Director Penalty Notice: Response and Evidence

What a Director Penalty Notice Means

A DPN concerns a director penalty under Schedule 1 Division 269 of the Taxation Administration Act 1953. The regime covers pay as you go (PAYG) withholding, superannuation guarantee charge (SGC) and specified goods and services tax (GST) liabilities. It also covers estimates of relevant liabilities.

For GST, distinguish an assessed net amount from a GST instalment. For superannuation, establish which statutory framework governs the underlying liability. The current director-penalty legislation sets different rules for these categories.

The penalty generally equals the unpaid amount of the relevant company liability. It is a personal statutory liability alongside the company’s debt. A corresponding payment reduces the parallel liabilities under section 269-40, so the reconciliation must avoid counting the same debt twice.

Confirm whether your client is the director, the company or an appointed practitioner. A director’s personal response and the company’s position can diverge. Record appointment and resignation information, including whether the notice concerns a period before the director joined or after they left.

An ATO director penalty concerns specified company tax or superannuation liabilities. Civil or criminal penalties for breaching director duties arise under a separate statutory mechanism. Identify the actual notice and debt category before choosing the response.

Director penalties are separate from liability for insolvent trading. A conclusion about one regime does not decide exposure under the other.

Read the Notice and Record the Response Period

Record the 21-day period from the statutory giving of the DPN, which is generally when the ATO leaves or posts it. Section 269-25 treats the notice as given at that time, rather than when the director opens the envelope. A late referral to a solicitor does not restart the period.

Use the actual notice and delivery evidence to complete the initial file record in this order.

1. Match the director’s identity and company details against the corporate records. Retain every page and schedule of the notice.
2. List each liability category, period and amount. Identify assessments and estimates separately.
3. Record the issue information and establish when the notice was left or posted. Retain the envelope and any ATO confirmation of dispatch.
4. Calculate the response deadline and arrange an independent diary check. Record when the director actually received it as a separate event.
5. Obtain urgent tax and insolvency advice about the available action. Give that adviser the notice immediately, even while account records are still being collected.

The completed record must identify the trigger used and the last day for any action relied on for remission. A proposed appointment or an unsigned instruction does not establish that the company has entered the relevant statutory process.

For an expired director penalty notice, the ATO can commence recovery proceedings once the statutory period ends. A later appointment cannot restore a remission opportunity that depended on action within that period. Payment and investigation of statutory defences remain relevant, so refer the matter immediately instead of treating expiry as the end of the evidence work.

Lockdown and Non-Lockdown Exposure

Lockdown limits remission through administration, restructuring or winding up because the relevant reporting conditions were not met. Non-lockdown exposure can retain that pathway if the required company action occurs in time. One DPN can contain amounts with different treatment.

For ordinary PAYG withholding and assessed net GST amounts, examine reporting within the statutory three-month period after the payment due day. An amount omitted from a timely return can receive different treatment from the amount reported. Estimates have their own rows in section 269-30, so do not apply a general return-lodgement rule to every estimate.

GST instalments require separate treatment. The lockdown table in section 269-30(2) does not remove the general remission rule for penalties relating to GST instalments. Identify the liability from the ATO account and notice before calling a GST amount locked down.

Superannuation needs a separate chronology. For liabilities under the quarterly SGC framework, examine the applicable statement deadline and the actual lodgement acknowledgement. The ATO’s director-penalty guidance in Annexure B explains why the PAYG reporting window cannot simply be applied to SGC.

Under the payday-super framework, the current legislation deals with SGC for a qualifying earnings day, called a QE day. For director-penalty purposes, the due day is generally the earlier of two events. One is the first day after the 60-day period starting on the QE day. The other is the day the charge becomes payable under the SGC assessment provisions.

The current SGC lockdown test examines whether the company lodges a voluntary disclosure statement by that due day. It also examines whether the disclosed calculation understates the charge. Match each superannuation liability to its governing framework before applying these rules to historical arrears.

Keep the reporting deadline, acknowledgement and reported amount together for every line. The notice summarises the claimed liability, but the lodgement evidence establishes whether the claimed remission pathway is available. New-director provisions can also affect the analysis, so include the director’s appointment chronology.

Reconcile the Notice Against Tax and Bank Records

Reconcile each DPN amount to the ATO account, its underlying return or assessment and any payments credited against it. A bank debit proves money left an account. It does not, by itself, establish which ATO liability received the payment.

Section 269-40 links the company debt with each director’s corresponding penalty and relevant judgment liabilities. An amount paid or applied against one discharges the parallel liabilities then in existence by the same amount. Record recoveries from the company or another director against the corresponding debt, so the remaining exposure reflects that reduction.

Build a chronology with separate fields for the liability period, statutory due day, reporting event, payment event and any company appointment. Retain lodgement acknowledgements, amended returns and assessment notices. Add payroll reports, SGC calculations and superannuation payment records where those explain the liability.

