Director Penalty Notices

Company directors have a legal responsibility to ensure that their company meets its pay as you go (PAYG) withholding and superannuation guarantee charge (SGC) obligations.

The director of a company that fails to meet a PAYG withholding or SGC liability by the due date automatically becomes personally liable for a penalty equal to the unpaid amount.

When a PAYG withholding or SGC liability remains outstanding, the Australian Taxation Office (ATO) may issue a director penalty notice, although this is only necessary to enable the ATO to start legal proceedings to recover the penalty. Even without issuing a notice, the ATO can collect the penalty by other means, such as withholding a tax refund.

Remitting the penalty

The penalty will be remitted if the company pays the outstanding amount at any time.

It will also be remitted if at any time on or before the 21st day after a director penalty notice is 'given' to you:

  • your company has gone into voluntary administration or liquidation, and
  • it had reported its PAYG and SGC liabilities to the ATO within three months of their due dates.

In the past there was no restriction on remission options relating to PAYG liabilities. This changed on 30 June 2012, when the option for remission on the basis of voluntary administration or liquidation was removed for penalties relating to company liabilities that had not been reported within three months of their becoming due.  Under the law, 'given' means placed in the Australia Post system.

New directors

Newly appointed directors have 30 days before they become liable to penalties equal to:

  • all their company's outstanding PAYG withholding liabilities, and
  • any outstanding SGC liabilities that arose after 30 June 2012.

As a new director, you will not be liable to a director penalty if, within the 30 days, the company:

  • pays the amount outstanding
  • goes into voluntary administration, or
  • goes into liquidation


Directors  will not be liable for a Director Penalty Notice if one of the defences under the relevant legislation is available to you, namely that:

  • because of illness or for some other good reason, you did not take part (and it would have been unreasonable to expect you to take part) in the management of the company
  • you took all reasonable steps to ensure that one of the following three things happened:
    • the company paid the amount outstanding
    • an administrator was appointed to the company
    • the directors began winding up the company
  • none of the above steps were available to you
  • in the case of an unpaid SGC liability, the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued was in accordance with the law, and took reasonable care in applying that Act.

Fraudulent Activity

In 2012, changes were made to the tax and super laws to reduce the scope for companies to engage in fraudulent phoenix activity or to escape liabilities and payments of employee entitlements.

By introducing further disincentives for companies to avoid their tax law and employee obligations, these changes are intended to deter directors from engaging in such activities and to improve the regulatory environment for businesses that comply with the tax and super laws.

The changes protect workers' entitlements and strengthen directors' obligations by:

  • extending the director penalty regime and the estimates regime to apply to unpaid super guarantee charge
  • ensuring that directors cannot discharge their director penalties by placing their company into administration or liquidation when pay as you go withholding (PAYG withholding) or super guarantee charge liabilities were not reported within three months of the due date (known as 'lockdown' director penalties)
  • in some instances, making directors and their associates liable to PAYG withholding non-compliance tax (NCT), a tax equivalent to reducing PAYG credit entitlements where the company has failed to pay amounts withheld to the Commissioner.