Author
Marcus PetrovicDirector & Head of Client Strategy
We've helped thousands of Australian business owners to deal with their Direct Penalty Notices (DPNs). The problems we find with DPNs are usually that the business owner dismisses it as a typical letter from the tax office, it doesn't get to the businesses normal advisory channels or they arrive at the registered office (often an accountant's address) but get buried in a pile of mail.
By the time you know about it, days have already passed. The 21-day window is closing. Your client is now facing a rapidly shrinking window of options.
This scenario is playing out in accounting practices across Australia with increasing frequency. Most accountants aren't prepared for it.
The problem isn't knowledge. It's that DPNs don't arrive through the normal advisory channels. They appear on a director's personal tax portal. They get buried in a pile of mail. They arrive at the registered office (often an accountant's address) but don't get forwarded immediately. By the time an accountant sees it, critical time has been lost.
There's another problem that's more serious: Many accountants don't understand what a DPN actually is, what it triggers, and when they should refer to an insolvency practitioner. Some give advice they think is helpful - like "just enter a payment arrangement" - that actually makes things worse.
In this environment, accountants who understand DPNs and the Small Business Restructuring process have a significant competitive advantage. And more importantly, they can actually help their clients avoid catastrophic outcomes.
The DPN Crisis Isn't Going Away
DPN issuance has exploded. The ATO's data matching capabilities have improved dramatically, allowing them to identify late payments and lodgement failures automatically. They're comparing BAS lodgements against payments, payroll tax withholding against receipts, superannuation contributions against lodgements.
Result: More directors are receiving notices they weren't expecting, and they're receiving them faster.
This trend will accelerate. Over the next five years, expect higher volumes, more technical DPNs for compliance issues like PAYG and superannuation, and increasingly desperate directors turning to their accountants for help.
The accountants who are prepared will retain and deepen these relationships. The ones who aren't will watch their clients disappear to insolvency practitioners, legal advisors, or worse—predatory "tax negotiators" who promise solutions and deliver fee-for-no-service arrangements.
The Misunderstanding That Costs the Most
Here's what many accountants tell their clients when a DPN arrives: "Enter into a payment arrangement with the ATO. That solves the DPN problem."
It doesn't. This advice, delivered with the best intentions, often makes things worse.
A payment arrangement is not one of the four prescribed actions that remit personal liability. What it does is create an ongoing obligation. If the company misses a single payment, the director's personal liability doesn't go away. It remains permanently.
You're essentially advising your client to bet their house on the company's ability to pay indefinitely. If the business falters, if cash flow drops, if circumstances change, the director is now personally liable for the entire amount plus any additional interest and penalties.
Many directors have fallen into this trap. They're told a payment arrangement solves the problem. They pay fees for the arrangement. They miss a payment due to cash flow issues. Then they discover they're still personally liable, and now they've used up time and money on a solution that didn't work.
The uncomfortable truth: If you recommend a payment arrangement without making it crystal clear that personal liability remains, you're creating liability for yourself and a false sense of security for your client.
Understanding the Four Options
When the ATO issues a DPN, there are only four actions that actually remit personal liability:
- Pay the full amount immediately
- Appoint an administrator
- Liquidate the company
- Appoint a Small Business Restructuring practitioner
For most clients, Small Business Restructure is the answer. It lets the director keep the business alive, reduces the tax debt through formal negotiation, and costs significantly less than the other options.
The practitioner prepares a proposal showing the company's assets, history, financial position, and what the director can realistically afford to pay. The ATO compares that offer to what they'd recover in liquidation (usually nothing). In most cases, getting 20-30 cents in the dollar interest-free over 12-18 months is better than getting zero.
The company remains operational. You support the process by providing financial information and attending monthly meetings. The business gets professional help and a clear pathway forward.
What is a Small Business Restructure?
An SBR is a formal, statutory process that allows a business to negotiate its tax debt with the ATO. It's not negotiation in the traditional sense - it's a structured, time-bound process governed by the Insolvency Act.
Here's how it works in practice.
An insolvency practitioner is appointed as a consultant. But the director remains in control of the business and operations may continue as normal. The practitioner's role is to work with the director and their accountant to prepare a formal proposal.
The practitioner prepares a detailed document that includes financial history, current financial position, a 12-18 month cash flow forecast, and a business plan showing how the company will return to health.
This proposal is submitted to the ATO within 20 business days. The ATO then has 15 business days to decide: do we accept this offer, or do we reject it?
The ATO's decision hinges on one thing: is the company offering a better outcome than liquidation? If the company were to liquidate today, what would creditors recover? So if the director offers to pay 20-50% of the debt over a timeframe, the ATO may accept that deal if they believe the company can honour the arrangement and if it provides a better return than simple closing the business.
If the ATO accepts the proposal, the company exits the restructure process and begins a the restructuring period. If they reject it, the appointment ends, and your client retains other options.
The whole process - from appointment to outcome of proposal - takes 35 business days or less.
Why accountants need to understand this
You'll be asked to provide financial information, help develop forecasts, and support the proposal. You'll also attend monthly meetings during the payment arrangement phase. This is significant involvement, but it's also a significant opportunity.
Contact Mackay Goodwin
Over the next five years, we expect more DPNs to come from the tax office. We feel Australian accountants should expect more directors reaching out in panic.
If your client has received a DPN and needs professional guidance on restructuring options, we work collaboratively with accountants to support your clients. You remain the trusted advisor. We handle the formal SBR process. Your client gets the best of both worlds.