Guide · ATO enforcement

What to do when a director penalty notice arrives

A director penalty notice makes the company's unpaid PAYG withholding, GST or super guarantee charge your personal debt unless something happens within 21 days — and the 21 days run from the day the ATO posts the notice to the company's ASIC-registered address, not the day you read it. Where the amounts were reported to the ATO on time, paying the debt, appointing an administrator, appointing a small business restructuring practitioner or beginning a winding up will lift the penalty. Where they were never reported in time, paying is the only thing that does.

What the notice actually does

A director penalty notice does not create a new debt. It moves an existing one. The company's unpaid PAYG withholding, net GST or super guarantee charge becomes payable by you personally, as a director, unless one of a small number of things happens inside 21 days. Company income tax is not part of the regime; the notice will name the obligations and the periods it covers, and those figures are the ones that matter rather than whatever the company's ATO account shows today.

The 21 days are the part people get wrong, and getting it wrong is expensive. The ATO counts them from the day it posts the notice, or leaves it at the address the company has registered with ASIC. Not from the day it arrives. Not from the day you open it. If the registered address is a former accountant's office or a building the company left two years ago, the clock has been running while the envelope sat in somebody else's tray.

A company director standing in a small boardroom, looking out over the office floor

You are not the first one this week

Most directors who receive one of these have never seen one before, and the first thing they do is ring their bank. The bank usually says no — not because the loan would not be repaid, but because the company's last financials look wrong, or a lodgement is late, or the credit file has a mark on it. Those are the reasons a bank exists to care about. They say nothing about whether there is equity in the building.

That gap is where HomeSec has spent since 2004. We are not here to judge the situation, and we have seen it often enough that it does not surprise us. What we look at is whether there is enough unused equity in real property, and whether the purpose is a genuine business one. We do not ask for financial statements, up-to-date lodgements or a credit score, and there is no interrogation about how the company got here. From a clean, complete scenario, funds can be available in as little as 24 hours, and interest can be capitalised for up to six months so there is nothing to pay while the business gets its feet back under it.

Now back to the notice itself, because the deadline does not care where the money comes from.

What lifts the penalty, and what does not

Everything turns on one question: were the amounts reported to the ATO within the required time, even if they were never paid? A company that lodged its activity statements and its super guarantee statements on time, and simply could not pay them, is in a very different position from one that never lodged at all.

1
Reported on time, and still unpaid.The penalty can be remitted if, inside the 21 days, the company pays the debt in full, appoints a voluntary administrator, appoints a small business restructuring practitioner, or begins to be wound up. Four doors, and three of them end the business as it stands.
2
Never reported within the required time.The ATO's position is that payment is the only thing that lifts the penalty. Appointing an administrator or a liquidator at this point does not remove it — the personal liability survives the company. This is the version practitioners call a lockdown notice.
3
Resigning.Does nothing. It does not remove liability for amounts that fell due while you were a director, it does not stop a notice already issued, and it takes away your ability to act for the company at the moment you most need to.
4
Ignoring it.After 21 days the ATO can recover the penalty from you personally — garnishee of your own bank accounts and wages, offsetting your personal tax refunds, or proceedings against you rather than the company.

The first 48 hours

1
Read the notice and write down the date on it.Count 21 days from the date the ATO issued it, not from today, and treat that date as immovable.
2
Check the company's registered address on ASIC's register.If it is wrong, every future notice goes to the same wrong place. Fix it whatever else you decide.
3
Find out whether the amounts were lodged on time.Your bookkeeper, tax agent or the ATO's online services for business will tell you in minutes, and the answer decides which of the options above are open to you.
4
Speak to a registered liquidator or an insolvency lawyer.Not because the answer is insolvency, but because the options that end a company have to be taken by somebody registered to take them, and because they will tell you plainly whether they think the business is viable.
5
Work out what the property could release.If paying is the only door, or the one that keeps the business alive, then the question is simply whether there is equity and how fast it can be reached. That part we can answer the same day.

When paying it out is the right answer, and when it is not

Borrowing to pay a tax debt makes sense when the business behind it works — when the debt is the residue of a bad year, a late-paying client or a project that ran long, and the trading position since has been sound. It makes sense when there is a real exit: a property to be sold, a refinance that will complete once the arrears are gone, a contract that settles.

It does not make sense when the business is losing money every month and the debt is simply the visible part of that. Borrowing against the family's equity to keep a loss running is how people lose the house as well as the company. If that is the honest position, the conversation to have is with a restructuring practitioner, not with a lender, and we will tell you so.

This page explains what the notice says and what the options are. It is general information, not legal or insolvency advice: what to do in your circumstances is a question for a registered liquidator, an insolvency lawyer or your tax agent, and the ATO's own guidance on the director penalty regime is the primary source.

If the number was not the whole problem

A director penalty notice is a deadline, and deadlines are a funding problem before they are anything else. Most of the directors who call us have the money sitting in a property they cannot get at quickly enough.

If you are reading this because money is tight, it may be that what you actually need is fast business finance — and HomeSec can lend with very few qualification criteria. All you need is sufficient equity in real estate and a business purpose: no financials, no valuation, no credit score threshold, funded in as little as 24 hours from a clean, complete scenario. Best of all, the first six months can come with no requirement to make any payment.

That's the HomeSec Advantage.

Questions people ask alongside this one

Does the 21 days start when I open the letter?

No, and this is the detail that catches people. The ATO counts the 21 days from the day it posts the notice or leaves it at the company's registered address with ASIC — not from the day you read it. A notice sent to an old registered office, or sitting in a mailbox at a former accountant's address, is still running. If the address on ASIC's record is not where you actually collect mail, that is worth fixing today, whatever else happens.

Can I stop it by resigning as a director?

No. Resigning does not remove a penalty for an amount that fell due while you were a director, and it does not stop a notice already issued. It also removes your ability to act for the company. Directors sometimes resign in a panic in the first days; it usually makes their position worse rather than better.

What actually removes the penalty inside the 21 days?

Where the company reported the amounts to the ATO on time, the penalty can be remitted if the company pays the debt in full, appoints an administrator, appoints a small business restructuring practitioner, or begins to be wound up. Where the amounts were never reported within the required time, the ATO's position is that paying the debt is the only thing that lifts the penalty — appointing an administrator or a liquidator at that point does not.

What is covered by a director penalty?

Three things: PAYG withholding, net GST, and the super guarantee charge. Company tax is not in the regime. The notice itself will say which obligations and which periods it covers, and that is the figure to work from rather than the balance on the company's ATO account.

I have just been appointed a director. Am I liable for what happened before?

Not automatically. A new director is not liable for a penalty for an amount that fell due before their appointment if the company pays, or an administrator or small business restructuring practitioner is appointed, or winding up begins, within 30 days of the appointment. It is a short window and it runs from the appointment, not from when you find out what you inherited.

Can HomeSec lend against a company that has a director penalty notice?

It is one of the situations HomeSec lends into, provided there is enough equity in real property and the purpose is a business one. The credit team does not ask for financial statements, up-to-date lodgements or a credit score, because none of those tell it whether the equity covers the loan. Every application is subject to assessment and approval, and the loan is documented against the property in the usual way.

Sixty seconds, no documents

See if you qualify in sixty seconds

Three short questions, no credit check to apply and no financial statements. A Lending Manager reads it and calls you back with a real answer — not a call centre, not an algorithm.

That's the HomeSec Advantage.

See if you qualify Call 1300 93 83 87Mon–Fri, 8:30am – 5:30pm Melbourne time

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Reviewed by Paul Stone, Joint Chief Executive