DPN Strategy 2025: How to Respond Fast and Safely

Taking a strategic approach to dealing with Director Penalty Notices (DPNs) means acting immediately to identify whether the DPN is “non-lockdown” or “lockdown”, verifying what debts and periods are covered, and then executing the one action that actually stops (or mitigates) the director’s personal liability—usually rapid lodgment, payment, or placing the company into an appropriate external administration—before the statutory time limits expire. In Australian practice, DPN outcomes are determined less by negotiation and more by timing, lodgment status, and evidence, as set out in the Taxation Administration Act 1953 (Cth) (TAA 1953) and ATO guidance.

What is a Director Penalty Notice (DPN) in Australia?

A DPN is an ATO notice that can make company directors personally liable for certain company tax-related debts if the company does not meet its obligations.

• PAYG withholding liabilities (amounts withheld from employees)
• Superannuation Guarantee Charge (SGC) liabilities

• Taxation Administration Act 1953 (Cth), Schedule 1, Division 269 (director penalties regime)

ATO guidance is published on the ATO website under “Director penalties” and related debt collection pages (ATO).

Why is speed the critical strategic factor with a DPN?

Speed is critical because director penalty outcomes are driven by statutory deadlines and the company’s lodgment posture, not by how persuasive the narrative is.

• The “right” solution depends on whether the DPN is non-lockdown or lockdown.
• Non-lockdown DPNs generally allow directors to avoid the penalty by taking prescribed action within the notice period.
• Lockdown DPNs generally apply where the relevant returns/statements were not lodged within required timeframes, meaning the director penalty cannot be remitted by later appointing an administrator or liquidator (and may also not be remitted by later lodgment).

It should be noted that the ATO’s approach is heavily evidence-based. If the integrated client account and lodgment history do not support the claim, the ATO will usually maintain recovery action.

Is the DPN “lockdown” or “non-lockdown” and why does it matter?

It matters because it determines whether there is a practical “escape route” to remit the director penalty.

1. Identify each liability type and period on the notice (PAYGW vs SGC).
2. Confirm whether the relevant statements were lodged on time (or within the statutory window relevant to lockdown rules).
3. Determine which remedy options remain legally effective.

• Non-lockdown DPN: there is typically a limited period after the notice in which specific actions can cause the penalty to be remitted.
• Lockdown DPN: the penalty is typically not remitted by subsequent administration appointments; the director is exposed even if the company is later placed into liquidation/VA.

Disclaimer: The lockdown/non-lockdown rules are technical and fact-dependent under TAA 1953 Sch 1 Div 269. Legal advice should be obtained where insolvency, competing creditor claims, or disputed director status exists.

What immediate steps should an accounting practice take on day 1?

Day 1 triage should be treated as a formal incident response.

• Confirm current and past directorship periods.
• Confirm whether any “new director” rules may apply (where a person becomes a director and inherits obligations after a short window).
• Verify addresses and service details to understand deemed service issues.

• Pull the client’s ATO integrated client account, statements, and running balance.
• Match each DPN line item to:
• Confirm whether amounts include general interest charge (GIC) and what is “penalty” vs “underlying debt”.

• Stop informal “wait and see”.
• Stop making partial payments without a plan if it could prejudice other negotiations or create director preference risk issues (particularly near insolvency).

• Board minutes/resolutions.
• Instructions to adviser.
• Cashflow forecast and solvency assessment.

What options actually work to deal with a DPN?

The director penalty regime is prescriptive. Strategy is choosing the option that is legally effective for the DPN type and commercially feasible.

• Pay the debt in full: most direct resolution where cash is available.
• Enter a payment arrangement with the ATO: may be possible, but does not necessarily “remit” the director penalty unless the underlying statutory requirements are met; ATO may still require security and strict compliance.
• Appoint a Voluntary Administrator (VA): can be a remedy pathway for non-lockdown DPNs; timing is decisive.
• Place the company into liquidation: similarly may be relevant for non-lockdown DPNs.
• Dispute the notice or underlying liability (where grounds exist): e.g., incorrect director status, incorrect amounts, misallocation, or genuine ATO account error.

• Assuming that lodging overdue activity statements “fixes” a lockdown DPN. In many cases it does not.
• Treating the DPN as a generic debt collection letter rather than a personal liability mechanism.

How should you handle “lockdown” DPNs strategically?

A lockdown DPN should be managed as a personal exposure event for directors, with a parallel company turnaround/insolvency pathway.

• Immediate verification of debt integrity: confirm the ATO’s figures, allocations, and periods.
• Personal asset protection advice: directors should be referred for legal advice on exposure management; accountants should document referrals and scope.
• Company solvency assessment: if insolvent, continuing to trade may create additional exposures (including insolvent trading risk under the Corporations Act 2001 (Cth)).
• Negotiate with the ATO from a position of evidence: present reconciled ATO account extracts, cashflow, and proposed resolution pathway.
• Consider refinancing / capital injection feasibility: if directors intend to pay personally, document source of funds and ensure proper structuring.

• A construction company failed to lodge multiple quarters of PAYG withholding for more than a year, then received a DPN.
• Even after lodging, the director penalty remained because the statements were not lodged within the required statutory window.
• The best achievable outcome became a managed settlement approach with strict compliance and documented hardship/capacity evidence, alongside formal insolvency advice.

How should you handle “non-lockdown” DPNs strategically?

A non-lockdown DPN is primarily a deadline-management exercise: execute the statutory remedy before time expires and maintain proof.

