A director penalty notice loan is funding used to pay a company’s overdue tax liability so a director is no longer personally exposed to the matching penalty. The ATO issues a director penalty notice (DPN) before it can recover director penalties, and the notice starts a 21-day clock. Paying the company debt in full is the one response that works whichever way the liability was reported.
This page sticks to the ATO’s published position. For the broader picture, see tax debt loans.
What is a director penalty notice?
A DPN is a notice the ATO must give a director before it can take action to recover director penalties. The ATO says that where a company does not pay certain liabilities by the due date, it can recover the amounts from the directors personally.
The liabilities covered are:
- PAYG withholding amounts.
- GST, including luxury car tax and wine equalisation tax.
- Super guarantee charge.
If you are the director of a company with any of those debts, a DPN is one of the ATO’s firmer actions alongside garnishee notices and credit reporting. The penalty equals the unpaid amount, so a company debt of a given size creates a director penalty of the same size.
How long do you have after a DPN arrives?
You have 21 days. The ATO says the 21 days start on the day it posts the notice or leaves it at the address registered with ASIC. That can be earlier than the day the letter actually reaches you, so read the date on the notice first.
If the penalty is not remitted within that window, the ATO may take action against you to recover the amounts. Our guidance is practical, not legal: note the date, work backwards, and decide in the first few days rather than the last.
What can end the penalty within 21 days?
Four steps can remit a penalty within 21 days, depending on how the liability was reported. They are:
| Step | What it means | Works when |
|---|---|---|
| Company pays in full | The overdue company liability is paid | Always |
| Administrator appointed | The company enters voluntary administration | Liability reported on time |
| Small business restructuring practitioner appointed | The company starts a small business restructure | Liability reported on time |
| Company wound up | The company begins to be wound up | Liability reported on time |
The ATO’s timing rule is the key detail. For PAYG withholding and GST reported within three months of the due date, and super guarantee charge reported by the due date, all four steps are open. Where the liability is reported after three months, or never reported, the director penalty can only be remitted by paying the corresponding company liability in full. Estimated amounts of PAYG withholding and GST are treated as never reported.
That is why a DPN loan exists. When the other three paths are closed or unwanted, paying is the path that remains.
How does a director penalty notice loan clear the penalty?
A loan clears a director penalty by paying the company’s liability in full, so the penalty is remitted. The funds are paid to the ATO, not to you, using the payment details on the company’s account.
Two common structures:
- Company borrower. The company borrows, with a director guarantee and often a director-owned property as security. Funds clear the ATO account.
- Director borrower. A director borrows against a property they own and lends or contributes the money to the company, which pays the ATO.
Property-secured funding commonly runs from $20,000 to $5,000,000. Funding can be possible within 24 hours in some approved private-mortgage scenarios when the documents, the security and the exit are ready; many take a few business days. Private mortgage options may not need business cash-flow records at the first assessment, which suits a company that has fallen behind on its books. Bad credit can be considered, particularly where there is suitable property security.
For speed, see fast second mortgages and caveat loans.
What should you have ready for a DPN file?
Bring the notice and the numbers. A short checklist saves days.
- The DPN itself, showing the date it was issued.
- The ATO’s payout figure, split by liability type, with a payment date.
- Photo ID for each director and anyone on the property title.
- The address of the security property and the existing loan statement.
- A two-sentence exit: how the loan is repaid and when.
- Company details: ACN, directors, and who will sign.
If statements are unlodged, lodge them. The ATO says director penalties can apply to estimates, so an accurate lodgment can change the amount. Lenders also prefer a confirmed figure over an estimate.
Illustrative example: a withholding debt and a 21-day notice
Illustrative example: a building company with two directors owes $160,000 in PAYG withholding that was never reported. A DPN arrives, and the directors learn that the unreported amount can only be remitted by paying the company liability in full. One director owns a home with good equity and a first mortgage.
A $175,000 second mortgage is arranged over the home. The funds are paid to the ATO on day 12 of the 21, the penalty is remitted, and the balance of the loan covers costs and the next BAS. The company lodges on time afterwards and refinances into a bank loan a year later. Figures are round and the business is invented.
Do you have to borrow, or are there other ways?
You do not have to borrow. The ATO lists the administrator, small business restructuring practitioner and winding-up steps as alternatives where the liability was reported on time. Each ends or reshapes the company’s existence and is a professional matter for an insolvency practitioner, not a lender.
The ATO page also lists defences a director may be able to raise, such as not taking part in management through illness, taking all reasonable steps to prevent non-payment, or reasonable care in applying tax laws. If you think you have a valid defence, the ATO asks you to contact it as soon as possible. Funding is for directors who want the debt cleared and the business kept going.
If you would rather see how a plan compares, ATO payment plan versus business loan puts both on one table. Be aware that a long plan does not remit a penalty within 21 days on its own terms, so confirm with the ATO what it will accept.
Does the company need to keep trading after the penalty is cleared?
That is the usual aim. Clearing the liability removes the personal exposure and lets the business carry on, but only if it can handle the repayment of the new loan. Lenders will ask what the company earns, what the loan costs to service and when it can be refinanced.
Be realistic about that conversation. If trading has stopped or cannot recover, a loan only delays an outcome and puts the director’s property on the line. An insolvency practitioner can advise on the other steps listed above. If the business is sound and the debt was a cash-flow squeeze, funding is a sensible way to keep it alive.
How do you stop it happening again?
Stopping a repeat is about the cycle of withholding, GST and super. Most DPN files trace back to money meant for tax being spent on trading. Practical fixes:
- Move a fixed share of each pay run’s withholding into a separate account.
- Do the same with GST each week.
- Pay super on its quarterly due date, the 28th of the month after the quarter ends.
- Lodge BAS on time even when you cannot pay.
Our guide to loans to pay BAS, GST and PAYG debt covers each obligation, and loans for tax debt explains the loan side.
Ready to move?
If a DPN is on your desk, time is the scarce thing. Put the notice, the payout figure and the security address into the quick application and we will help match you with a route that can fit inside the window. Apply now or call 03 4059 1829.
Start with one application
Fast private money costs more than a bank loan, so it is for when clearing the debt quickly is worth the difference. The application takes a few minutes, a person reads it the same business day, and you will hear early whether the timing works. Send your application with the DPN date so we can plan backwards from day 21.