Remain Proactive in the Face of Personal Liability
What is a Director Penalty Notice?
Under the Taxation Administration Act 1953 (Cth), directors can be held personally liable for unpaid company tax debts. This liability is known as a Director’s Penalty, and it is enforced through the issuance of a Director Penalty Notice (DPN) by the Australian Taxation Office (ATO). A DPN informs directors—whether current or former—that they may/have become personally liable for the company’s outstanding tax and superannuation debts. A DPN can be lockdown or non-lockdown, and they differ in the options available to directors upon receiving the notice.
The following article will outline four key strategies that directors can adopt to reduce the risk of personal liability from a DPN.
- Lodge on Time
Timely lodging of BAS, IAS, and SGC (Superannuation Guarantee Charge) Statements is crucial. It keeps essential options open, including restructuring, and offers protection against personal liability. Even if your company cannot pay the debts, lodging on time is non-negotiable—failure to do so could result in severe personal consequences for directors.
2. Regularly Review Tax Liabilities
As a director, navigating the complex web of tax and reporting obligations is challenging. Staying updated on any legislative or regulatory changes, or consulting with a trusted financial advisor, is essential to avoid unpleasant surprises. Proactively reviewing tax liabilities helps directors stay ahead of potential issues before they escalate.
3. Ensure ASIC Details Are Up-to-Date
Director Penalty Notices are served to the address listed with ASIC. If your registered office or director details are outdated, you may never receive the notice and miss the critical 21-day window to act. This could result in automatic personal liability for your company’s tax debts. Keep your ASIC details up-to-date to ensure you don’t miss important notices.
4. Be Proactive in Seeking Professional Advice
Engaging an insolvency professional early is one of the most effective ways to reduce the risks associated with DPNs. An insolvency expert can help you assess your company’s financial health, explore restructuring options like voluntary administration, and take timely action within the strict 21-day window to prevent personal liability. Early intervention ensures you take the right steps to minimise risks, preserve value, and protect both your business and personal assets.
The Takeaway
By staying on top of essential tasks—such as lodging on time, regularly reviewing tax liabilities, keeping ASIC details current, and proactively seeking advice—directors can significantly reduce the risk of personal liability from a Director Penalty Notice. Acting early and strategically will help avoid penalties, preserve business value, and ensure directors are prepared to navigate financial challenges effectively.