If you're a company director, there are essential legal responsibilities that come with the role, particularly regarding your company’s tax obligations. 

This advice is general and you should seek advice on your specific circumstance.

Directors now face personal liability through Director Penalty Notices (DPNs), which the Australian Taxation Office (ATO) issues when a company has significant unpaid tax debts. 

Ignoring these notices can have serious consequences, including personal financial liability. 

In some cases, directors have even lost their homes due to unpaid company debts. Here’s an overview to help you understand DPNs and the steps you can take to protect yourself.

What is a Director Penalty Notice?

As a company director, you may be personally responsible for certain unpaid amounts owed by your company, including:

• Pay As You Go Withholding (PAYGW)

• Goods and Services Tax (GST)

• Super Guarantee Charge (SGC)

If your company fails to meet these tax obligations, the ATO can issue you a Director Penalty Notice. Once issued, the director has 21 days to take action. Either pay the debt in full or put the company into administration. The 21 days starts from the date of the letter and is sent out via the post.

After the 21 day timeframe expires, the ATO can hold the director personally liable for the company’s ATO debts. 

Why DPNs are now more frequent

We understand the ATO has automated its DPN issuance process.Notices are generated by computers and mailed out, rather than being reviewed by human ATO officers as they did in the past.

This shift has led to a faster and more frequent issuing of DPNs, making it essential for directors to stay informed of their company’s tax situation to avoid unpleasant surprises. 

In this automated system, failure to respond to a DPN within 21 days of issuance (the date on the notice)  can make you personally liable for the company’s debts.

How to protect yourself as a director

If you're concerned about receiving a DPN or believe your company may be at risk, there are steps you can take to protect yourself:

1. Seek professional advice: if you’ve received a DPN, consult with an accountant or an insolvency practitioner who can help you navigate the complexities of the notice and outline potential solutions (we are happy to help).

2. Stay proactive with financial obligations: ensure that PAYGW, GST, and superannuation obligations are met on time. Late or missed payments increase the risk of receiving a DPN.

3. Engage with the ATO: if your company is struggling financially, communicate with the ATO to set up a payment plan or explore available options.

4. Act within the 21-day window: DPNs come with a strict 21-day deadline. If you don’t take action within this timeframe, you may be held personally liable for the company’s debts, even if you later leave your role as a director.

This advice is general and you should seek advice on your specific circumstance. 

Final thoughts

By understanding DPNs and taking preventive steps, you can protect yourself and ensure your business stays on the right side of tax compliance.

For more details, the ATO’s ATO DPN Resources provide further insights and specific guidance on your rights and responsibilities. 

Disclaimer 

This is general advice. 

You will need to take specialist advice that takes account of your own personal circumstances.