The Australian Taxation Office (ATO) has significantly increased its debt recovery efforts in 2025, particularly targeting businesses with overdue tax liabilities. Where a company is unable to pay its tax debts, the ATO is now more frequently pursuing directors personally under the Director Penalty Notice (DPN) regime. Directors must take proactive steps to understand their obligations and minimise their exposure to personal liability.
Why This Matters Now
In 2024, CreditorWatch reported that 33.6% of private businesses with tax defaults over $100,000 and 90 days overdue had either become insolvent or voluntarily shut down. The ATO’s lenient approach during COVID-19 led to a build-up of tax debt, which has now reached approximately $52 billion — with $34 billion owed by small and medium enterprises.
Speaking to the Senate Economics Legislation Committee in February 2025, ATO Commissioner Rob Heferen revealed that just 22,000 taxpayers are responsible for $11 billion of this total. He confirmed the ATO will now take firmer action against those who do not engage or attempt to resolve their debt issues.
What Is a Director Penalty Notice?
The Director Penalty Regime imposes personal liability on company directors for unpaid:
- Pay-As-You-Go (PAYG) withholding
- Goods and Services Tax (GST)
- Superannuation Guarantee Charge (SGC)
Liability arises automatically if these obligations are not paid by their due date. The DPN is a formal notice that allows the ATO to begin legal recovery proceedings against directors. It’s not a warning — by the time it is issued, liability already exists.
Two Types of DPNs
There are two categories of DPNs, and it’s critical to understand the differences.
- Non-Lockdown DPN:
This applies if the company lodges its tax obligations on time, even if it fails to pay. In this case, the director may avoid personal liability by, within 21 days of the DPN being posted:
- Paying the debt
- Appointing a voluntary administrator
- Appointing a small business restructuring practitioner
- Beginning to wind up the company
- Lockdown DPN:
This applies if the company has failed to lodge its BAS or SGC statements on time. In this case, none of the above options will remit the penalty — the director must pay the full debt personally. That’s why timely lodgement is absolutely essential, even where cash flow is tight.
SGC Lodgement Deadlines to Know
For SGC (superannuation guarantee charge), lodgement deadlines are:
- Q1 (Jul–Sep): Due 28 October
- Q2 (Oct–Dec): Due 28 February
- Q3 (Jan–Mar): Due 28 April
- Q4 (Apr–Jun): Due 28 July
Failing to lodge by these dates can result in lockdown DPNs, even if the amount is eventually paid.
Narrow Legal Defences
Defending against a DPN is difficult. The legal defences available are limited and strictly interpreted. A director may only avoid personal liability if:
- Illness or incapacity: The director was unwell or otherwise incapable of managing the company for the entire relevant period.
- All reasonable steps taken: The director took all reasonable steps to ensure the company complied, or there were no reasonable steps that could have been taken.
- Reasonably arguable interpretation: The company applied the tax law (especially for GST or SGC) in a way that was reasonably arguable and took appropriate care.
Note that reliance on other company officers or accountants is not a valid defence unless the director also took independent steps to confirm compliance. Passive or “sleeping” directors are at particular risk and may wish to consider resigning if they are not actively engaged in the company’s management.
New Enforcement Tools in 2025
In 2025, the ATO is also leveraging new digital tools to identify non-compliant businesses:
- Data Integration: Real-time data from Single Touch Payroll, BAS, and SuperStream lodgements enables the ATO to detect missed obligations faster than ever.
- ASIC Collaboration: The ATO is sharing data with the Australian Securities and Investments Commission (ASIC) to pursue repeat offenders and directors with poor compliance history. This may include director disqualification under the Corporations Act 2001 (Cth).
- Penalty Amnesty Expired: The 2024 lodgement penalty amnesty for small businesses ended on 30 June 2024. Businesses that failed to lodge by that date are now exposed to full penalties and enforcement action.
What Directors Should Be Doing Now
To protect themselves, directors should:
- Ensure all tax obligations are lodged on time, even if they cannot be paid in full.
- Maintain oversight of all company lodgements, including those handled by staff or external accountants.
- Engage with the ATO early. The ATO is far more likely to work with cooperative businesses and less likely to issue DPNs if a payment plan is already in place.
- Review company cash flow regularly to avoid surprises.
- Seek legal or accounting advice if the company is experiencing difficulty meeting its obligations.
Key Reminder: 21 Days Means 21 Days
The 21-day response period for a non-lockdown DPN begins on the date the notice is *posted*, not received. Extensions are not available. Failure to act within this period will result in personal liability becoming locked in.
Conclusion
As ATO enforcement ramps up, directors must remain vigilant. Ignoring DPNs or failing to act quickly can result in significant personal financial exposure. Timely lodgement, proactive engagement, and seeking advice early are the best tools directors have to protect themselves.
If you receive a DPN, act immediately and contact us to explore your options, including possible remission, defence, or corporate restructuring.
