Company directors can set up a payment plan for a Director Penalty Notice (DPN), but it doesn’t remove personal liability—especially for lockdown DPNs. The ATO applies rules, including upfront payments, direct debit, and full financial disclosure. Acting early, staying compliant, and proposing a realistic plan are critical to avoiding enforcement action.
Pre-read: This guide is most suitable for directors of Australian companies only. Halo Advisory only works for directors and not creditors.
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On This Page
- 2026 Updates: What Changed
- Can You Set Up a Payment Plan for a DPN?
- Lockdown vs Non-Lockdown Payment Plans
- How the ATO Assesses Payment Plan Applications
- Personal Payment Plans vs Company Payment Plans
- Risks of Defaulting on a Payment Arrangement
- Interest, Penalties and Ongoing Compliance Requirements
- When a Payment Plan Is Not Enough
- Practical Steps to Apply for a DPN Payment Plan in 2026
- Common Mistakes to Avoid
- Next Steps
- FAQs
2026 Updates: What Changed
The ATO has enforced the following trends and administrative practices for 2026:
Payday Super Integration
From July 1, 2026, the quarterly Super Guarantee (SG) gap will be closed. The ATO will instead use Single Touch Payroll (STP) Phase 3 data to match salary payments with super fund receipts in near real time.
Delays in super payments — including Superannuation Guarantee Charge (SGC) liabilities — will now be identified much earlier, increasing director exposure where superannuation obligations are not met.
$100k Disclosure Threshold
The ATO now routinely reports business tax debts over $100,000 that are more than 90 days overdue to credit reporting bureaus. This happens automatically where the outstanding amount of a company’s tax obligations exceeds the threshold, unless an active payment plan is in place.
Aggressive DPN Volume
After the sharp rise in DPNs during 2024–25, the ATO has become more proactive in pursuing all directors involved.
Under the current DPN regime, the ATO is increasingly targeting multiple directors, including in some cases former directors and where the law allows it, new directors, to broaden recovery options.
Can You Set Up a Payment Plan for a DPN?
Yes — a payment plan can be arranged, but it does not allow you to avoid personal liability. Here’s what you need to know:
- The 21-Day Posting Rule: The clock starts on the date of the letter, not the date of delivery. In 2026, the ATO considers the 21 days non-negotiable for GST, PAYG withholding, and other GST liabilities reported through Business Activity Statements (BAS) or Instalment Activity Statements (IAS). Missing this deadline means the director becomes personally liable under the director penalty rules.
- The 5% Upfront Mandate: For debts over $50,000, the ATO may request an upfront “good faith” payment before formalising a payment arrangement, particularly where there is prior default history.
- Digital-First Approval: Debts under $200,000 can typically be negotiated via Online Services for Business. For debts exceeding this, you must provide a Cash Flow Forecast and a Statement of Assets and Liabilities for both the company and the director.
Note: Entering into a payment plan alone does not remit (cancel) a Director Penalty Notice. Remission only occurs if the company is placed into liquidation, voluntary administration, or small business restructuring within the required timeframe (for non-lockdown DPNs). A payment plan manages repayment — it does not remove personal liability.
Lockdown vs. Non-Lockdown Payment Plans
For Non-Lockdown DPN (21-Day Window)
- Action: If your lodgements were within the relevant period (within 3 months of the due date), it will be treated as a non-lockdown DPN. In such cases, placing the company into liquidation, voluntary administration, or small business restructuring within 21 days may remit (cancel) your personal liability. A payment plan alone does not achieve remission.
- Effect: The debt remains a company debt. If the company later fails, you are generally safe from the penalty.
For Lockdown DPN (Permanent Penalty)
- Action: In a lockdown DPN, the director will remain liable for the unpaid amounts, even if the company later liquidates or the company paid part of the debt. If you lodged more than 3 months late, the director penalty is already “Locked Down.”
- Effect: A payment plan does not cancel the personal liability. You are paying down personal debt. Even if you liquidate the company, the ATO will continue to pursue you personally for the remaining balance.
