In recent months, the Australian Taxation Office (ATO) has stepped up its enforcement in relation to unpaid tax liabilities.

One mechanism for doing so is serving director penalty notices (DPNs) on recalcitrant company directors.

What is a DPN?

A DPN is a formal notice issued by the ATO to a company director to pay outstanding tax debt.

A director has a potential personal exposure for liabilities of a company relating to:

• pay-as-you-go (PAYG) withholding;
• goods and services tax (GST); and
• super guarantee charge (SGC).

A company’s tax liabilities are at first instance payable by the company itself.

If, however, a tax liability of a company relating to PAYG, GST or SGC is left unpaid, the ATO may seek payment from the company’s directors personally.

Service of a DPN is a pre-requisite to the ATO enforcing these amounts. If the DPN is not properly addressed by the recipient, the ATO may commence enforcement (including by suing the directors or by issuing garnishee notices). This means that the ATO can seek to recover the unpaid amount directly from you – creating risks for your personal assets.

While DPNs may not be served on all company directors at the same time all directors of a company at the relevant time are jointly and severally liable for the debt.

Lockdown versus non-lockdown DPNs

There are two types of claims which might be the subject of DPNs: non-lockdown and lockdown. The difference is critical.

Non-lockdown amounts are where a DPN is issued in respect of the unpaid PAYG or GST liabilities where those amounts were reported within three months of the due date. With respect to SGC, it is stricter. With respect to SGC, where lodgement it relates to lodgements which are not lodged by the due date.  

With respect to non-lockdown amounts, they can be remitted if, within 21 days, the company:

• pays the full outstanding amount;
• appoints an administrator;
• appoints a small business restructuring practitioner; or
• begins to be wound up (i.e. a liquidator is appointed).

A lockdown DPN is issued if the unpaid liabilities are not reported within 3 months of the due date (i.e. a company is significantly behind in its lodgements). These amounts are typically listed in a column with a heading stating words to the effect that they were “not notified on or before the end of 3 months after the due day”.

With respect to lockdown amounts, you must pay the debt within 21 days to avoid further enforcement. Putting a company into external administration will not result in remission with respect to lockdown amounts.

It is common for DPNs to list amounts which are a combination of lockdown and non-lockdown amounts (i.e. the company was on time with its lodgements up to a point, and then late with respect to others). In that case, appointing an external administrator within 21 days may result in remission of the non-lockdown amounts, but not the lockdown amounts.

The 21-day period can start when the ATO posts the DPN to the director’s address recorded with ASIC. Directors should keep ASIC address details current and should not assume the clock starts only when they physically open the notice.

Defences to DPNs

It is difficult to establish a defence to a DPN.

There are times where there is a plain error in the DPN (i.e. a person was not actually a director at the relevant time or the company was put into liquidation before the 21-day period expired).

Leaving those obvious defences aside, you may also have a defence to a DPN if:

• you did not take part in the management of a company due to illness or some other good reason;
• you took all reasonable steps to pay the debt or make one of the above appointments (but the other directors were not cooperating, for example); or
• the company took a reasonably arguable position in applying tax law in respect of SGC or GST liabilities.

There are high thresholds to successfully defend a DPN.

It is not a defence that you simply did not take part in the company’s affairs or were a director in name only without good reason. Directors who have taken little interest in the management of a company will typically be exposed.

In the recent decision of Deputy Commissioner Of Taxation V Wolski [2026] WADC 44, for example, a director of a company with a mining business argued that he was mostly “in the field” and rather than being involved in the day-to-day running of the business, and relied on others to attend to the company’s tax compliance. As a matter of practice, it is not uncommon to have directors who operate this way, but the defence did not succeed, at least in part because the director took a passive role with respect to the company’s tax compliance.

Absent a good defence, the directors may be limited to paying the debt, seeking contribution from other directors or considering their insolvency options (i.e. a personal insolvency agreement or bankruptcy).

Challenge to underlying debt

In some circumstances, the ATO will make assessments in relation to unpaid amounts in respect of a company which has already gone into liquidation.

In that case, the ATO may take the position that the company cannot now be on time to lodge its returns in respect of those amounts, and lockdown DPNs are issued. In that case, if there is to be an objection to the assessment, the director will not personally have standing to do that, and may need to engage with the liquidator to ensure it is done.

That leaves directors in an invidious situation – they may be liable for a debt which is not owing but which they themselves cannot defend.

Contact us

Velocity Legal’s Disputes and Insolvency team has considerable experience in dealing with DPNs.

If you require legal advice regarding a DPN, please book a consultation at or give us a call at (03) 7043 3311.