Defences to a director penalty notice

There are three defences to a director penalty notice: illness or another good reason meant you could not reasonably be expected to take part in managing the company, and you didn't; you took all reasonable steps to have the company pay or go into administration, restructuring or liquidation; or, for GST and super guarantee only, the company took a reasonably arguable position with reasonable care (Taxation Administration Act 1953, Sch 1 s 269-35). If a defence applies, you are not personally liable for the penalty, or for the part of it the defence covers.

The defences are narrow. They need evidence and must cover the right period, and the first two have a strict time limit once the ATO starts recovering outside court. Section references are to Schedule 1 of the TAA unless we say otherwise. For the wider picture, see our guide to director penalty notices.

Can a director penalty notice be withdrawn?

Generally, the ATO won't withdraw a valid director penalty notice (DPN) just because you ask. But your personal liability can end or reduce in these ways.

• The debt is paid. Any amount paid by the company or another director reduces every director's penalty by the same amount (TAA Sch 1 s 269-40).
• The company acts within 21 days. The penalty is remitted if, within 21 days after the notice is given, the debt is paid in full, an administrator or small business restructuring practitioner is appointed, or the company begins to be wound up (s 269-30(1)). The notice is given when the ATO posts it or leaves it at your address, not when you read it (s 269-25(4)). An insolvency appointment generally won't remit amounts that weren't reported on time: see lockdown DPNs.
• A defence applies, as explained below.
• The company's figure is wrong. The penalty equals the company's unpaid liability (s 269-20(5)), so if an overstated BAS, super guarantee statement or disclosure is corrected, the penalty generally falls with it. A DPN based on an ATO estimate is different: you stay liable for the estimate, even if the real debt is lower, until the estimate itself is reduced or revoked (s 269-15(2A); Div 268).
• The notice is defective. A DPN must set out what the ATO thinks is the unpaid amount, state that you are liable to a penalty equal to it, and explain the main circumstances in which it will be remitted (s 269-25(2)). A notice that met those requirements when given doesn't become invalid because the amount later changes (Snell v Deputy Commissioner of Taxation [2020] NSWCA 29 at [41] to [42]). A defect usually affects timing more than liability, as the ATO can generally issue a fresh notice.

What are the defences to a director penalty notice?

Defence	Where in the law	Which debts	What you must show
Illness or other good reason	s 269-35(1)	PAYG withholding, GST, super guarantee charge	It was unreasonable to expect you to take part in management, and you didn't, throughout the relevant period
All reasonable steps	s 269-35(2), (3)	PAYG withholding, GST, super guarantee charge	You took all reasonable steps to have the company pay, appoint an administrator or restructuring practitioner, or begin winding up, or no reasonable steps were open to you
Reasonably arguable position	s 269-35(3A)	GST and super guarantee charge only	The company took a reasonably arguable view of the law, with reasonable care

Defence 1: illness or other good reason

You are not liable if, because of illness or for some other good reason, it would have been unreasonable to expect you to take part in managing the company, and you did not take part, at any time when you were a director and the directors were under the obligation to make the company pay (TAA Sch 1 s 269-35(1)).

Both parts matter. Even serious illness is not enough if you kept taking part, for example by making decisions, dealing with the company's accountant or the ATO, or arranging payments (Snell [2020] NSWCA 29 at [45] and [49]). The defence must also cover the whole period, which starts when the company's obligation arose (for PAYG withholding, the day the amount was withheld) or when you became a director, if later: you must show you did not, and could not reasonably have been expected to, take part in management at any time during it (Snell at [53] to [55]). A hospital stay part-way through, with involvement before or after it while the debt stayed unpaid, generally won't be enough.

The law doesn't define "other good reason". Being a director in name only and leaving the company to a spouse, co-director or bookkeeper is generally not enough on its own, because the duty to make the company pay sits with every director (s 269-15(1)) and a director can't simply choose not to take part (Snell at [47] and [49]).

Useful evidence includes medical records covering the dates, and proof you had no part in the business at the time, such as missed board meetings, no bank access and no business correspondence.

Defence 2: all reasonable steps

You are not liable if you took all reasonable steps to ensure that the directors caused one of the following, or if there were no reasonable steps you could have taken (s 269-35(2)):

• the company paid the debt,
• an administrator was appointed under the Corporations Act 2001 (s 436A, 436B or 436C),
• a small business restructuring practitioner was appointed (Corporations Act s 453B), or
• the company began to be wound up.

What is reasonable depends on when, and for how long, you were a director and took part in management, and all other relevant circumstances (s 269-35(3)). That makes a real difference for recently appointed directors: see DPNs for new and resigned directors.

What the courts look at

• The test is objective: what steps were reasonable given what a director in your position, acting reasonably, knew or ought to have known (Deputy Commissioner of Taxation v Snell [2019] NSWDC 159). The ATO takes the same view (PS LA 2011/18 at [65]). Not knowing about the debt is generally no defence if a reasonable director would have found out.
• The steps must aim at those four outcomes. A single judge of the Federal Court has said "all other relevant circumstances" covers only matters bearing on whether you took all reasonable steps to have the company meet its obligation (Ostwald v Commissioner of Taxation [2026] FCA 868 at [80]). General hardship, or effort spent elsewhere in the business, is unlikely to count.
• The whole period counts. In Snell, the Court of Appeal endorsed earlier authority that the defences must together cover the whole period at least until the notice period ends, not just up to the due date, and left open whether it runs on until the company pays or goes into administration or liquidation ([2020] NSWCA 29 at [55] to [58]). Steps at one point don't prove all reasonable steps at others.