- The GIC Factor: Both plans accrue the General Interest Charge (GIC), currently at 10.65% (updated quarterly). Crucially, as of 1 July 2025, GIC and Shortfall Interest Charge (SIC) are no longer tax-deductible for most taxpayers. This significantly increases the “real” cost of an ATO debt compared to previous years.
How the ATO Assesses Payment Plan Applications
- The Compliance Test: They check if all other lodgements (Income Tax, FBT, etc.) are up to date. If you have any unfiled returns, the application is unlikely to proceed until lodgements are brought up to date.
- Capacity to Pay: For debts over $100k, you must provide a Cash Flow Forecast showing the business can cover current expenses + the new instalment + future tax bills.
- Direct Debit Requirement: Most payment plans now require automated Direct Debit. If you refuse this, the application is likely to be denied.
- The Repayment Term: The ATO generally prefers shorter repayment periods, often within 12–24 months. Longer terms may be considered but usually require detailed financial evidence and, in some cases, security.
- Security Considerations: For significant debts, the ATO may request security, such as charges over property or other assets, before agreeing to extended repayment terms.
Directors may be required to obtain input from an insolvency practitioner or seek professional advice before extended terms are considered.
Personal Payment Plans vs. Company Payment Plans
A common trap in 2026 is assuming a company arrangement fully protects the individual. In reality, the ATO can pursue the director personally, even where the company is making payments.
Points to Remember
- The ATO is legally required to offset your personal tax refunds or credits against the DPN balance. You won’t see a personal tax return until the DPN is at $0.
- If the company enters liquidation, you must quickly transition to a Personal Payment Plan. The ATO will assess your personal assets (home equity, savings) just as strictly as they did the company’s.
Risks of Defaulting on a Payment Arrangement
In 2026, a default generally occurs if a payment is missed or new lodgement obligations are not met on time.
- The Effect: Once you default, the debt is moved to the “Enforcement Division.” It is hard to get a second payment plan approved after a breach.
- Automated Garnishees: The ATO often skips further warnings and issues Garnishee Notices to your bank or major customers, redirecting 30%–100% of your incoming cash flow to the debt, or move forward with legal proceedings to recover unpaid amounts.
- Credit Bureau Disclosure: Defaulting on a plan for a debt over $100k triggers an automatic notification to Credit Reporting Bodies, which can lead to your business credit cards or equipment leases being cancelled.
- Departure Prohibition Orders (DPOs): In cases of significant debt or repeated defaults, the ATO has increased its use of DPOs in 2026 to prevent directors from travelling overseas until the debt is secured or paid.
Interest, Penalties, and Ongoing Compliance Requirements
The cost of “borrowing” from the ATO has never been higher.
- Non-Deductible GIC: The General Interest Charge (GIC) is currently roughly 10.65%. Whether this interest is deductible depends on the individual’s circumstances and the nature of the underlying liability. Directors should seek tax advice for their situation.
- The “Future-Debt” Clause: Every 2026 payment plan includes a “compliance clause.” If you are late with a future Super or GST payment, the entire old debt becomes due and payable immediately.
- No Interest Remission: The ATO is significantly less likely to “waive” interest unless you can prove “extreme extenuating circumstances” (e.g., natural disaster or major health crisis).
When a Payment Plan Is Not Enough
If your cash flow cannot sustain the 10.65% interest plus the principal within 24 months, a payment plan may only delay further financial pressure.
In this case, some of your options are:
- Small Business Restructuring (SBR): This allows an eligible company to propose a restructuring plan to creditors, where only part of the tax debt may be repaid and the remaining balance is dealt with under the approved plan.
- Voluntary Administration: Used for larger companies to “pause” all recovery action—including DPN enforcement—while a rescue plan (DOCA) is formulated.
- Personal Insolvency (Bankruptcy): If a Lockdown DPN is issued and there is no way to pay, bankruptcy may be the only way to protect future earnings, though it will result in the loss of major assets.
Practical Steps to Apply for a DPN Payment Plan in 2026
Do not call the ATO without having these four things ready:
- Upfront Funds: Where possible, have funds available to demonstrate good faith, particularly if the ATO requests an initial payment.
