Defences to a director penalty notice

The law allows three defences to a director penalty notice (DPN): you did not take part in managing the company because of illness or another acceptable reason; you took all reasonable steps to make sure the company paid, appointed an administrator or small business restructuring practitioner, or began to be wound up; or, for super guarantee charge and GST only, the company took reasonable care and applied the law in a way that was reasonably arguable. The defences are narrow, you need evidence to support them, and you must put them to the ATO in writing.

The three defences at a glance

1. Illness or another acceptable reason

This defence covers a director who could not take part in managing the company, for example because of serious illness during the relevant period. It is not enough to have been an inactive or “silent” director by choice. You must show both that you did not take part, and that it would have been unreasonable to expect you to.

Evidence usually includes medical records covering the relevant dates, and anything showing who was running the company while you were unable to.

2. All reasonable steps

This defence asks what you actually did. You must show that you took all reasonable steps to bring about one of four outcomes: the company paid the debt, an administrator was appointed, a small business restructuring practitioner was appointed, or the company began to be wound up. If there were no reasonable steps you could have taken, that can also satisfy the defence.

Two points come up often:

• Relying on others is not enough. The ATO points to court decisions holding that relying on fellow directors or professional advisers does not, on its own, meet the test.
• A payment plan is not one of the four outcomes. Arranging a payment plan may be relevant to what you did, but it is not one of the outcomes the defence refers to.

Useful evidence includes board minutes, emails or letters pressing the company to pay or to seek advice, records of insolvency advice you obtained, and cash flow information showing what the company could afford at the time.

3. Reasonably arguable position (super guarantee charge and GST only)

This defence applies only to unpaid super guarantee charge and GST. It covers situations where the company took a position on how the law applied, for example on whether workers were employees for super purposes or how GST applied to a transaction, and that position was reasonably arguable and reached with reasonable care. It does not apply to PAYG withholding.

Evidence usually includes the advice the company relied on, and records showing how it reached its position.

What is not a defence

• Resigning. It does not remove your liability for amounts that fell due while you were a director, and it does not reduce the penalty. See our director penalty notice guide.
• Not knowing about the debt. Directors are expected to know whether the company is meeting its tax and super obligations.
• Not receiving the notice. The ATO only needs to post the DPN to your address on the ASIC register. See how to count the 21 days.
• Leaving it to your accountant or co-director. As above, reliance on others is not enough by itself.

How to lodge a defence

1. Put it in writing. State clearly which of the three defences you rely on, and set out the facts and evidence.
2. Send it to the ATO. Your tax agent can lodge it through Online services for agents, or you can post it to the ATO’s Technical Leadership and Guidance team at PO Box 327, Albury NSW 2640.
3. Watch the 60-day window. You can raise a defence at any time, but to keep the right to have the ATO’s decision reviewed by the courts, lodge it within 60 days of receiving a garnishee notice, or something in writing showing the ATO has recovered part of the penalty.

If the ATO accepts that a defence applies, you do not have to pay the penalty. The defences apply to both lockdown and non-lockdown amounts.

Do not let a defence replace action within the 21 days

A defence takes time to prepare and is decided by the ATO, so the outcome is uncertain. If your notice is non-lockdown, the four remission options are only available within the 21 days. Consider those options at the same time as any defence, rather than relying on the defence alone. See what happens if you ignore a DPN.

Common questions

What are the defences to a director penalty notice?

There are three: you did not take part in managing the company because of illness or another acceptable reason; you took all reasonable steps to make sure the company paid, appointed an administrator or small business restructuring practitioner, or began to be wound up; or, for super guarantee charge and GST only, the company took reasonable care and applied the law in a reasonably arguable way.

Is relying on my accountant or co-director a defence?

No. The ATO points to court decisions holding that relying on fellow directors or professional advisers does not, on its own, meet the reasonable steps test.

Does resigning give me a defence?

No. Resigning does not remove your liability for amounts that fell due while you were a director, and it does not reduce the penalty.

Do the defences apply to lockdown DPNs?

Yes. The defences apply to both lockdown and non-lockdown amounts, even though only payment remits a lockdown penalty.

How do I lodge a DPN defence?

In writing to the ATO, stating clearly which of the three defences you rely on. Your tax agent can lodge it through Online services for agents, or you can post it to the ATO’s Technical Leadership and Guidance team at PO Box 327, Albury NSW 2640.

Is there a time limit for raising a defence?

You can raise a defence at any time, including if the ATO takes legal action. To keep the right to have the ATO’s decision reviewed by the courts, lodge it within 60 days of receiving a garnishee notice, or something in writing showing the ATO has recovered part of the penalty.

Sources: Taxation Administration Act 1953 (Cth) Schedule 1, section 269-35; Administrative Decisions (Judicial Review) Act 1977 (Cth); Australian Taxation Office, Director penalty regime (last updated 16 April 2026), including the court decisions it cites on reliance on others and resignation. This page is general information, not advice about your circumstances. Last reviewed: 9 October 2026.