Payment plans for director penalty notices

Yes. The ATO can agree to a payment plan after a director penalty notice (DPN) has issued, for the company's debt or for a director's own penalty. But a director penalty notice payment plan does not remit the penalty or stop the 21-day clock.

What the plan does is narrower. While an arrangement covering the company's debt is in force, the ATO can't start, or take steps in, court proceedings against the directors to recover the penalty. Because the clock keeps running, the choice between a plan and an insolvency step often has to be made inside those 21 days.

We act for directors across Australia, alongside their accountants. For the wider picture, see director penalty notice lawyers.

Can you get a director penalty notice payment plan?

Generally, yes. The Commissioner may permit an amount of a tax-related liability to be paid by instalments under an arrangement, whether or not the liability has already arisen (Taxation Administration Act 1953, Sch 1 s 255-15(1)). The company's unpaid PAYG withholding, GST or super guarantee charge and a director's penalty are all tax-related liabilities (TAA Sch 1 ss 255-1 and 250-10), so either can be the subject of a plan.

A plan is not automatic. The ATO's debt collection practice statement says it won't accept payment arrangements as a matter of course, and is unlikely to agree where a taxpayer keeps failing to pay or lodge on time (PS LA 2011/14, para 52).

Can you negotiate a director's penalty with the ATO?

You can negotiate how and when the penalty is paid, but the amount is set by law. The penalty equals the unpaid amount of the company's liability (TAA Sch 1 s 269-20(5)), and Division 269 doesn't give the ATO a general discretion to reduce it on request.

The penalty reduces as amounts are paid or applied towards the company's debt or any director's penalty (s 269-40). Otherwise it is remitted only in the circumstances in s 269-30, and you aren't liable if a statutory defence is made out (s 269-35). If the DPN amount looks wrong, for example because it includes amounts already paid or an ATO estimate that overstates what the company owed, raise that before agreeing to a plan. An estimate is reduced or revoked through a separate process with its own short time limits (Sch 1 ss 268-35 and 268-40).

Does a payment plan stop the 21-day deadline?

No. A penalty is remitted if the directors stop being under their obligation before the DPN is given or within 21 days after (s 269-30(1)). The notice is treated as given when the ATO posts it or leaves it at your address, not when you receive it (s 269-25(4)), so the 21 days may be running before the letter reaches you. The directors' obligation ends only when (s 269-15(2)):

• the company complies with its obligation, which in practice means paying in full,
• an administrator of the company is appointed,
• a small business restructuring practitioner is appointed, or
• the company begins to be wound up.

A payment arrangement isn't on that list, and it doesn't change when the amount is due and payable (s 255-15(2)). For example, if the company signs up to a plan on day 10 and is still paying on day 22, the penalty is not remitted.

Older material sometimes says a payment agreement remits a director penalty. That reflects the former law: a payment agreement under s 222ALA of the Income Tax Assessment Act 1936 was one way directors could meet their obligation (Deputy Commissioner of Taxation v Solomon [2003] NSWCA 62 at [7] and [13]). That section has been repealed, and from 1 July 2010 payment arrangements are made under s 255-15 (PS LA 2011/18, para 43).

If the DPN is not a lockdown DPN and the company can't realistically pay, spending the 21 days negotiating a payment plan can cost you the one step that would remit the penalty. After day 21, appointing an administrator, restructuring practitioner or liquidator no longer remits your penalty.

Lockdown DPNs are different. Administration, restructuring or liquidation doesn't remit the locked-down amounts, broadly those the company didn't report to the ATO in time (s 269-30(2)), so a payment plan is often one of the few practical options alongside paying in full or relying on a defence. See lockdown director penalty notices.

What does a DPN payment plan protect you from?

Under s 269-15(3), the ATO must not commence, or take a procedural step as a party to, proceedings to enforce a director's obligation or recover a director penalty while an arrangement under s 255-15 that covers the company's obligation is in force. Because it turns on the company's arrangement, it protects every director.

The protection has limits:

• It is about court proceedings. The ATO can still give a director a DPN while an arrangement is in force (s 269-15(3), Note 2).
• It covers only what the plan covers. Make sure the arrangement includes every amount in the DPN.
• It lasts only while the arrangement is in force. If the plan is cancelled, the protection goes with it.

On its terms, s 269-15(3) also doesn't cover a garnishee notice (Sch 1 s 260-5) or the ATO applying a refund owed to you against the penalty (TAA s 8AAZL). In practice, the ATO treats a payment arrangement as an alternative to more formal recovery (PS LA 2011/14, para 49). It doesn't have to offset a refund against a debt being paid under an arrangement the taxpayer is keeping to, or against a director penalty (s 8AAZL(3)(b) and (4)), but it says it will generally tell taxpayers when negotiating a plan that offsets will occur (PS LA 2011/14, para 70), so ask before relying on a refund. See ATO garnishee notices.

Should the plan be for the company or for you?

A plan for the company's debt

If the business is still trading and viable, this is usually where to start. Every payment applied to the debts in the DPN reduces each director's penalty by the same amount (s 269-40(2)). The ATO decides how payments are allocated across the company's debts and isn't bound by the company's instructions (TAA s 8AAZLE; PS LA 2011/14, para 67). So ask how instalments will be applied: a payment that goes to income tax or interest doesn't reduce the director penalty.