- The “Why” Statement: A concise explanation of why the debt occurred (e.g., “Supplier collapse in Q3”) and what has changed to ensure it won’t happen again.
- The “ICA” Statement: Download your Integrated Client Account from the portal to ensure you are arguing over the correct, most recent balance.
- Lodgement Proof: Ensure your “Lodgement Dashboard” shows zero outstanding forms.
Common Mistakes to Avoid
- The “ASIC Address” Issue: The ATO sends DPNs to your address registered with ASIC. If your ASIC details are outdated, the 21-day clock can expire before you even see the letter. The ATO is not required to prove you received it, only that it was posted to the address on file.
- Waiting too long to respond: Hoping the issue will go away often makes the situation worse.
- Confusing a payment plan with a defence: A payment arrangement manages repayment — it does not automatically cancel personal liability.
- Missing the 21-day deadline: This is a costly mistake as once a DPN locks down, options become far more limited. After 21 days, directors can be held personally liable for unpaid company tax and superannuation debts.
- Lodging unrealistic repayment proposals: Offering amounts you can’t sustain often leads to default and stricter enforcement later.
- Ignoring ongoing compliance: Even while negotiating, all future BAS, SGC, and GST obligations must stay up to date.
- Failing to seek advice early: Directors sometimes commit to arrangements without fully understanding whether remission or other strategies were still available.
- Transferring assets in panic: Attempting to move or protect assets without advice can create serious legal consequences.
Next Steps
Understanding whether your Director Penalty Notice is lockdown or non-lockdown remains critical, as this determines whether you are managing repayment or still have remission options available.
For company directors considering a payment plan, the next step is to:
- identify the type of DPN issued
- confirm whether the 21-day deadline has passed
- review the total company debts, including the outstanding amount and whether the debt can be paid in full
- bring all outstanding BAS, SGC, and GST lodgements up to date
- assess realistic repayment capacity based on cash flow and personal income
- prepare accurate financial information before approaching the ATO
Engaging early and submitting a structured, realistic proposal improves the likelihood of approval and reduces the risk of enforcement action.
Seeking professional advice at this stage can help you protect your financial position while negotiations are underway.
At Halo Advisory, we work for the director. Financial expert Greg Bartels offers a no-obligation, confidential conversation to help you understand where you stand, what risks exist, and what options are realistically available before deadlines reduce control. Get in touch today.
FAQs
What is the maximum time for ATO payment plan?
There is no fixed maximum, but the ATO generally prefers debts to be cleared within 12 to 24 months. Longer terms may be considered if you can provide strong financial evidence and demonstrate genuine hardship.
How can a Director Penalty Notice be remitted?
A DPN can only be remitted if it is non-lockdown and the company enters liquidation, voluntary administration, or small business restructuring within 21 days of the notice date. A payment plan alone does not cancel the penalty.
What is the 6-year ATO rule?
The “6-year rule” usually refers to record-keeping requirements — businesses must generally keep tax records for at least five years. It does not mean the ATO cannot review or pursue older debts in certain circumstances.
Can I be chased for a 2-year-old debt?
Yes, directors may remain personally liable for company tax debts incurred over the entire period.
A two-year-old tax debt is well within the ATO’s recovery window, and they can continue pursuing payment through standard enforcement processes.
What is the ATO tax debt write-off for small businesses in 2026?
There is no automatic tax debt “write-off” for small businesses. In limited cases, interest may be remitted or debt compromised through formal restructuring or insolvency processes.
Can the ATO go back 10 years?
Generally, the ATO prefers one active arrangement at a time. If new debt arises, it is often folded into the existing plan rather than creating a separate one.
Is the ATO payment plan worth it?
It can be worth it if it prevents enforcement action and gives you structured breathing room. However, interest continues to accrue, so it’s important to ensure the plan is realistic and sustainable.
Is the ATO payment plan worth it?
It can be worth it if it prevents enforcement action and gives you structured breathing room. However, interest continues to accrue, so it’s important to ensure the plan is realistic and sustainable.
