Show download pdf controls
  • Recovering director penalties

    On this page:

    Director penalty notice

    Before we can recover director penalties from you personally, we must first give you a Director Penalty Notice (DPN) outlining the unpaid amounts and remission options available to you.

    Recovery options include:

    • garnishee notices
    • offsetting any of your tax credits against the director penalties
    • initiating legal recovery proceedings against you to recover the director penalty.

    If you are a current director at the time the DPN is given, we will use your address registered with Australian Securities & Investment Commission (ASIC). Otherwise we will use the address last known to us.

    The date we post or leave the DPN is the date the notice is given to you.

    See also:

    Remitting the penalty

    PAYG withholding and net GST

    The timing of when the PAYG withholding or net GST is notified to us will determine what actions are available to remit director penalties.

    If the unpaid amount of PAYG withholding or net GST is reported within three months of the due date (or, in the case of new directors, within three months of the date of their appointment), the penalty can be remitted by one of the following:

    • paying the debt
    • appointing an administrator under section 436A, 436B or 436C of the Corporations Act 2001
    • the company begins to be wound up (within the meaning of the Corporations Act 2001).

    If the unpaid amount of PAYG withholding or net GST is reported more than three months after the due date (or, in the case of new directors, three months or more after the date of their appointment), the only way to remit the penalty is to pay the debt.

    For any portion of the underlying liability that is reported outside of three months or remains unreported, the director penalty for that portion can only be remitted by payment.

    Remission can be achieved any time prior to a DPN being given; however once it is given, a director only has 21 days from the date of that notice to remit any director penalties stated on that particular DPN.

    If the company enters into and maintains a satisfactory arrangement to pay the entire company debt, we will not seek to recover the penalty from you personally; however, we may offset your personal tax credits. If the entire company debt is no longer under a payment arrangement, we may commence or recommence action to recover the director penalty.

    Example

    Kerry and Claire are directors of ABC Pty Ltd (the company), which is required to pay amounts withheld under the PAYG withholding provisions on a quarterly basis. For the January to March quarter in the 2019–20 income year, the company withheld $4,000 from payments made to its employees and directors.

    The company did not report or pay the amounts withheld within three months of the due date of the underlying liability. The only way Kerry and Claire’s director penalties can now be remitted is by causing the amounts to be paid within 21 days of the date the notices are given to them.

    End of example

     

    Example

    Kerry and Claire are directors of ABC Pty Ltd (the company), which is required to pay GST collected during April 2020. During April 2020, the company collected net GST of $10,000.

    The company did not report or pay the amounts collected within three months of the due date of the underlying liability. The only way Kerry and Claire’s director penalties can now be remitted is by causing the amounts to be paid within 21 days of the date the notices are given to them.

    End of example

    SGC amounts

    The timing of when SGC amounts are notified to us will determine what actions are available to achieve remission of the director penalties.

    If the unpaid amount of the SGC obligation is reported by the due date for the SGC statement, the penalty can be remitted by one of the following:

    • paying the debt
    • appointing an administrator under section 436A, 436B or 436C of the Corporations Act 2001
    • beginning to wind the company up (within the meaning of the Corporations Act 2001).

    If the unpaid amount of the SGC obligation is reported after the due date, the only way to remit the penalty is to pay the debt.

    For any portion of the underlying liability that is reported outside of the due date or remains unreported, the director penalty for that portion can only be remitted by payment.

    Your director penalty may be remitted any time before a DPN is given, however once it is given, a director only has 21 days from the date of that notice to try and remit any director penalties stated on that particular DPN.

    If the company enters into and maintains a satisfactory arrangement to pay the entire company debt, we will not seek to recover the penalty from you personally; however, we may offset your personal tax credits. If the entire company debt is no longer under a payment arrangement, we may commence or recommence action to recover the director penalty.

    Example

    Kerry and Claire are directors of ABC Pty Ltd (the company), which has incurred a super guarantee charge liability as it failed to remit employees' superannuation to complying superannuation funds by the due date. It also failed to report the unpaid amounts to the ATO by the due date for the SGC statement.

