“I Resigned, So It’s Not My Problem” – Why a director’s resignation won’t save you from outstanding tax debt.

It comes up in almost every conversation I have about ATO debt, and more recently than most, when I see a company director with current company ATO debt and a history of late lodgements, the director tells me they got out. They stepped back from the business, signed the paperwork, moved on. Whatever the company owes the ATO now is somebody else’s problem.

Worse, they’ve usually replaced their directorship with their spouse, which exposes them both equally and puts the family home at risk in a personal insolvency situation.

Resignation does not end director penalty exposure.

Under the director penalty regime, the ATO can — and routinely does — issue a Director Penalty Notice to a former director for debts that trace back to the period they were in the chair. The NSW Court of Appeal dealt with this over twenty years ago in Canty v Deputy Commissioner of Taxation [2005] NSWCA 84, and the ATO’s own published guidance says it in one line:

“If you resign as a director of the company, you can still be liable for director penalties relating to company liabilities that were due before the date of your resignation.”

Here is how that actually works — and why signing on as a director carries a version of the same trap.

The liability attached before you left

This is the part that catches people, and it is worth being precise about.

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

Under the 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, without anyone at the ATO looking at the file and without any notice being sent. The director’s liability runs in parallel with the company’s, dollar for dollar.

So when you resign, you are not walking away from a liability that might one day attach. You are walking away from one that already has. Resignation stops the clock on future obligations. It does nothing to the ones behind you.

The three obligations inside the regime are the ones every struggling business defers last-but-one:

PAYG withholding — tax withheld from employees’ wages

GST — including LCT and WET

Superannuation Guarantee Charge (SGC)

Debts that were not even due when you resigned can still be yours

This is the nuance most directors have never been told, and it widens the exposure considerably.

It is not simply “debts due before your resignation date.” The ATO’s position is that you can also be liable for amounts that became due after you resigned, but relate to a period when you were still a director. Broadly:

PAYG withholding — if the first withholding event in the relevant period occurred before you resigned

GST — if the tax period ended before you resigned

SGC — if the relevant period ended before you resigned

Think about what that means for a director who resigns mid-quarter. The BAS is not lodged for weeks. The liability crystallises after they have gone. They hear nothing, assume nothing happened, and are still on the hook.

The exposure does not end on the day you sign the resignation. It ends somewhere after it — and exactly where depends on the timing of lodgement and payment obligations you no longer control.

Your resignation date may not be the one ASIC has on file

Since 18 February 2021, this has been its own trap. Under section 203AA of the Corporations Act 2001, a director’s resignation takes effect on the day ASIC is notified — unless ASIC is notified within 28 days of the stated resignation date. Miss that window, and the effective date of resignation becomes the day ASIC received the form, not the day you actually walked.

You can apply to ASIC to fix the date, but only within 56 days of ceasing to be a director. After that it is a court application, generally within 12 months — longer only if the court allows it.

The consequence is straightforward and unpleasant: if nobody lodged the form on time, you were legally still a director through that gap. Any PAYG, GST or SGC obligation falling due in it is capable of being yours.

And under section 203AB, if your resignation would leave the company with no directors at all, it does not take effect. The sole director of a failing company cannot resign their way out. ASIC will simply reject the form.

If you resigned from a company and never personally confirmed that ASIC’s register was updated, you do not know your resignation date. You know the date you intended.

The notice goes to your last ASIC address

A DPN is sent to the address recorded for you with ASIC, and the 21-day period runs from the day the ATO posts it — not the day you read it.

For a former director, this is the most dangerous mechanism in the regime. You resigned, you moved house, you had no reason to keep a company register current. The notice goes to an address you left three years ago. The 21 days open and close. You find out when a garnishee notice hits your bank account or a refund disappears.

The Tax Ombudsman has a review into the ATO’s administration of this regime underway now — announced in December 2025, with submissions closing 29 September 2026 and a final report expected in April 2027. Directors who never knew they were exposed, including those who had resigned and those appointed without genuine control or awareness of the directorship, are squarely within its scope.

That review may improve things. It will not retrospectively give anyone their 21 days back. If you have been through this, submissions are still open for another two weeks.

Now the other direction: signing on as a director

The mirror image of the resignation myth is just as common, and it is the one I would most like people to hear before they act on it.

