Running a business inevitably comes with financial pressures, and when cash flow tightens, tax obligations can sometimes fall behind. However, when a business operates through a company, unpaid tax debts can have consequences beyond the company itself. The Australian Taxation Office (ATO) has the power to issue a Director Penalty Notice (DPN), which can make directors personally responsible for certain company tax liabilities.

The scale of this issue has grown significantly. During 2024–25, the number of DPNs issued increased by 136%, exceeding 84,000 notices and affecting directors of around 64,000 companies. In response to this surge, the Inspector-General of Taxation and Taxation Ombudsman has announced a review into how the ATO applies and administers the DPN regime. For company directors, this review highlights the increasing importance of staying on top of tax compliance.

Understanding Director Penalty Notices

A DPN is a mechanism that allows the ATO to recover unpaid company taxes directly from directors. It generally applies when a company fails to meet obligations relating to PAYG withholding, GST, or the Superannuation Guarantee Charge (SGC).

There are two forms of DPNs, and the difference between them is critical:

Non-lockdown DPNs arise where the company has lodged the relevant tax statements but has not paid the associated liabilities. In these cases, directors typically have 21 days from the date of the notice to act—such as paying the debt, appointing a voluntary administrator, or placing the company into liquidation. Acting within this window may allow the penalty to be cancelled.

Lockdown DPNs, however, apply when a company has failed to lodge its activity statements or SGC statements on time. Once a lockdown DPN is issued, directors cannot avoid personal liability by appointing an administrator or liquidator—the debt effectively becomes a personal obligation.

The regime is designed to protect employee entitlements and government revenue, but it also places a substantial responsibility on directors to actively manage their company’s tax position.

Why the Ombudsman Is Investigating

The review was announced in December 2025 by Tax Ombudsman Ruth Owen following an increase in complaints and concerns raised by directors and advisers.

The investigation will focus on several areas, including:

• Whether the ATO’s use of DPNs is effective in recovering outstanding tax debts
• How the ATO identifies and selects cases for enforcement action
• The clarity and timeliness of communication with directors
• Whether adequate protections exist for vulnerable individuals, such as those pressured into directorship roles or experiencing financial coercion

The review sits within the Ombudsman’s 2025–26 work program, which also includes examinations of ATO services for tax agents, engagement with First Nations taxpayers, and the administration of interest charges.

What This Means for Directors

For directors, a DPN is not simply a tax compliance issue—it can quickly become a personal financial risk. If a notice is ignored or handled incorrectly, the consequences may include personal debt recovery action, damaged credit records, or even bankruptcy proceedings.

At the same time, the Ombudsman’s review may lead to improvements in transparency, fairness, and communication in the system. This could provide directors with clearer guidance and more predictable outcomes when dealing with tax difficulties.

Steps Directors Can Take Now

Directors can reduce their exposure to DPN risks by adopting good governance and financial oversight practices, such as:

• Ensuring the company lodges all tax statements on time, even if payment cannot be made immediately
• Monitoring PAYG withholding, GST, and superannuation obligations closely
• Addressing cash-flow pressures early and considering ATO payment arrangements where appropriate
• Keeping regular oversight of the company’s financial and tax reporting position
• Seeking professional advice immediately if a DPN is received, as strict deadlines apply
• Reviewing business structures, governance processes, and risk management strategies

A Strong Reminder for Directors

The sharp rise in DPNs is a clear signal that the ATO is taking a more active approach to recovering company tax debts. For directors, the message is straightforward: tax compliance must be treated as a core business risk.

Being proactive by maintaining accurate reporting, monitoring liabilities, and seeking advice early can help protect both the business and the personal financial position of directors. 

If you are unsure about your exposure or want to review your company’s compliance processes, professional guidance by Bates Cosgrave can help you identify the potential risks.