    The only way Kerry and Claire’s director penalties can now be remitted is by causing the amounts to be paid within 21 days of the date the notices are given to them. This is because the company did not report or pay the SGC amounts by the due date for the SGC statement.

    End of example

    Estimates

    If the company fails to report PAYG withholding, net GST or SG obligations by the due date, we may make a reasonable estimate of the unpaid and overdue amount of the liability.

    The director penalty provisions apply to these estimated liabilities. The estimate is due and payable by the company on the day we give the company the estimate notice.

    If we have estimated the companies PAYG withholding, net GST or SGC liabilities it is treated as an unreported amount.

    Example

    Kerry and Claire are directors of ABC Pty Ltd (the company), which is required to pay amounts withheld under the PAYG withholding provisions on a quarterly basis. For the January to March quarter in the 2019–20 income year, the company withheld from payments made to its employees and directors but failed to report or pay this to the ATO by the due date of 28 April 2020.

    On 21 August 2020, the ATO estimated the unpaid amount of PAYG withholding for the January to March quarter and gave written notice of the estimate to the company that same day. At the end of this day, both Kerry and Claire are both personally liable for a director penalty amount equal to the unpaid amount of the estimate.

    A DPN based on the estimated amount of PAYG withholding issued 21 September 2020.

    As the unpaid amount was not reported within 3 months of the due date of the underlying liability, the director penalty can only be remitted by the company or directors paying the amount of the estimate.

    End of example

     

    Example

    Kerry and Claire are directors of ABC Pty Ltd (the company), which collected GST on sales on a monthly basis. The company was required to report and pay GST collected during the month of April 2020 by 21 May 2020 but failed to do so.

    On 21 September 2020, the ATO estimated the unpaid amount of GST for April 2020 and gave written notice of the estimate to the company that same day. At the end of this day, both Kerry and Claire are both personally liable for a director penalty amount equal to the unpaid amount of the estimate.

    A DPN based on the estimated amount of GST issued 21 October 2020.

    As the unpaid amount was not reported within three months of the due date of the underlying liability, the director penalty can only be remitted by the company or directors paying the amount of the estimate.

    End of example

    Defence to a Director Penalty Notice

    The director penalty regime provides a number of statutory defences that outline circumstances in which a director is not liable to director penalties.

    You may request that we consider a defence you may have to your director penalty before any legal recovery proceedings begin.

    You will have a defence and not be liable for a director penalty if:

    • you did not take part (and it would have been unreasonable to expect you to take part) in the management of the company during the relevant period because of illness or other acceptable reason
    • you took all reasonable steps, unless there were no reasonable steps you could have taken, to ensure that one of the following three things happened
      • the company paid the amount outstanding
      • an administrator was appointed to the company
      • the directors began winding up the company (within the meaning of the Corporations Act 2001)
    • in the case of an unpaid SGC liability – the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued, was in accordance with the law, and took reasonable care in applying that Act.

    The courts have held that these defences must be proved for the entire period the director was under the obligation:

    The natural meaning is that the combined defences must cover the whole of the period between the breach of the obligation on the due date, and the expiry of the notice (Canty v Deputy Commissioner of Taxation [2005] NSWCA 84). See also DCT v George [2002] NSWCA 33).

    The courts have also ruled that, as a director, it is not a defence if you relied on others (including fellow directors and professional advisors) to ensure your obligation was met.

    A director’s non-participation in the management of the company will usually involve a breach of the duty, whether the director is aware of this or not (DCT v Lesley Frances Robertson [2009] NSWSC 597).

    A DPN defence needs to be submitted to the Commissioner in writing, clearly articulating what defence they are seeking to rely on. It should provide all the necessary information and supporting documentation to substantiate the defence.

    Once you have completed your application, you can either:

    • ask your tax agent to lodge the application through Online services for agents
    • mail it to

    Attention: Debt Case Leadership
    Australian Taxation Office
    PO Box 327
    ALBURY NSW 2640

    As a director, you must ensure your company complies with its tax and super obligations. Not doing so will result in a personal liability.

      Last modified: 24 Jun 2020QC 44005