ATO & tax debt
What a director penalty notice actually does
Edward Chan
What a director penalty notice is
A director penalty notice is the mechanism that moves a company’s unpaid tax obligation onto its directors personally. The company owes the money. The notice makes each director liable for the same amount, in their own name, against their own assets.
The clock starts when it is issued, not when you read it
There are 21 days, and they run from the date on the notice. Not from the day it arrives, not from the day it is opened, and not from the day somebody forwards it to you. A director whose ASIC address is a previous home or a former accountant’s office can lose most of the window before knowing the notice exists.
Where the 21 days actually goes
Day 0
The date printed on the notice. The 21 days starts here, whether or not the envelope has been posted yet.
Days 1 to 4
In the post, to the address recorded for you on the ASIC register. Not to your accountant, and not to where you live now unless the register says so.
Around day 12
A common point for a director to actually read it. Nine days remain, and a valuation on its own can take longer than that.
Days 12 to 18
The real window: confirm whether the notice is lockdown or non-lockdown, take legal advice, and get funding into documentation rather than discussion.
Day 21
The window closes. Doing nothing is a decision, and it is the one that leaves the penalty in place with no remaining options.
The 21-day period is set by the director penalty regime. The reading day shown is illustrative of how the window is commonly lost, not a statistic.
View as a table
| When | What happens |
|---|---|
| Day 0 | The date printed on the notice. The 21 days starts here, whether or not the envelope has been posted yet. |
| Days 1 to 4 | In the post, to the address recorded for you on the ASIC register. Not to your accountant, and not to where you live now unless the register says so. |
| Around day 12 | A common point for a director to actually read it. Nine days remain, and a valuation on its own can take longer than that. |
| Days 12 to 18 | The real window: confirm whether the notice is lockdown or non-lockdown, take legal advice, and get funding into documentation rather than discussion. |
| Day 21 | The window closes. Doing nothing is a decision, and it is the one that leaves the penalty in place with no remaining options. |
- The window
- 21 days
- Runs from
- The date on the notice
- Served to
- Your ASIC address
- Liabilities reached
- PAYG, GST, SGC
- Company income tax
- Not covered
- Liability per director
- The full amount
Two kinds of notice, and only one has options
Everything turns on whether the liability was reported on time. Not paid on time. Reported. A company that lodges and cannot pay is in a materially better position than one that did not lodge at all, and directors routinely get this backwards.
| Non-lockdown notice | Lockdown notice | |
|---|---|---|
| When it is issued | The liability was reported within the required time but has not been paid | The liability was not reported within the required time, or was never reported |
| The reporting test | PAYG withholding and GST lodged within three months of the due date; the superannuation guarantee charge statement lodged by its due date | Lodged outside those periods, or not lodged at all |
| Options inside 21 days | Pay the liability; appoint a small business restructuring practitioner; appoint a voluntary administrator; begin winding the company up | Payment of the liability is the practical route to having the penalty remitted |
| Effect of appointing an administrator | Remits the penalty where the appointment is made inside the 21 days | Does not remit the penalty. The personal liability remains |
| What it means in practice | There is a real decision to make and a short window to make it | The exposure is personal, and the question is how it gets funded |
- Non-lockdown notice
- Lockdown notice
- SGC
- SBR
- Voluntary administration
What the 21 days should be used for
- 01
Days one to two: confirm what you are holding
The date on the notice, which liabilities and which periods it covers, and which company. Note the exact day the 21 days ends and put it somewhere you cannot ignore.
- 02
Days one to three: registered tax agent
Confirm whether the notice is lockdown or non-lockdown by checking the lodgement history against the due dates. Everything that follows depends on the answer, and it is not a judgement call you should make from memory.
- 03
Days two to four: legal and insolvency advice if administration is real
If appointing an administrator or a small business restructuring practitioner is on the table, that is a conversation with a lawyer experienced in insolvency and a registered liquidator. It is not a broker’s call.
- 04
Days three to ten: run the funding path in parallel
Do not wait for the advice to finish before looking at money. Valuations, statements and a payout figure all take time, and they can be gathered while the legal position is being confirmed.
- 05
Days ten to eighteen: settlement runway
If funding is the answer, this is where it has to be in documentation rather than in discussion. Short-dated facilities exist precisely for this window, and they are priced accordingly.
- 06
Before day twenty-one: act
Doing nothing is a decision, and it is the one that leaves the penalty in place with no remaining options.
The pattern we see most often is a director who spends fourteen days deciding and starts looking for money on day sixteen. Run the two tracks together, so that one of the options is still available when the decision is made.
Resigning does not fix it
Liability attaches to obligations that fell due while you were a director. Resigning afterwards does not remove exposure for those periods, and a notice can be issued after the resignation is recorded. The instinct to step away is understandable and it does not work.
The defences that exist
There are defences in the legislation. They are narrow, they are argued on evidence, and they are decided as legal questions rather than accepted on assertion.
Where finance fits into a director penalty notice
A broker can do exactly one useful thing here: arrange the money that pays the liability. On a non-lockdown notice inside the window, or on a lockdown notice at any point, that is frequently the contribution that decides how this ends.
The structures that get used against a deadline
Three ways the money gets there, against what a deadline allows
| Cash-out refinance | Second mortgage or caveat | Private lending | |
|---|---|---|---|
| Realistic inside a 21-day window | No | Sometimes | Yes |
| Leaves an existing first mortgage untouched | No | Yes | Sometimes |
| Priced close to a mainstream loan | Yes | No | No |
| Needs a full valuation | Yes | Sometimes | Sometimes |
| Needs a documented exit before it settles | No | Sometimes | Yes |
| Suits a permanent structure | Yes | No | No |
Indicative characteristics only. Availability, pricing and timing are subject to lender assessment. Not an offer of credit.
View as a table
| Cash-out refinance | Second mortgage or caveat | Private lending | |
|---|---|---|---|
| Realistic inside a 21-day window | No | Sometimes | Yes |
| Leaves an existing first mortgage untouched | No | Yes | Sometimes |
| Priced close to a mainstream loan | Yes | No | No |
| Needs a full valuation | Yes | Sometimes | Sometimes |
| Needs a documented exit before it settles | No | Sometimes | Yes |
| Suits a permanent structure | Yes | No | No |
What to do before a notice ever arrives
Lodged on time, unable to pay
We have seen worse and found the way through. That certainty is the first thing we hand a client.