• Confirm the remedy window: diarise the deadline and work backwards.
• Choose the remedy that is actually achievable within the window:
• Prevent additional debts: ensure current BAS/IAS and super obligations are met while the remedy is executed.
• Capture evidence: appointment documents, payment receipts, ASIC records, and ATO portal confirmations.

• A medical services entity fell behind on PAYG withholding due to cashflow timing but had lodged on time.
• On receiving a DPN, the practice prepared a 13-week cashflow, arranged short-term finance, and paid the debt within the remedy window.
• Director penalty exposure was avoided, and the ATO agreed to a compliance monitoring period.

How do PAYG withholding DPNs differ from SGC DPNs in practice?

They differ because superannuation compliance has its own reporting and assessment pathway and is frequently where directors underestimate the risk.

• PAYG withholding: commonly tied to IAS/BAS cycles; errors are often reconciliation-based.
• SGC: arises when super isn’t paid in full and on time; once SGC applies, it can include components beyond the original super shortfall, and the reporting process (SGC statements) becomes critical.

According to the ATO’s guidance on super guarantee obligations and SGC, employers must pay Super Guarantee by quarterly due dates, and failures can trigger SGC and enforcement action (ATO).

What governance and control fixes prevent DPNs (the “pre-DPN strategy”)?

Prevention is the highest-ROI strategy because the director penalties regime punishes late lodgment and unmanaged arrears.

• Lodgment discipline: lodge BAS/IAS and SGC statements on time even when payment cannot be made.
• ATO account reconciliation cadence: reconcile integrated client account monthly, not quarterly.
• Cashflow ring-fencing: segregate PAYGW and super amounts in a separate bank account where feasible.
• Board reporting: a one-page monthly “ATO position” report for directors showing:
• Trigger-based escalation: if ATO arrears exceed an agreed threshold or lodgments fall behind, escalate to partners immediately.

How should an accounting practice run a DPN workflow (step-by-step)?

A robust practice workflow reduces mistakes under time pressure.

• Confirm who the client is (company vs director personally) and manage conflicts.
• Issue an engagement letter defining scope (tax agent vs insolvency vs legal coordination).

• Classify DPN type (lockdown/non-lockdown) per facts.
• Reconcile ATO accounts to the notice line-by-line.

• Prepare a short options memo:

• Implement the chosen remedy within required timeframes.
• Save proof: portal screenshots, receipts, appointment docs, ASIC extracts.

• Set up recurring compliance controls to prevent recurrence.

How can automation reduce DPN risk in 2025 (and where MyLedger fits)?

Automation reduces DPN risk by shortening the time between bank activity, reconciliation, and compliance visibility—so arrears and lodgment slippage are detected early.

• Faster month-end close means directors see PAYGW/super stress earlier.
• Automated bank reconciliation reduces the chance that BAS is delayed due to unreconciled accounts.
• Automated working papers reduce year-end bottlenecks that hide ATO exposure.

• MyLedger automated bank reconciliation (AutoRecon): 10–15 minutes per client versus 3–4 hours typical manual processing (around 90% faster).
• AI-powered reconciliation and categorisation: often 90% of transactions auto-categorised, freeing senior staff to focus on DPN triage and advisory.
• ATO integration accounting software capability: direct ATO portal connection features support faster verification of client details, lodgment history, and ATO statements (critical in DPN work).
• Working papers automation: reduces reliance on manual Excel packs when assessing PAYGW, GST, and end-of-year tax positions.

Strategic takeaway: DPN management is fundamentally about time and evidence. Tools that reduce reconciliation time and improve ATO data visibility reduce DPN probability and improve response quality.

What are the common mistakes accountants see with DPNs?

The most common failures are procedural, not technical.

• Treating the DPN as negotiable before verifying lockdown status.
• Focusing on “getting the BAS lodged” while missing the remedy deadline.
• Not reconciling ATO allocations (payments sitting in the wrong period or account).
• Allowing directors to keep trading without a documented solvency assessment.
• Poor evidence retention (no proof of payment clearance or appointment timing).

Next Steps: How Fedix can help your practice respond faster

Fedix helps Australian accounting practices reduce DPN risk and respond faster when ATO debt issues arise by compressing reconciliation and compliance preparation timelines.

1. Standardise your monthly ATO and cashflow review pack for all business clients with PAYGW and super.
2. Implement automated bank reconciliation to shorten month-end close and flag arrears earlier.
3. Review how MyLedger (Fedix) can support automated bank reconciliation, working papers automation, and ATO integration workflows so your team spends time on decisions and evidence—not manual processing.

Learn more at home.fedix.ai and consider a MyLedger workflow review for your practice’s DPN and ATO debt triage process.

Conclusion

A strategic approach to dealing with DPNs in Australia is a disciplined, time-critical process grounded in TAA 1953 Division 269: classify the DPN correctly, reconcile the underlying ATO liabilities, and execute the one remedy that remains legally effective before deadlines expire. The most reliable way to “win” with DPNs is to avoid them through on-time lodgment, frequent ATO reconciliations, and compliance visibility—supported by automation that shortens the path from bank transactions to BAS and year-end outcomes.

Disclaimer: This article is general information for Australian accounting professionals and does not constitute legal or financial advice. Director penalty and insolvency matters are highly fact-specific. Consider obtaining specialist legal and insolvency advice for specific cases, especially where insolvency, competing creditor actions, or disputed director status applies.

Frequently Asked Questions

Q: Is a DPN the same as personal bankruptcy risk for directors?

Q: Can a director avoid a DPN by resigning?

Q: Does lodging overdue BAS/IAS automatically fix a lockdown DPN?

Q: Can the ATO make payment arrangements after issuing a DPN?

Q: What systems reduce the chance of getting a DPN?