Director penalties: when a company's tax debt becomes yours
A company's debts are the company's – with three exceptions. Unpaid PAYG withholding, GST and super can be recovered from directors personally through a director penalty notice. What the notice is, how it arrives, and why the date on it matters more than the date you read it.
The point of a company is that its debts are its own. A supplier who is not paid sues the company, not you, and if there is nothing there, that is where it ends.
Tax debts are the exception. Three of them can be taken out of a director personally, and the mechanism for doing it is the director penalty notice.
The three debts that reach you
- PAYG withholding – the tax the company withheld from wages and did not send on
- GST – added to the regime in April 2020
- Super guarantee charge – what an unpaid or late super obligation becomes
The logic is the same in each case: this is money that was withheld from someone else, or owed to an employee's retirement savings, rather than the company's own money to spend on cash flow. Parliament has taken the view that a director who uses it as working capital should wear it.
Everything else a company owes the ATO – income tax, for instance – stays with the company.
How a notice arrives, and why the address matters
A director penalty notice is posted to the address ASIC holds for you as a director. Not your accountant, not the company's trading address, not where you actually live if those have drifted apart.
The 21 days run from the date on the notice, not from the day you read it. A notice sent to an address you left three years ago is still effective, and the clock has been running the whole time it sat in someone else's letterbox. This is the single most common way directors lose their options, and it is entirely preventable: keep your details current with ASIC. Our post on director ID covers the related obligations.
What happens next depends on what was reported
Broadly, there are two situations.
Where the company reported its obligations on time, a director generally still has choices when a notice arrives: pay the debt, or put the company into voluntary administration, small business restructuring or liquidation within the 21 days.
Where it did not report, those choices generally close, and paying the amount is usually the only way to remove the liability. Appointing an administrator at that point does not undo it.
That is the shape of it. The detail – what counts as reporting on time, which deadline applies to which debt, and what happens in between – differs by debt type and has changed more than once. Super in particular works differently again since payday super started on 1 July 2026. Whether options remain in a specific case turns on dates, so it is not something to work out from a web page.
The practical consequence is worth stating plainly, though: lodging on time protects you even when you cannot pay. A BAS lodged without payment keeps your options open. The same BAS left unlodged closes them, and does so quietly, months before anyone sends you anything.
If you are becoming a director
Taking on a directorship means taking on what is already there. A new director can generally become liable for obligations that arose before their appointment, after a grace period of about a month from being appointed.
Before you sign anything, find out whether the company's lodgments are up to date and whether there is unpaid super. Those two questions tell you most of what you need to know, and they are much easier to ask now than to litigate later.
If you are leaving
Resigning does not clear liability for obligations that arose while you were a director. It stops the clock on new ones; it does not rewind it.
If a notice has arrived
Do not put it aside. Twenty-one days is short, several of the options on the table take time to arrange, and the difference between acting on day 10 and day 22 can be the difference between a company problem and a personal one.
Ring us on (02) 9386 0500 or get in touch. If you are behind on lodgments or super and no notice has arrived yet, that is a much better time to call – there is more that can be done before a notice than after one.
This page explains how the regime works in general terms. It is not advice on your situation, and director penalties are an area where the specifics genuinely decide the outcome.