Director of a company? Beware of additional penalties!
The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 has been passed in the senate, which can have potential consequences on directors of companies. The bill allows the Commissioner of Taxation to estimate future GST liabilities and make directors personally liable for the debt in certain circumstances.
This is the case when the Commissioner believes that the taxpayer or related entities are involved in phoenix behaviour or are placing company property in a creditor-defeating disposition. Fraudulent phoenix activity is where a company carries on a business, accumulates debts (without any intention of repayment) and then liquidates to avoid repaying them. The business then continues to trade in another company, which is controlled by the same person. Whilst a creditor-defeating disposition is where company property is sold for less than market value and the sale of the property has the effect of preventing the property from becoming available for creditors in the winding-up of the company.
Prior to the new bill being passed, the Commissioner had the ability to hold company directors personally liable for outstanding and estimated PAYG withholding and superannuation guarantee liabilities. Following the amendments to the bill, this has now been extended to GST liabilities, including luxury car tax and wine equalisation tax. Where a company has not lodged a return, the Commissioner may estimate the liability and deem the taxpayer liable for the amount even though no actual assessment has been made.
According to the Explanatory Memorandum, the amendment is likely to add an additional $5 million to the budget in the 2020 financial year and up to $20 million in 2022.
In light of the above, it is important to understand your obligations if you are currently a director of a company or planning to become a director.