For each payment, record the payer’s account, transaction reference and source statement page. Match those details to the ATO receipt and allocation. Keep disputed credits visible until the records establish their destination.

A Fictional Payment Reconciliation

Suppose a company’s assessed PAYG withholding amount is $48,000. Before the DPN reconciliation, its bank statement records a $15,000 payment to the ATO. The director says the payment reduced the amount in full.

Record	Amount	What the evidence establishes
Assessed PAYG withholding	$48,000	Starting liability for the selected period
Company bank debit to the ATO	$15,000	Total payment made, before allocation is checked
ATO allocation to this PAYG liability	$10,000	Reduction supported by both payment and tax records
ATO allocation to another liability	$5,000	Payment made, but no reduction of this selected liability
Remaining selected liability	$38,000	Balance requiring payment, further credits or a supported challenge

The supported calculation is $48,000 less $10,000, leaving $38,000. Subtracting the entire bank debit would produce $33,000 and understate this liability by $5,000. The $15,000 payment is counted once, with its allocation split between the two liabilities.

Assume the director refers the notice eight days after posting. That delay has consumed part of the same 21-day response period. Resolving the payment allocation must run alongside urgent response advice, without waiting for a complete reconstruction of every company account.

Where company and personal payments are mixed, use the director loan account records to identify who paid. Do not classify a director’s transfer to the company as a payment received by the ATO.

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Payment Plans, Liquidation and Other Responses

Payment reduces the relevant liability, while a payment arrangement regulates payment over time and a qualifying company appointment can remit eligible penalties. Record the legal effect being relied on for each amount.

Response	Effect to assess	Evidence to retain
Payment of the corresponding liability	Discharges parallel liabilities to the extent paid or applied	Receipt, bank source and ATO allocation
Instalment arrangement under section 255-15	Restricts specified recovery proceedings while the covering arrangement is in force	Written arrangement, covered obligations and compliance record
Administrator or small business restructuring practitioner appointed	Can remit eligible penalties when statutory timing and reporting conditions are met	Appointment documents and reporting chronology
Company begins to be wound up	Can remit eligible penalties subject to the same statutory conditions	Evidence of commencement and liability-by-liability analysis

Section 269-15(3) restricts the ATO from commencing or taking procedural steps in specified proceedings while a covering instalment arrangement remains in force. It does not extinguish the penalty or prevent a DPN being given. Acceptance of a payment plan does not restart the 21-day remission period.

Incorrect response: Assume that a payment-plan approval letter releases the director from the unpaid penalty.

Supported response: Identify the obligations covered by the arrangement, retain evidence that it remains in force and assess the director’s continuing exposure separately.

A director penalty notice issued after liquidation still requires analysis. If the company began winding up before the DPN, section 269-30(1) can be relevant, but its lockdown exceptions must also be applied. A late appointment or a locked-down amount can leave personal exposure despite liquidation.

Read the appointment documents alongside the payment and lodgement chronology. The broader liquidation process determines how the company is administered, while the DPN analysis determines the effect on each director penalty.

Assess Defences and Preserve Supporting Evidence

A director penalty defence needs evidence addressing the statutory test across the relevant obligation period. Section 269-35 provides the grounds to investigate, with different requirements for court proceedings and other recovery.

For illness or another good reason, establish why expecting participation in management was unreasonable and whether the director actually stayed out of management throughout the relevant period. Medical evidence alone does not establish the whole test. Compare it with correspondence, banking authorities and records of decisions the director made.

For the all-reasonable-steps defence, collect evidence of attempts to secure payment or a qualifying company appointment. Retain board communications, advice requests and responses to blocked action. If the position is that no reasonable steps were available, document the circumstances supporting that conclusion.

For SGC and assessed net GST amounts, examine the reasonably arguable position defence. The company must have taken reasonable care in applying the relevant Act, and the penalty must result from that treatment. Retain the calculations, factual assumptions and advice supporting the position.

A director’s statement that the accountant handled everything is a lead for investigation. Compare the retainer and instructions with the director’s knowledge, follow-up and available action before advancing a defence.

The procedure also affects evidence deadlines. Section 269-35(4A) imposes a 60-day information period for the illness and reasonable-steps grounds in specified recovery outside court proceedings. The trigger concerns a garnishee notice or written notification of recovery, not simply the original DPN. Record any such notice separately and obtain advice on the applicable procedure.

The ATO’s recovery guidance identifies personal recovery measures, including garnishee notices and offsetting tax credits. Preserve the evidence before those steps create another urgent deadline.

Finish the response record with the responsible adviser’s name and whose instructions they hold. Record verified amounts by category, the timing calculation, the selected action and why it addresses the relevant penalty. Attach proof of completed action, the source documents and a list of any disputed balances still requiring resolution.