Plenty of people run a company believing its tax debts stay with the company. Some do not. Unpaid PAYG withholding, GST and super guarantee charge can be collected from directors personally through a director penalty notice (DPN). Add the requirement for every director to hold a Director ID, and being a director carries more personal responsibility than most people expect.
What a Director ID is and who needs one
A Director ID is a unique identifier each company director keeps for life. It is issued free by Australian Business Registry Services (ABRS). It lets regulators trace a person’s directorships across companies and makes it harder to use false identities or to run a company into debt, close it and start again.
You now need a Director ID before you are appointed as a director. If you are already a director and never applied, apply straight away, as penalties can apply. You apply yourself and verify your identity with myID (formerly myGovID). Your accountant cannot apply for you, but can help you get ready.
What a director penalty notice is
For certain company debts the law makes directors personally liable: PAYG amounts withheld from employees’ wages, GST, and unpaid super guarantee charge (SGC). If the company does not pay these, the ATO can issue a director penalty notice to a director and require the director to pay personally.
What matters most is whether the company reported on time. If the amounts were reported within three months of the due date, even without being paid, a director gets a non-lockdown DPN and still has options. If they were not reported, the DPN is a lockdown one and the options shrink.
| Situation | Type of DPN | Ways out |
|---|---|---|
| The company owes PAYG withholding, GST or super guarantee charge, but reported it within three months of the due date | Non-lockdown DPN | Within 21 days of the notice: pay the debt, appoint a voluntary administrator, or appoint a liquidator |
| The company owes the debt and did not report it within three months of the due date | Lockdown DPN | Only paying the debt removes the penalty. Appointing an administrator or liquidator no longer does |
The 21 days after a director penalty notice
The notice gives a deadline, usually 21 days from the date of the notice. With a non-lockdown DPN, doing one of three things within that time removes your personal liability: paying the debt, appointing a voluntary administrator, or appointing a liquidator. If nothing is done by the deadline, the liability stays with you.
A DPN counts as given once it is posted to your address on the ASIC register, whether or not you read it. Keep your ASIC address current. New directors should also be careful: if the company already owed these amounts when you joined and they are not dealt with within 30 days of your appointment, you can be liable too.
How to avoid ever getting a director penalty notice
The single most effective step: lodge on time, even if you cannot pay. Reporting BAS and PAYG withholding on time keeps you out of lockdown territory and lets you negotiate a payment plan with the ATO.
Pay employees’ super on time each quarter, because late super turns into SGC, which directors can also be personally liable for. If cash is tight, talk to your accountant and the ATO early rather than waiting for a notice to arrive. And before you agree to join a board, find out whether the company is behind on tax or super.
Frequently asked questions
How do I get a Director ID?
Apply online through Australian Business Registry Services (ABRS). It is free. You must apply yourself and verify your identity with myID (formerly myGovID). You now need a Director ID before you are appointed as a director.
What is a director penalty notice?
It is a notice from the ATO making a company director personally liable for certain unpaid company debts: PAYG withholding, GST and super guarantee charge.
What is the difference between a lockdown and a non-lockdown DPN?
It depends on whether the company reported the debt within three months of the due date. If it did, the DPN is non-lockdown and a director can avoid personal liability within 21 days by paying, or appointing a voluntary administrator or liquidator. If it did not, the DPN is lockdown and only payment removes the penalty.
Does a DPN count if I never saw the letter?
Yes. A DPN is treated as given once it is sent to your address on the ASIC register, whether or not you read it. Keep your ASIC details up to date.
Am I liable for debts the company had before I became a director?
You can be. If the company already owed these amounts when you were appointed and they are not resolved within 30 days, a new director can become liable. Check the company’s tax position before joining.
Know where your company stands before the ATO writes to you
If your company is behind on BAS, PAYG withholding or super, the most useful thing you can do is get the lodgments up to date, even if the money is not there yet. A registered tax agent can check what is outstanding, lodge it, and talk to the ATO about a payment arrangement. TXAS Tax & Accounting Solutions looks after company tax, BAS and director obligations for Melbourne businesses. Call (03) 8827 0025, email om@txas.com.au, or visit us at 313 Burwood Highway, Burwood East VIC 3151. This article is general information only. It does not take your circumstances into account and is not tax, financial or legal advice. The rules are those published by the ATO and ABRS and can change.
