Director penalty notices: a director's guide to the 21-day and lockdown rules

Why every director should understand this

Running a company gives you limited liability — most of the time. Director penalties are one of the main exceptions, and they’re used often: the ANAO’s audit of the ATO’s small business debt management recorded 64,342 director penalty notices issued in 2024–25. If you’re a director of a company with overdue BAS or super, this is the most important tax rule you’ll ever read about.

This guide is written for the moment a notice arrives — but it’s even more useful before one does.

Which taxes are covered?

Three kinds of company tax can become a director’s personal liability:

Tax	What it is	Covered?
PAYG withholding	Tax withheld from employees’ wages and some other payments	Yes
GST (including LCT and WET)	Tax collected on sales	Yes
Super guarantee charge	Charge assessed when super isn’t paid correctly	Yes
Company income tax	Tax on the company’s profit	No
PAYG instalments	Prepayments of company income tax	No

That table drives a key piece of strategy: when money is short, paying the covered taxes before income tax usually reduces directors’ personal exposure. Your accountant can confirm the order for your company.

How does the notice reach you?

The ATO posts the DPN to, or leaves it at, your address as shown on the ASIC register. The 21 days run from that day — not from when you read it. If your ASIC address is an old home, a former accountant’s office or an address you never check, the clock can run without you knowing.

Action today: check your director’s residential address on the ASIC register and update it if needed. It’s free and takes minutes.

The four outcomes that remit a standard penalty

Within 21 days, a standard director penalty is remitted if the company:

1. pays the liability in full;
2. appoints an administrator;
3. appoints a small business restructuring practitioner; or
4. begins to be wound up.

Think about what each means for you:

Outcome	You keep control?	Professional fees?	Business continues?
Pay in full	Yes	No	Yes
Administrator	No	Yes	Possibly, via a deed
SBR practitioner	Yes, with oversight	Yes	Yes, if the plan succeeds
Winding up	No	Yes	No

Three of the four involve an insolvency practitioner. One doesn’t. If the business is viable, paying — often with funding — is the outcome that preserves everything you’ve built.

The lockdown rule: the most important paragraph in this guide

If the company’s PAYG withholding or GST is reported more than three months after its due date, or isn’t reported at all, the director penalty for that amount can only be remitted by paying it in full. The other three outcomes no longer work.

Three details sharpen this:

• Estimates count as unreported. If the ATO raises an estimate because the company didn’t lodge, those amounts are treated as never reported.
• SBR doesn’t help. The ATO states that a successful small business restructure will not remit a lockdown director penalty, or a standard penalty that wasn’t remitted within 21 days.
• Liquidation doesn’t help. Lockdown penalties survive the company’s winding up.

The practical protection is free: lodge every BAS on time, even when you can’t pay it. Reporting within three months keeps amounts in the “standard” category and keeps all four outcomes open.

Super guarantee charge under Payday Super

Since 1 July 2026, super must reach employees’ funds within 7 business days after each payday. Where it doesn’t, the ATO assesses the super guarantee charge — shortfall, notional earnings, an administrative uplift starting at 60% and any choice loading — and it’s payable on the day of assessment.

For directors, Payday Super means more frequent deadlines and an ATO-driven assessment process. Advisers commenting on the changes have noted that the new timing rules for when the SG charge falls due can bring lockdown risk forward compared with the old quarterly system. If super has slipped, get specific advice about your position rather than relying on pre-July 2026 assumptions. See Payday Super and director risk.

New directors and departing directors

New directors have 30 days from appointment to cause one of the four outcomes for amounts already owing. After that, they can become liable for penalties on debts that arose before they joined. Check the company’s ATO position before accepting a board seat.

Departing directors remain liable for amounts that arose while they were directors. Resignation stops new exposure; it doesn’t erase the old. See new and resigning directors.

Defences

The ATO recognises three defences:

1. Illness or another good reason meant you didn’t take part in the company’s management.
2. All reasonable steps — you took every reasonable step to cause the company to pay, appoint an administrator or begin winding up, or there were none you could reasonably have taken.
3. Reasonably arguable position — for SGC and GST only, the company applied the law in a reasonably arguable way.

