DPN defences: what actually works (and what never does)

The three statutory defences, in plain English

The defences sit in the tax law's director penalty provisions (section 269-35 of Schedule 1 to the Taxation Administration Act). To succeed, you generally need to make the defence out for the whole period the obligation was unmet — not just the week the debt fell due.

1. Illness or non-participation. Because of illness "or some other acceptable reason", you did not take part in the management of the company — and it would have been unreasonable to expect you to. Both halves matter. A heart attack in the relevant quarter isn't enough if you were back approving payments a fortnight later; a long absence isn't enough if you chose to stay hands-off while healthy.
2. All reasonable steps. You took all reasonable steps (or there were none you could have taken) to make one of four things happen: the company paid the debt, or an administrator, small business restructuring practitioner or liquidator was appointed. Note what the steps must be directed at — payment or an insolvency appointment. Steps directed at anything else (chasing invoices, cutting costs, hoping) don't count by themselves.
3. Reasonably arguable position (SGC, and GST). For superannuation guarantee charge — and, since the regime was extended, net GST amounts — it's a defence that the company took a position that was reasonably arguable to be correct under the law, with reasonable care. The classic example is a genuine, well-documented dispute about whether a worker was an employee or a contractor for super purposes. See superannuation guarantee charge for how these debts arise.

Why "I trusted my accountant / my co-director" fails

The ATO's guidance says it in one line: it is not a defence that you relied on others — including fellow directors and professional advisers. The whole point of the regime is that every director personally carries the duty to ensure PAYG withholding, GST and super are paid or the company is put into an insolvency process. Delegating the bookkeeping is normal business; delegating the responsibility is not legally possible.

The same logic defeats the other common scripts: "I was only a director on paper", "my spouse ran the business", "I never saw the accounts". Choosing not to look is treated as a failure to take reasonable steps, not an excuse. Silent and figurehead directors are exactly who the regime is designed to reach — if that's your situation, read former, new and de facto directors as well.

What evidence actually persuades

Defences are decided on documents far more than on sincerity. What tends to matter:

• For illness/non-participation: contemporaneous medical records covering the whole relevant period; evidence someone else genuinely ran the company (board minutes, bank signatories, correspondence that excludes you); evidence explaining why stepping in was unreasonable — not merely difficult.
• For all reasonable steps: a paper trail showing you actively pushed for payment or an appointment — board minutes raising the tax debt, written instructions to pay the ATO, quotes or engagement letters from insolvency practitioners, funding applications, and evidence of what blocked each step. Dates are everything: the steps must track the period the debt was accruing, not begin when the DPN arrived.
• For reasonably arguable position: advice obtained before the position was taken, the analysis relied on, and evidence of reasonable care — not a rationalisation constructed after the notice.

How a defence is actually raised

There's no formal "defence application" that automatically cancels a DPN. In practice defences surface in two ways:

• To the ATO in writing. You (usually through an adviser) put the defence and its evidence to the ATO and ask it not to pursue the penalty. The ATO can accept a properly evidenced defence at this stage — it saves everyone a court case — but it is under no obligation to.
• In recovery proceedings. Formally, the defences exist as defences to the ATO's court proceedings to recover the penalty. If the ATO sues, you plead and prove the defence there — with the burden of proof on you, to the civil standard.

A defence also doesn't touch the underlying company debt or any other exposure — it only answers your personal penalty. Whether the company debt itself can be challenged is a separate question; see disputing an ATO debt, especially where the amounts rest on ATO estimates or a default assessment.

Realistic prospects — an honest note

Most DPN defences fail. The courts apply them strictly, and the fact patterns that succeed are narrow: genuinely incapacitating illness with a clean paper trail, or directors who demonstrably fought for payment or an appointment and were defeated by things outside their control. That doesn't make a defence pointless — a credible, well-evidenced defence has real settlement value even short of a court win — but it does mean a defence should be one option weighed against the others (payment, negotiation, restructuring, or personal insolvency at the far end), not a plan on its own. None of this is legal advice; whether a defence is arguable on your facts is exactly the question to put to a professional early. If you're not sure what kind of help you need, start with what's my situation?