84,000 Director Penalty Notices in One Year

What accountants and their clients need to understand now

In the 2024–25 financial year, the ATO issued more than 84,000 Director Penalty Notices to directors of roughly 64,000 companies. That is a 136% increase on the year before.

Read that again. Not a 13% increase. Not a policy signal. A more than doubling, in twelve months, of the single most personally dangerous letter the ATO can send.

The surge has been large enough that the Tax Ombudsman has now scheduled a review into how the ATO administers the regime — expected to commence in September 2026. Tax Ombudsman Ruth Owen put it plainly:

“The ATO uses DPNs to administer and collect certain company debts from directors personally. However, they can have significant impacts on those individuals if they are not aware of their liabilities due to miscommunication, or factors such as personal illness or where the directorships were entered under coercion.”

The review will look specifically at directors who never knew they were exposed — people who had resigned, people who were seriously ill, and people placed into directorships under coercion or financial abuse.

That review is welcome. But it is a review of the past. It will not help the director who receives a notice next month.

DPNs were not the only lever pulled. In the same year, the ATO issued over 15,000 garnishee notices and disclosed roughly 24,000 business tax debts to credit reporting bureaus. Small business collectable debt sits at around $34.7 billion. ATO Deputy Commissioner Anna Longley has been candid about where this leads: “We do expect that more insolvencies are likely to arise for businesses that aren’t viable.”

The post-pandemic grace period is over. Here is what every director — and every accountant advising one — should understand about how personal liability actually attaches.

The liability exists before the notice arrives

This is the most misunderstood feature of the regime, and it causes more damage than anything else.

A Director Penalty Notice does not create the liability. It is the procedural step the ATO must complete before it can recover a liability that already exists.

Under the director penalty regime, a director becomes personally liable to a penalty equal to the company’s unpaid amount on the day that obligation fell due — automatically, by operation of law, whether or not anyone at the ATO has looked at the file.

This is a parallel liability. The director’s debt mirrors the company’s debt dollar for dollar. Payment by either party reduces both. There is no separate assessment process and no discretion exercised at the point the liability arises.

By the time the envelope lands, the exposure is often years old.

What is covered

Three obligations sit inside the regime:

• PAYG withholding — amounts withheld from employees’ wages
• GST — including LCT and WET, brought into the regime from 1 April 2020
• Superannuation Guarantee Charge (SGC)

Note what this means in practice: the amounts most likely to trigger personal liability are the amounts a struggling business is most tempted to defer. Wages get paid. Suppliers get paid. PAYG, GST and super are the ones that slip.

Lockdown vs non-lockdown — the difference is lodgment, not payment

This distinction decides whether a director has options or has none.

Non-lockdown DPN — issued where the company reported the liability on time (within three months of the due date for PAYG withholding and GST; by the lodgment due date for SGC). The director has 21 days to do one of four things, and the penalty is remitted:

• Pay the debt in full
• Appoint a voluntary administrator
• Appoint a small business restructuring practitioner
• Begin winding up the company

Lockdown DPN — issued where the company lodged late, did not lodge at all, or the ATO has raised an estimate. Here the penalty can only be remitted by paying the debt in full. Administration, restructuring and liquidation do nothing. The director is locked in.

The practical takeaway is uncomfortable but simple: lodging on time protects the director even when the company cannot pay. Not lodging — the instinct of a director who is embarrassed about the balance — is what removes every escape route.

If you take one thing from this article to your clients, make it that one.

The 21 days may start before the letter is read

The ATO sends the notice to the director’s address as recorded with ASIC. The 21-day period runs from the date the notice is issued, not the date it is received or read.

An out-of-date ASIC address is therefore not an administrative untidiness. It is a live risk that a director’s only window to appoint an administrator can open and close entirely without their knowledge. This is precisely the “miscommunication” the Ombudsman’s review is aimed at — and precisely why it is worth an hour of your time to confirm every director client’s ASIC address is current.

Resigning does not clear the deck

Resignation does not extinguish liability for obligations that arose while the person was a director.

And new directors get less protection than they assume. A newly appointed director has 30 days from appointment to ensure pre-existing liabilities are paid, or the company is placed into administration, restructuring or liquidation. Resigning inside that 30-day window does not provide protection.

Anyone accepting a directorship in a company with an ATO history is inheriting that history.

The defences are narrow

The statutory defences exist, but they are far tighter than most directors expect. Broadly, a director must show:

• Non-participation — they did not take part in management, due to illness or another acceptable reason, for the entire relevant period; or
• All reasonable steps — they took all reasonable steps to have the amount paid or the company placed into administration, restructuring or liquidation. Critically, courts have held that relying on someone else — a co-director, a bookkeeper, an accountant — is not, on its own, taking reasonable steps; or
• Reasonably arguable position (SGC and GST only) — the company took reasonable care and reasonably applied the law, for example on a genuine contractor-versus-employee question.

The defence must cover the whole period from when the obligation arose until the notice expires. Partial coverage fails.

If the 21 days expire

The ATO can offset tax refunds and credits, issue garnishee notices to banks and debtors, commence legal proceedings, and ultimately pursue bankruptcy. Personal assets — including the family home — come into scope.

What this means for accountants

If you have clients with company structures and any ATO arrears, three questions are worth asking this month:

• Is everything lodged? Even where it cannot be paid. Lodgment is the single control that preserves the director’s options.
• Are ASIC director addresses current? For every director, including silent and family ones.
• Does the director actually know they are personally exposed? In my experience, most do not.

DPN work sits at an awkward intersection — tax, insolvency, and director duties — and it moves on a 21-day clock. It is also work that puts a compliance accountant in a difficult position when a client’s exposure is discovered late.

That is where we are happy to help. At Business Tax Debt Help we work alongside accountants as a referral partner on director liability and ATO debt matters — we take the specialist piece, you keep the client relationship. No poaching, clear scope, and your client gets an answer inside the window that matters.

If you have a client sitting on ATO arrears — or one who has already received a notice — get in touch. The earlier the conversation, the more options exist.