These are fact-specific and need legal advice. Don’t let the hope of a defence stop you planning for payment in parallel.

What happens if nothing is done?

Once the 21 days pass without a remitting outcome — or immediately for lockdown amounts — the ATO can pursue the director personally. It can offset your own tax refunds and credits, take recovery action, and, in serious cases, use other firmer measures. Your personal assets can be at risk. See can the ATO take my house?.

Your 21-day plan

When	What
Day 1	Find the posting date; calculate day 21 with our DPN calculator
Days 1–2	Get the ATO statement and lodgement history; identify standard vs lockdown amounts
Days 2–3	Talk to your own accountant; decide whether the business is viable
Days 3–4	Choose the path: payment (cash or funding) or, for standard amounts, an appointment with a registered practitioner you’ve checked
Days 4–18	Execute — valuation, documents and settlement if funding; appointment if not
Before day 21	Written confirmation of payment or appointment

Start funding conversations early. Property-secured funding is possible in as little as 24 hours once a lender has what it needs, but valuations, documents and existing-lender consent take time.

How funding fits

When payment is the right outcome, the question is how. The usual answers:

• A loan to the company secured on property owned by the company or a director — first mortgage, second mortgage or caveat loan, from $20,000 to $5,000,000.
• An unsecured loan for a trading company with strong deposits, typically $5,000 to $500,000.
• A split — fund the director-penalty taxes, put income tax on an ATO plan.

Where arranged, the ATO is paid directly at settlement and the payment is applied to the right periods. The director penalty for those amounts is then remitted.

An illustrative example

Two directors run a commercial cleaning company with 40 staff. A tough six months left PAYG withholding, GST and three months of super unpaid. They lodged the BAS on time but disclosed the super late. Each received a DPN.

Their accountant mapped the amounts: the withholding and GST were standard; part of the super position needed specialist advice under the new Payday Super rules. An unsolicited caller suggested liquidation and a “fresh start” with a new company. Instead, the directors used a second mortgage over one director’s investment property to pay all the covered taxes within the 21 days. Both penalties were remitted, the contracts and staff stayed, and the business carried on.

Be careful who you call

The 21-day window is when directors are most vulnerable to rushed advice. The ATO warns about advisers who contact you after a creditor has taken action, or who charge a fee based on a percentage of your debt. Before engaging anyone who promises to “stop” a DPN, ask how their proposal deals with lockdown amounts — and check their registration. See questions to ask any adviser.

Preventing DPNs: a director’s monthly routine

The best DPN is the one that never arrives. A fifteen-minute monthly routine dramatically lowers the risk:

1. Check the ATO portal for the company’s activity statement and income tax balances, and any new letters or estimates.
2. Confirm the last BAS was lodged on time. If not, lodge it now — reporting within three months keeps amounts out of lockdown.
3. Reconcile super for every pay run in the month against fund confirmations.
4. Check the tax set-aside account holds enough for the next BAS.
5. Glance at your ASIC details each quarter to make sure your residential address is current.
6. Raise concerns early with co-directors and your accountant if the numbers are drifting.

If you sit on the board of a company with ATO debt and none of this is happening, it’s reasonable — and protective — to insist that it starts.

When funding isn’t the answer

Paying is the cleanest way out of a director penalty, but borrowing isn’t right for every company. If the business is losing money with no realistic turnaround, a loan secured on your home may only add to what you could lose. In that situation, get free advice from the Small Business Debt Helpline (1800 413 828), talk to a lawyer about your personal position, and speak to a registered liquidator you’ve checked about the company. We’d rather tell you that than lend you money that won’t help.

Ready to deal with your DPN?

If you’ve received a DPN and the company has a future, payment is the only outcome that keeps you fully in control. See if you qualify — the enquiry takes about a minute, there’s no credit check, and your details aren’t distributed to a long list of lenders. A real person who understands lockdown rules will check your dates first. Please give us the notice date and the amounts by period as accurately as you can.