09/12/2025 • 16 min read
Avoid Personal Liability for DPNs (2025 Guide)
Avoid Personal Liability for DPNs (2025 Guide)
Avoiding personal liability when dealing with a Director Penalty Notice (DPN) requires immediate action to confirm whether the DPN is “lockdown” or “non-lockdown”, then either causing the company to pay the underlying debt or (if eligible) placing the company into voluntary administration or liquidation within the strict statutory timeframes—while also ensuring ongoing compliance is restored (particularly lodging BAS/IAS and SGC statements on time). Under Australia’s director penalty regime, directors can become personally liable for certain unpaid ATO liabilities even when a company is insolvent, and the practical outcome is that delay and poor triage are what most commonly converts a manageable issue into personal exposure.
What is a DPN and why does it create personal liability?
A DPN is a formal notice issued by the ATO that can make company directors personally liable for specified unpaid company tax liabilities. The regime is designed to protect employee entitlements and the integrity of the tax system by preventing companies from using non-payment (and non-lodgment) as a de facto financing strategy.
- The director penalty regime is contained in the Taxation Administration Act 1953 (Cth) (TAA 1953), Schedule 1, Division 269.
- The ATO publishes practical guidance on Director Penalty Notices, including the distinction between non-lockdown and lockdown penalties, and how penalties may be remitted (see ATO guidance on “Director penalty notice” and “Director penalties”).
- PAYG withholding (amounts withheld from employees)
- GST-related obligations in certain circumstances (commonly through net amounts and associated due amounts administered by the ATO)
- Superannuation Guarantee Charge (SGC), noting this is typically triggered by an SGC Statement being required where SG wasn’t paid on time
When can a director avoid personal liability under a DPN?
A director can avoid personal liability when they (and the company) act within the legal settings that allow the penalty to be remitted, and they prevent the penalty from becoming “lockdown” by lodging required forms on time.
- Prevent the DPN issue arising by strong compliance governance (timely lodgment and payment systems).
- If a DPN is issued, execute the correct remedy within the statutory window, based on lockdown vs non-lockdown classification.
- Lodgment timeliness is often the decisive factor. Late lodgment can remove the availability of remission through administration/liquidation pathways (lockdown).
How do “lockdown” and “non-lockdown” DPNs change your options?
A DPN’s classification determines whether certain actions can remit (effectively cancel) the director penalty.
- Non-lockdown DPN: Directors may generally obtain remission by, within the required time, causing the company to:
- Lockdown DPN: Where relevant returns/statements were not lodged within the required timeframes, the usual “appoint an administrator or liquidator” pathways generally will not remit the penalty. The director is far more exposed and must urgently pursue debt resolution strategies and specialist advice.
- The most common pathway to a lockdown DPN is prolonged non-lodgment of BAS/IAS or late SGC statement compliance after SG non-payment. Directors often underestimate that non-lodgment is not “just a paperwork issue”—it materially changes personal exposure.
What are the immediate steps when a DPN arrives (first 48 hours)?
The first 48 hours should be treated as a controlled triage process. The objective is to stop the clock from defeating you.
- Verify service and deadlines
- Identify the underlying liabilities
- Determine lockdown status indicators
- Assess solvency and funding reality
- Get specialist advice early
How can directors prevent a DPN from becoming a personal liability in the first place?
Directors prevent personal liability primarily through governance settings that ensure lodgment and payment discipline. The ATO’s director penalty framework is structured so that “lodge on time, even if you can’t pay” is often far safer than delaying lodgment.
- On-time lodgment discipline (non-negotiable):
- Early warning dashboards for directors:
- ATO portal and identity/access controls:
- Documented escalation protocol:
What should an accounting practice do to protect director clients (and manage professional risk)?
An Australian accounting practice should adopt a “DPN-ready” workflow that reduces director exposure and protects the firm from engagement risk.
