The ATO is ramping up its debt collection efforts in 2025, with a focus on taxpayers who repeatedly refuse to engage with them.[1] The Federal Government is supporting the ATO’s efforts by allocating $999.00 million of the federal budget to extending and expanding tax compliance activities.[2] The amount of collectable tax debt owing has increased by 5.2% from $50.2 billion at 30 June 2023,[3] to $52.8 billion at 30 June 2024.[4] ATO Commissioner Rob Heferen in his opening statement to the Senate Economics Legislation Committee highlighted that just 22,000 taxpayers are responsible for $11 billion of the total tax debt, which means about 1% of debtors owe 20% of the total.[5]
The ATO is prepared to act. For non-compliant taxpayers, the consequences can be serious with the ATO aggressively issuing Director Penalty Notices (DPNs) and initiating winding-up proceedings.[6]
While DPNs and winding up proceedings can have significant impacts, there are ways to address them. This article outlines the options and alternatives available to directors that find themselves the subject of recovery action by the ATO.
Before we turn to the steps which can be taken, we provide a brief overview of DPNs and winding up proceedings.
Director penalty notices
In 2023-24 there were 26,702 DPN’s issued by the ATO.[7] If you are a company director, understanding what a DPN is and what it means for you is more important than ever.
A DPN is a notice from the ATO which makes a director personally liable for a company’s tax debts including:
- pay as you go withholding (PAYGW);
- goods and services tax (GST); and/or
- super guarantee charge (SGC).
There are two types of DPNs which may be issued.
1. If a company’s debts are unpaid but reported within 3 months of the due date for PAYGW or net GST debt, or for SGC debt by the due date of the SGC statement, a “non-lockdown DPN” may be issued. If a non-lockdown DPN is issued, the director has 21 days to avoid personal liability by either
a. paying the debt in full;
b. appointing an administrator
c. appointing a small business restructuring practitioner; or
d. beginning to wind up the company.
2. If a company’s debts are unpaid but not reported on time or at all a “lockdown DPN” may be issued. If a lockdown DPN is issued, the director can only avoid liability by paying the debt in full within 21 days.\
There are limited circumstances in which a Court will be satisfied that a director has a defence to a DPN. However, a defence may be established if a director can prove that for the entire period since the debt arose:
- they did not participate in the management of the company due to illness or for some other good reason;
- they took all reasonable steps (or there were no reasonable steps which could be taken) to ensure the debt was paid, an administrator or small business restructuring practitioner was appointed, or winding up began; or
- for SGC and GST debts only, they treated the Superannuation Guarantee (Administration) Act 1992 or the GST Act as applying in a way that was reasonably arguable and took reasonable care in applying that Act. [8]
Winding up
The ATO may also take legal action to recover tax debts. If the ATO intends to wind up the company, you may be served with a statutory demand which details the tax debt and requests payment within 21 days. If you do not comply or apply to set aside the statutory demand aside within the 21 days, the ATO is entitled to presume the company is insolvent[9] and apply to wind it up.
You can apply to set aside a statutory demand on the basis that:
- there is a genuine dispute as to the existence or amount of the debt;
- the company has an offsetting claim;
- there is a defect in the demand and substantial injustice will be caused if it is not set aside; or
- there is some other reason why the demand should be set aside.[10]
However, it is unlikely that such a reason will exist with respect to a tax debt owed to the ATO. Therefore, if a statutory demand is not complied with, it is likely that the ATO will commence proceedings to wind up the company.
Even if a hearing has been listed, it’s not too late, you may still request an adjournment or oppose the making of a winding up order before it is made.
Options and alternatives available to directors
If a non-lockdown DPN has been issued (remembering that if a lockdown DPN has been issued, personal liability can only be avoided by paying the debt in full within 21 days), or if winding up proceedings have been commenced, the options available to a director include:
- Small Business Restructuring (SBR): If a small business restructuring practitioner is appointed (which may only occur if the company’s has liabilities of less than $1 million), the director will remain in control of the company while it undergoes a restructure. The key to creditors accepting a proposed restructuring plan is the involvement of an experienced SBR practitioner who understands the company’s situation and is up to date with the focus of the ATO and any other major creditor. Directors need to be proactive in providing the SBR practitioner with any requested information and work with them to submit an appropriate proposal as they will only have one opportunity to submit a plan for consideration by creditors.
- Administration: If an administrator is appointed, the administrator will take control of the company and try to deal with its affairs in a way which avoids winding up. This is commonly achieved through a Deed of Company Arrangement, which is an agreement between the company and its creditors.
- Liquidation: The company may be liquidated either voluntarily (by vote of the company’s shareholders) or by allowing any winding up proceedings to continue.
It should be noted that if winding up proceedings have already been commenced and the company wishes to undergo SBR or enter administration, an application will need to be made to the court to adjourn any proceedings.
Key takeaways
There is a substantial amount of tax debt that must be recovered. The ATO is targeting taxpayers that are deliberately avoiding their debts, so it is crucial that if you receive correspondence from the ATO you respond appropriately and in a timely manner to avoid further action being taken against you.
If a DPN has been issued, or winding up proceedings have been commenced, there are still options available to directors who should promptly seek insolvency advice to help navigate the situation.
[1] Opening Statement of Commissioner to Senate Economics Legislation Committee, 26 February 2025 <https://www.ato.gov.au/media-centre/commissioners-opening-statement-senate-economics-legislation-committee-26-february-2025> (Commissioner’s Opening Statement).
[2] Budget Measures – Budget Paper No. 2, 25 March 2025, p. 7.
[3] Commissioner of Taxation, Annual Report 2022-2023 p. 13.
[4] Commissioner of Taxation, Annual Report 2023-2024 p. 22.
[5] Commissioner’s Opening Statement (n 1).
[6] Commissioner’s Opening Statement (n 1).
[7] Commissioner of Taxation, Annual Report 2023-2024 p. 22.
[8] Taxation Administration Act 1953 (Cth) s 269-35.
[9] Corporations Act 2001 (Cth) s 459C(2)(a).
[10] Corporations Act 2001 (Cth) ss 459H(1), 459J(1).