What reasonable steps can look like

For example, suppose a company falls behind on its BAS and one director:

1. raises the debt in writing with the other directors and asks for it to be paid,
2. looks for finance, or proposes selling an asset, to pay it,
3. when payment isn't possible, gets advice from a registered liquidator about administration or restructuring, and
4. calls a board meeting and votes to appoint an administrator.

Each step aims at an outcome in s 269-35(2) and is documented. Relying on a bookkeeper's word that the ATO was "sorted", or trading on in the hope a large customer would pay, generally makes the defence much harder to establish.

A payment arrangement is not itself a defence. But while one covering the company's debt is in force, the ATO can't start, or take a step in, court proceedings to recover the penalty (s 269-15(3)). It can still issue a DPN. See DPN payment plans.

Defence 3: a reasonably arguable position (GST and super only)

For GST and super guarantee charge, you are not liable to the extent the penalty resulted from the company treating the GST Act (A New Tax System (Goods and Services Tax) Act 1999) or the Superannuation Guarantee (Administration) Act 1992 as applying in a way that was reasonably arguable, if the company took reasonable care in applying it (s 269-35(3A)).

A position is reasonably arguable if, having regard to the relevant authorities, it is about as likely to be correct as incorrect, or more likely correct than not (s 284-15(1)). There is no equivalent for PAYG withholding: the ATO explains that a company generally knows when it is holding withheld tax, whereas whether workers are entitled to super can be genuinely uncertain (PS LA 2011/18 at [67]).

For example, suppose a company engaged installers as contractors on written advice that they weren't employees, and the ATO later decides super guarantee was payable. If that view was reasonably arguable and the company took reasonable care, the defence may apply to that extent. The key evidence is the contracts and advice the company had at the time.

How long do you have to raise a DPN defence?

If the ATO recovers any of the penalty from you without going to court, the illness and reasonable steps defences apply only if you give the ATO information within 60 days, starting on the day the ATO:

• gives you a copy of a garnishee notice issued to a third party, such as your bank, under s 260-5, or
• otherwise notifies you in writing that it has recovered any of the penalty, for example by applying your tax refund to it,

and the ATO is satisfied of the defence on that information (s 269-35(4A); PS LA 2011/18 at [71] and [72]). See ATO garnishee notices.

A single judge of the Federal Court has held that the second trigger means recovery from you. A credit from another director's refund that reduces your penalty doesn't start your 60 days, and until something does, there is no ATO decision on your defence to review (Ostwald [2026] FCA 868 at [63] to [75]). Because a higher court could take a different view, don't rely on this to wait: if the ATO tells you in writing that your penalty has been reduced by any amount, get advice promptly and consider giving it your information within 60 days anyway. The ATO decides on the information given during the 60 days, and a court reviewing that decision looks only at that information (at [77]).

The 60 days can start before you read the ATO's letter, so count from the date on it. Miss the window and you generally can't rely on those defences against that recovery.

If the ATO sues you, the 60-day rule doesn't apply, but you must prove the defence in court (s 269-35(4)). The court also can't excuse you simply because you acted honestly: the relief power in Corporations Act s 1318 is excluded (s 269-35(5)).

How to put a DPN defence to the ATO

You don't need to wait for recovery action. Raising a defence when the DPN arrives, while records are fresh, is usually sensible. The ATO says it may consider information given before the 60-day window, but that a decision made on that information can't be reviewed under the Administrative Decisions (Judicial Review) Act 1977 (PS LA 2011/18 at [74]). So if the ATO later recovers any of the penalty from you, send all the information again within the 60 days.

A defence submission usually:

1. Fixes the dates: when the DPN was given, when the 21 days end, and when any 60-day window started.
2. Covers each debt and period, since a DPN may cover several BAS periods, super quarters or paydays.
3. Addresses each element of the defence in the wording of s 269-35, with a chronology of who did what and when.
4. Attaches the evidence: board minutes, emails and messages, finance applications, advice received, bank and cash-flow records, ASIC appointment dates and, where relevant, medical records.

If the ATO refuses the defence

Division 269 gives no right to object to the ATO's decision on a defence, as you could to an assessment. Instead, a director can ask for a statement of reasons and apply for judicial review in the Federal Court or the Federal Circuit and Family Court under the ADJR Act (PS LA 2011/18 at [73]). The time limit is short: generally 28 days after you receive the written decision or, in some cases, a statement of reasons, although the court can allow more time (ADJR Act s 11(1)(c) and (3)). So get advice as soon as the ATO refuses. Judicial review asks only whether the decision was lawfully made, not whether it was right on the facts. In Ostwald, two of the three directors' applications were incompetent because nothing had started their 60-day window, and the Court found none of the claimed errors in the ATO's decisions ([2026] FCA 868 at [9] and [74] to [75]). If the ATO later sues, the defence can still be raised in court.

Does a successful defence clear the company's debt?

No. A defence means only that you are not personally liable for the penalty. It doesn't reduce the company's debt or protect the other directors, who stay liable unless they have their own defence, their penalty is remitted, or the debt is paid. A director who pays has rights of indemnity and contribution against the company and the other liable directors, as if they were all guarantors (s 269-45).

The company's own options (payment, a payment arrangement, administration or liquidation) still need working through: see what to do if you receive a director penalty notice.

How we help

• Check the notice and the facts. We confirm what the DPN covers and every deadline, and tell you plainly whether a defence is realistic.
• Prepare and run the defence. We draft the submission and evidence bundle, deal with the ATO, and work on the company's position alongside your accountant.

Next step

Send us the DPN, any garnishee notice or ATO letter saying it has recovered part of the penalty, and a short timeline of when you were a director and what was done about the tax debt. In a first call we'll tell you which deadline matters most and whether a defence is worth pursuing.