- Engagement terms: Ensure engagement letters clearly define scope (lodgment, reminders, payment responsibility) and require prompt provision of records.
- Lodgment-first policy: Lodge BAS/IAS as soon as data is available, even when payment cannot be made, to reduce lockdown risk exposure.
- SG compliance review: Run quarterly SG checks aligned to payroll and clearing house confirmations; treat missed SG as an urgent event.
- ATO correspondence handling: Centralise ATO mail and portal notifications; missed service or delays commonly cause deadline failure.
- Evidence trail: Maintain file notes of advice, director acknowledgments, and recommended actions.
- The legislation imposes personal exposure on directors; however, practices can be criticised if they allow repeated non-lodgment patterns without escalating the risk and documenting advice.
How do you respond within the DPN period to reduce or eliminate liability?
The correct response depends on feasibility and lockdown status, but the operational goal is to take a legally effective remission step within time (where available), or to immediately pursue payment solutions and dispute options where the debt is incorrect.
- Pay the underlying debt (fastest clean outcome):
- Appoint a voluntary administrator (where non-lockdown and viable):
- Place the company into liquidation (where non-lockdown and appropriate):
- Dispute incorrect liabilities quickly:
- Delaying on the assumption that “we can negotiate with the ATO later” is a common cause of directors missing remission windows.
What real-world scenarios commonly lead to personal exposure (and how are they fixed)?
These scenarios reflect typical Australian SME and mid-market cases seen in practice.
Scenario 1: BAS not lodged for 9 months, PAYG withheld unpaid
Outcome risk: High likelihood of lockdown-style exposure depending on the lodgment history and timing.- Immediate lodgment catch-up (even if payment cannot be made) to stop further deterioration.
- Confirm whether the DPN relates to amounts already reported vs estimated assessments.
- If non-lockdown applies for certain periods, consider administration/liquidation options within time if payment is impossible.
Scenario 2: Super paid late, SGC not addressed promptly
Outcome risk: Severe. SGC can escalate quickly, and late SGC statement handling is a frequent driver of “no-remission” outcomes.- Immediate quantification of SG shortfall and SGC exposure.
- Formal escalation to directors with documented advice.
- Rapid engagement of specialist tax/insolvency advice because director penalty consequences can be unforgiving.
Scenario 3: Group structure with “inactive” directors
Outcome risk: Directors who are not involved day-to-day can still be liable. “I didn’t know” is rarely protective.- Implement director-level reporting and sign-off on ATO status monthly.
- Ensure resignations/appointments are properly recorded with ASIC (noting resignation does not necessarily wipe historical exposure).
- Ensure lodgment governance exists even when the finance function is outsourced.
How do you reduce DPN risk through better reconciliation and ATO visibility?
DPN exposure is strongly correlated with delayed awareness: directors often find out too late because ATO accounts, BAS, and payroll data are not reconciled continuously.
- Monthly reconciliation of:
- Proactive ATO account review:
This is where AI accounting software Australia trends are materially relevant: continuous reconciliation and exception reporting reduces “silent arrears” that later trigger DPN action.
How Fedix can help (Next Steps)
Fedix helps Australian accounting practices improve compliance visibility and reduce late-lodgment risk that often sits behind DPN escalation. With MyLedger, practices can shorten month-end processing and reconcile source data faster, which supports earlier BAS readiness and faster issue detection.
- Faster transaction processing to bring forward BAS preparation and review timelines
- Automated bank reconciliation to reduce month-end backlog and improve timeliness discipline
- Cleaner audit trails and working paper readiness to support prompt lodgment decisions and director reporting
- Review your practice’s “lodge-first” policy settings and escalation triggers for unpaid PAYG/GST/SG.
- Standardise a DPN triage checklist (deadline, lockdown indicators, solvency, remedy options).
- Learn more at Fedix (home.fedix.ai) and assess whether MyLedger can help reduce late processing that contributes to DPN exposure.