.
Ensuring up-to-date contact details with ASIC and collaborating closely with tax agents reduces the risk of missed correspondence and harsh consequences.
Taking early action can preserve business viability, safeguard personal assets, and significantly reduce the risk of harsh enforcement by the ATO saving significant stress, time and costs.
If you or your clients are facing ATO debt recovery enforcement or have received a DPN, please do not hesitate to contact the writers.
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.