New directors assume they inherit a clean slate. They do not. Under section 269-20 of Schedule 1 to the Taxation Administration Act 1953, a newly appointed director becomes personally liable for the company’s pre-existing unpaid PAYG withholding, GST and SGC if, within 30 days of appointment, they have not ensured that one of four things happens:

1.     The company pays the outstanding amounts in full

2.     An administrator is appointed

3.     A small business restructuring practitioner is appointed

4.     The company begins winding up

Thirty days. Not to investigate — to resolve.

And the escape hatch people reach for does not work. The ATO’s guidance is explicit: resigning inside the 30-day window does not protect you. If you sign on, discover the ATO history, panic, and resign on day 20, you can still be liable for debts that were due before you ever became a director.

This is why ‘just put your name down, it’s only on paper’ is such dangerous advice, and why it so often appears in exactly the situations the Ombudsman flagged — family members, junior employees, and partners appointed as directors of companies whose numbers they have never seen.

Before you accept a directorship, you want current ATO integrated client account and lodgment histories in your hands. Not reassurance. The records.

What payday super changed on 1 July this year

If you are accepting a directorship now, the super exposure you inherit is bigger and moves faster than it did a year ago.

Since 1 July 2026, super must reach the fund within seven business days of paying employees, rather than quarterly. The quarterly SG statement is gone — the ATO now assesses shortfalls from STP data. Each payday is its own exposure point, which means a company can generate super shortfalls, and directors can accrue penalty exposure, 12, 26 or 52 times a year rather than four.

For director penalty purposes the relevant date is not the seven business days. It is the new due day: the earlier of the day after 60 days from the payday in question, or the day the ATO issues an assessment. An early assessment can pull that date well inside the 60 days.

For a new director this matters in two ways. The pre-existing super position you are inheriting can be far messier, and far more recent, than a quarterly ledger would have suggested. And the 30-day window you have to resolve it is running against a liability that is still compounding while you use it.

The defences are narrower than people expect

Briefly, because they rarely rescue anyone:

Non-participation through illness or another acceptable reason — and it must cover the entire relevant period, not part of it

All reasonable steps to have the amount paid or the company placed into administration, restructuring or liquidation

Reasonably arguable position — SGC and GST only

The one that matters most to former and incoming directors: courts have consistently held that relying on someone else is not a defence. Not a co-director, not the bookkeeper, not the accountant — Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 settled that. And the standard is objective. In Roche v Deputy Commissioner of Taxation [2015] WASCA 196, the court measured the director against what they, acting reasonably, knew or ought to have known — and held that a director must turn their mind to all the alternatives, payment and administration and winding up, not just the one they preferred.

A sleeping directorship is not a protected one.

What to actually do

If you are a director of a company with ATO arrears:

Think before you act; talk to a qualified professional in insolvency about your situation, don’t just resign and sign up a friend or family member. That can create other legal issues.

Ensure your ASIC record is up to date with the correct registered office address, home address and place of business

Have your advisor work out what PAYG, GST and SGC periods you have outstanding and the lodgement history exposure.

If you have resigned, do not wait for a DPN to arrive before getting advice. The liability exists now; the notice only decides how fast it becomes enforceable

If you are about to become a director of an existing company:

Get the right accountant or lawyer in place to represent you and a copy of fully audited and verified financials of the company that you are stepping in as a director. Ask for the ATO account and lodgement history before you sign, not after.

Understand that the 30-day clock starts on appointment, whether or not anyone has shown you the numbers

Know that resigning inside that window will not save you.

Director penalty exposure runs on short clocks and long memories. Twenty-one days to respond to a notice. Thirty days from appointment. Years of company history behind both.

If you have resigned from a company carrying ATO debt, or you are being asked to join as a director, that conversation is worth having before the decision, not after the letter.

Need the right advice?

Speak with our accounting and commercial legal team about acquiring an existing company and/or taking up the position as a director.

And for those already experiencing financial pain, there are many avenues to resolve ATO debt without cutting corners.

Notice: General information only, current as at September 2026. It does not take into account any particular person’s circumstances and is not legal or financial advice. If a Director Penalty Notice has been issued, get advice immediately — the response window is 21 days from the date of issue.