Got a director penalty notice? The 21 days and your options

An envelope with a director penalty notice inside has a way of making the kitchen go quiet. It reads as personal because it is: the ATO is saying that you, not just the company, can be pursued for certain unpaid amounts. The good news is that there is a defined window to act and a handful of clear ways through it.

What is a director penalty notice, in plain English?

It is the ATO telling a company director that they are personally liable for an amount the company did not pay or report. The ATO says directors can be liable for three types of unpaid company amount:

• PAYG withholding, the tax taken from employees’ pay.
• GST.
• Super guarantee charge.

The personal penalty mirrors the company’s debt, so a payment toward either one reduces both. If you are a director of a small trade company, a plumbing or building business for example, the company’s debts and your exposure are tied together.

The ATO may recover a director penalty 21 days after it issues the notice. It can use garnishee notices, offset your own refunds or credits, or take legal action.

How does the 21-day window work?

The 21 days start on the day the notice is posted or left at the address registered for the company with ASIC, not the day you open it. That detail catches people out, especially if mail goes to an old address or an accountant.

Within the 21 days you can remit the penalty or lodge a defence. If you do neither, recovery action may follow. Remitting depends on when the amount was reported.

When the amount was reported	What clears the penalty within 21 days
PAYG or GST within three months of the due date, or super guarantee charge by its due date	The company pays in full, appoints an administrator, appoints a small business restructuring practitioner, or begins to be wound up
PAYG or GST more than three months after the due date, or never reported	Only paying the company liability in full
Super guarantee charge reported late or never	Only paying the company liability in full

Estimates raised by the ATO count as never reported. That is why this is often called a lockdown situation: once the three-month mark passes, the formal-process exits close and payment is the only way.

What formal steps exist, and what do they mean?

Appointing an administrator, appointing a small business restructuring practitioner or starting a wind-up can each stop a director penalty from taking effect in the right circumstances. They are serious, formal steps run by registered professionals, and they change who controls the company. They are not a quick fix and they have lasting consequences.

The ATO also says a successful small business restructure will not clear a director penalty that has not been remitted within 21 days. If you are weighing any of these, take advice from a registered liquidator or tax professional about your own situation first. Be wary of anyone who rings you offering to fix it for a fee based on a share of your debt.

The alternative, where the business is viable and you want to stay in control, is to pay the company liability. Our page on ATO debt loans for tradies shows how finance can do that.

Are there defences, and what about resigning?

The ATO lists three defences. Each must cover the entire period since the obligation arose:

1. You did not take part in managing the company, and it would have been unreasonable to expect you to, for example because of illness.
2. You took all reasonable steps to make sure the company paid, or that an administrator, restructuring practitioner or wind-up began.
3. For GST or super only, the company took a reasonably arguable position and took reasonable care.

A defence must be lodged in writing with the ATO and specify which one you rely on. Relying on other directors or advisers is not a defence, and resigning does not end your obligations for amounts that arose while you were a director. A new director has 30 days from appointment to cause payment or a formal process for debts that were already due.

An illustrative example, with no real business involved: a two-director roofing company has unpaid GST that was reported four months after its due date, and a notice arrives. Because the amount was reported late, only paying in full clears the penalty. That makes the question one of how to find the funds within the window, which is where a loan may come into it.

If that sounds like your position, tell us the date on your notice and we will treat the clock seriously.

How can funding help within the 21 days?

When paying in full is the route, speed and certainty matter. Property-secured funding from $20k to $5m is available, as first or second mortgages or caveat loans, and amounts from $20k to $250k can sometimes be done the same day, with up to $5m possibly within 24 to 48 hours. Unsecured options typically run from $5k to $500k and can sometimes fund the same day for smaller amounts.

What speeds it up:

• Telling us the notice date and the day 21 date at the start.
• A current ATO statement showing each amount.
• Recent bank statements and details of any property.
• Honest answers about reporting dates and any estimates.

Do not leave it to the last few days. Even quick funding needs time for paperwork. For other parts of the picture, see PAYG withholding debt and super guarantee debt.

Ready to see if funding could clear it?

If a notice has landed and paying in full looks like your path, the first step takes about a minute. There is no credit check when you first enquire, so you can ask where you stand without putting a mark on your file.

Your details come to us rather than going out to a pile of lenders, so you will not be chased by strangers while the clock runs. A real person reads your situation and rings you to talk it through. Give us accurate answers, including the amount, the notice date and when each amount was reported, so we can match you properly the first time.

Check what you could qualify for