Many business owners believe that if their company runs into tax trouble, the liability stays with the company. But when certain tax debts go unpaid, the ATO can hold company directors personally responsible.

The ATO has significantly increased its use of Director Penalty Notices (DPNs) — a legal tool that can make directors personally liable for unpaid company tax debts. In 2024–25, DPNs increased by 136%, with more than 84,000 notices issued affecting directors of approximately 64,000 companies.

A Director Penalty Notice allows the ATO to pursue directors personally for certain company liabilities, including:

• PAYG withholding
• GST
• Superannuation Guarantee Charge (SGC)

There are two types of DPNs directors should understand.

Non-Lockdown DPNs
These occur where the company has lodged its activity statements or SGC statements but has not paid the debt. Directors generally have 21 days to take action, which may include paying the debt, appointing an administrator or placing the company into liquidation.

Lockdown DPNs
These arise when the company fails to lodge required statements on time. In this case, directors cannot avoid personal liability by placing the company into administration or liquidation.

Given the surge in DPNs and complaints from business owners, the Tax Ombudsman has announced a review of how the ATO issues and manages these notices. The review will examine:

• Whether DPN enforcement is being applied fairly
• How the ATO communicates with directors
• How vulnerable directors are treated
• How effective DPNs are in recovering outstanding tax debts

While the review may improve transparency, the underlying message remains clear: tax compliance is a key business risk that directors must actively manage.

For company directors, the most important protection is staying on top of lodgements and tax obligations. Even if the business is struggling to pay, lodging activity statements and communicating early with advisers can significantly reduce personal risk.

If you’re concerned about your company’s tax position — or want to ensure you’re protected as a director — it’s worth reviewing your situation sooner rather than later. A proactive approach can protect both your business and your personal assets.

 If you would like a little help, please get in touch with us for assistance.

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Please also note that many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. Should you have any further questions, please get in touch with us for assistance with your SMSF, business, bookkeeping and tax requirements. All rights reserved. Brought to you by RGA Business and Tax Accountants. Liability Limited by a scheme approved under Professional Standards Legislation.