Changes to director GST liability set for debate

Parliament is set to consider a bill containing measures aimed at countering illegal phoenix activities, including holding directors liable for their company’s GST, LCT and WET liabilities.

The bill, which lapsed with the calling of the federal election earlier this year, has been reintroduced by the government and will be set for debate in the House of Representatives this week.

There are four measures in the bill, including new offences to prohibit creditor-defeating dispositions; to prevent directors from improperly backdating resignations or ceasing to be a director when this would leave the company with no directors; to extend the estimates and director penalty regimes to GST liabilities, including the Luxury Car Tax (LCT) and the Wine Equalisation Tax (WET); and to authorise the commissioner to retain tax refunds where a taxpayer has failed to lodge a return or provide other information.

The Senate Standing Committee on Economics had previously recommended that the bill be passed, despite submissions from key industry bodies pointing out existing provisions and the need to enforce them.

Should the changes pass, directors will be held liable for GST, LCT and WET liabilities, on top of the current estimates and director penalty regimes for PAYG withholding and superannuation guarantee liabilities.

Further, directors will also not be allowed to resign from a company if doing so would leave the company without a director.

If the resignation of a director is reported to ASIC more than 28 days after the purported resignation, the resignation takes effect from the day it is reported to ASIC.

The changes aim to curb illegal phoenix behaviour by preventing directors from improperly backdating resignations and from shifting accountability to a “straw director” who has no real involvement in the company.

GST liabilities

Should the bill pass in its current form, the Commissioner of Taxation will be allowed to collect estimates of anticipated GST liabilities and make company directors personally liable for their company’s GST liabilities in certain circumstances.

The extension of the director penalty regime is estimated to rake in $40 million over the forward estimates period.

RSM senior manager Tracey Dunn said advisers should look to inform clients who may not be aware of the obligations as a director, including small businesses where a spouse or family member has been appointed as a director and is not actively involved in the business.

“Advisers who are aware of clients who may not fully understand their obligations as a director, including exposure to the DPN regime should take the opportunity to be proactive and provide the necessary advice and support to ensure clients both understand and have processes in place, to ensure they meet their obligations,” said Ms Dunn.

‘Enforce existing legislation’

While it broadly supported the proposed reforms to combat illegal phoenix activity, Chartered Accountants Australia and New Zealand (CA ANZ) considered that this outcome “could have been achieved via amendments to existing laws rather than new, highly complex legislation”.

Likewise, the Australian Institute of Company Directors (AICD) said that while it supported the intent of the bill, it “[encouraged] the prioritisation of enforcement of relevant laws, and adequate resourcing of ASIC to facilitate this, ahead of complex and potentially duplicative new provisions in legislation”.

The Australian Restructuring Insolvency and Turnaround Association (ARITA) pointed out existing provisions but said there was insufficient focus on enforcement action to deter such activity.

Labor Senators Chris Ketter and Jenny McAllister echoed those views, calling for the bill not to be debated in the short time remaining in this term of the Parliament in order to provide time to improve the legislation.