I got a director penalty notice. What now?

First, what is a director penalty notice?

It’s the ATO telling you, personally, that you may become liable for certain debts of your company. Normally a company’s debts belong to the company. The director penalty rules are an exception. The ATO lists three company obligations they cover:

1. PAYG withholding — tax withheld from employees’ wages.
2. GST — goods and services tax.
3. Super guarantee charge — unpaid employee super.

A DPN is the ATO’s formal step towards collecting those amounts from directors. It’s not a reminder letter. Mr’s tone stays friendly, but on this one he’ll be blunt: act today.

How long do I have?

Generally 21 days. The clock is unforgiving: it starts the day the ATO mails the notice (or drops it at your ASIC-registered address). Not when it reaches you, and not when you open it. If your registered address is out of date, some of those days may already be gone.

What are my options within the 21 days?

The ATO says the penalty can be remitted if, within the window, the company:

• pays the outstanding amount in full;
• appoints a voluntary administrator;
• appoints a small business restructuring practitioner; or
• begins to be wound up (liquidation).

The second, third and fourth are insolvency processes with serious consequences and need professional advice. ASIC’s guidance on small business restructuring says the company’s total liabilities must not exceed $1 million, employee entitlements that are due must be paid, and tax lodgements must be up to date.

What’s a lockdown DPN?

This is the version with fewer exits. For PAYG withholding and GST, once amounts have gone unreported for over three months past the due date, the only way to make the penalty go away is to pay the company’s debt in full. Administration and liquidation no longer remove it. Similar rules apply to the super guarantee charge if amounts are reported late.

The lesson for every director: lodge on time, even when you can’t pay. Lodging keeps more doors open.

Where does a loan fit in?

If paying the debt is the realistic way out, a loan can supply the money. Because the clock is short, the usual options are:

Option	Why it fits	Watch for
Caveat loan over property	Can be arranged quickly; short-term	Needs a clear exit — a sale, refinance or longer loan
Second mortgage	Longer term, repaid from trading	Takes a little longer to set up
First mortgage refinance	Larger amounts, longer terms	Usually the slowest route
Unsecured loan	Smaller debts, steady trading	Limited size; guarantees required

Lenders consider DPN situations case by case. They’ll want to know the full ATO position, whether lodgements are now current and how the new loan will be repaid. Property security makes a big difference. Read what a caveat loan is and taking a second mortgage for your business.

An illustrative example

The two directors of a Gold Coast concreting company receive DPNs for $140k of PAYG withholding and GST. Their BAS has been lodged on time, so it isn’t a lockdown DPN. After speaking with their accountant, they decide the business is viable and the debt came from one bad debtor. A caveat loan over one director’s home pays the ATO within the window, then a second mortgage replaces it over a longer term. Illustrative only; every situation differs.

What should I do today?

1. Note the date on the DPN and count 21 days from the posting date.
2. Call your accountant or a registered adviser.
3. Get an ATO statement of account showing exactly what’s owed.
4. Lodge anything unlodged.
5. If paying is the plan, start the finance conversation immediately — days matter.
6. Consider the free Small Business Debt Helpline (1800 413 828) for independent support.

For the wider ATO picture, see business loans with an ATO debt.

How do I make sure a DPN reaches me?

Because the 21 days run from when the ATO posts the notice to your address registered with ASIC, an out-of-date address can quietly eat your window. Every director should:

• check their residential address on the company register is current;
• update it with ASIC promptly when they move;
• make sure mail at that address is actually collected and opened;
• tell co-directors and the company’s accountant if an ATO letter arrives.

It sounds like housekeeping. With a DPN, it can be the difference between four options and one.

Does paying part of the debt help?

Partial payment reduces the debt, but on its own it doesn’t remit the penalty — the ATO’s list of options within the 21 days involves paying the outstanding amount in full or one of the formal insolvency steps. That’s why the size of the full debt, and how quickly funds can be arranged, matters so much. If a loan is part of the plan, get the exact amount from the ATO statement of account and build in any fees, so the funds that arrive cover the whole liability.

Need funds to clear a DPN?

Time is the one thing you can’t borrow. Tell Mr now, in about 60 seconds: the amount, the date on the notice, whether lodgements are current and any property you own. There’s no credit check to enquire, your details go to one specialist rather than a queue of lenders, and a real person will tell you plainly what’s realistic inside your window. Accurate dates and figures on the form are essential here. See if you qualify.