If the company is insolvent, the DPN is not the only issue. Directors have a duty to prevent insolvent trading (Corporations Act 2001, s 588G), and a plan the company can't sustain may only delay the problem. If the company later goes into liquidation and the ATO is ordered to repay PAYG withholding the company paid it, the directors at the time of payment generally have to indemnify the ATO (Corporations Act, s 588FGA).

A plan for your own penalty

A director can also ask for a personal arrangement for the penalty, usually where the company has been wound up or has stopped trading, and the ATO will then look at your personal finances (see director penalty notices after liquidation).

• The statutory bar is tied to the company. On the wording of s 269-15(3), a personal arrangement for your penalty isn't an arrangement that covers the company's obligation, so your protection depends mainly on its terms and ATO practice.
• Each director is exposed. Directors' penalties are parallel liabilities, and the ATO says it may pursue any or all of them, having regard to each director's capacity to pay and the merits of any defence (PS LA 2011/18, para 78). A director who pays has rights of indemnity and contribution against the company and the other directors (s 269-45).

What does the ATO look at before agreeing to a plan?

Under PS LA 2011/14 (paras 57 and 58), the ATO expects an application to:

1. explain why the debt wasn't paid on time, and whether the causes were outside your control;
2. include a detailed statement of the current financial position, including efforts to borrow or refinance;
3. show that tax debts get the same priority as other creditors, not paid after private debts such as credit cards and mortgages;
4. propose payment in full, including the interest, in the shortest possible time;
5. show that lodgements are up to date and new liabilities will be paid on time; and
6. come with an initial payment, to the extent you can afford one.

The ATO also weighs solvency, compliance history, the stage of any recovery action and willingness to pay by direct debit.

For longer plans, or where it has concerns about solvency or the ability to keep to the terms, the ATO may ask for security, such as a registered first mortgage over property, with the debtor expected to cover the legal costs. It may also require the debt to be acknowledged and, where proceedings have started or are about to, consent to judgment if the plan is defaulted (PS LA 2011/14, paras 14, 60, 61 and 65).

If you may have a defence, raise it before or alongside any plan, rather than acknowledging the full debt first. See defences to a director penalty notice, and for payment arrangements generally, ATO payment plans and payment arrangements.

Does interest keep running on a DPN payment plan?

Yes. General interest charge (GIC) keeps accruing on the company's unpaid debt from the original due date (s 255-15(2) and note; PS LA 2011/14, para 64). For income years starting on or after 1 July 2025, GIC is also no longer tax deductible (Income Tax Assessment Act 1997, s 26-5(1A)).

On our reading, that GIC isn't part of the director penalty, which equals the unpaid amount of the company's liability (s 269-20(5)). Division 269 doesn't impose GIC on the penalty itself, and s 269-20 isn't among the provisions the TAA lists as attracting GIC (TAA s 8AAB). Super guarantee charge needs more care. The charge itself includes interest-like components, and those are part of the penalty. GIC on unpaid super guarantee charge is also treated as more of the charge (Superannuation Guarantee (Administration) Act 1992, s 49(4)), and whether that brings it into a director penalty hasn't been tested. Either way, the company still owes the GIC, and a plan for the company's debt will usually need to clear it too.

You can ask the ATO to remit GIC alongside the plan, but you have to show remission is warranted (PS LA 2011/14, para 64; PS LA 2011/12). See GIC remission and does the ATO charge interest on payment plans?

What happens if you default on a DPN payment plan?

Under PS LA 2011/14 (para 71), the ATO may end the arrangement and recover the whole outstanding debt if:

• an instalment isn't paid as required,
• new lodgements or payments are missed while the plan is running,
• the information given to the ATO was false or misleading, or
• circumstances change and the ATO decides to end the plan rather than vary it.

If a term isn't met, the ATO says recovery action may start or continue without further warning, with GIC calculated from the original due date (paras 65 and 72).

Once the arrangement is no longer in force, the bar in s 269-15(3) falls away. Because the 21 days on the original DPN will usually have long passed, the ATO generally doesn't need a fresh notice before suing for those amounts (s 269-25(1)). By then, administration or liquidation no longer remits the penalty. New debts that build up during the plan can also lead to further DPNs.

If a payment is going to be missed, contact the ATO before it falls due. The ATO says it may vary an arrangement where there is a significant change in circumstances (PS LA 2011/14, para 66).

How we help

• Check the notice and decide the order. We confirm what the DPN covers, whether any amount is locked down and when the 21 days end, and whether an insolvency step, a defence or a challenge to the amount should come before any plan.
• Prepare and negotiate the plan. We build the financial statement and proposal with your accountant, and deal with the ATO on instalments, security, the scope of the plan and the timing of recovery action.
• Look at the interest. Where there are grounds, we prepare a GIC remission request alongside the plan.

Next step

Send us the DPN (every page), the company's latest ATO account statement, the terms of any payment plan already in place and a short note on what the company could realistically pay each month. In a first call we'll tell you how many days are left, whether any amount is locked down, and whether a payment plan should be the first step.