Combating illegal phoenixing and increasing director's personal liability.
The days following the Federal Budget being released there’s always a flurry of articles and publications on the changes relevant to individuals, industries and audiences. Traditionally, as you’d expect, the commentary and snippets of information is centred on tax relief, spending cuts, innovation, and research and development (R&D). But what about insolvency matters? And we don’t mean the context of returning to a surplus…
This year’s budget report is set to ruffle some new feathers by introducing concepts that protect existing tax liabilities—by getting them paid with new measures. The Government has taken this opportunity to further tackle illegal phoenix activity, which poses an enormous threat to tax evasion but critically and principally to other creditors being the business community at large and Australians employed across all industries and professions. Illegal phoenix activity is the unscrupulous act of deliberately transferring business assets from one related entity to another for less than proper consideration to the detriment of legitimate creditors and employees. These budget measures include:
- Introducing new phoenix offences that specifically target those who participate or facilitate illegal phoenix activity.
- Preventing directors from back-dating director resignation documents (designed to circumvent that director from being personally liable for their responsibilities).
- Preventing directors from resigning or leaving a company with no director to control the company’s affairs (abandoning it for the same objective above, but also at another taxpayer expense to have ASIC wind it up).
- Restricting the ability of related-party creditors from controlling the outcome of external administrations.
- Extending the current director’s penalty regime from just group tax and superannuation, to include GST, luxury car tax, and wine equalisation tax (making director’s personally liable to pay those tax debts).
- Allowing the ATO to retain refunds where there are outstanding tax lodgements.
As to the effect of these measures to combat illegal phoenix activity, only time will tell.
To assess purely on the tax revenue potential—in terms of increasing the ability to be paid—ABC News reports that in the next financial year, sales taxes for those now included in the DPN regime will be:
- GST $69.26 billion
- luxury car tax $740 million
- wine equalisation tax $990 million.
The Government is clearly not talking about small sums here!
It’s also interesting to note, or infer, on the correlation between the new DPN measures above and the ATO’s increasing sophistication of its data matching program, which looks at taxpayer’s transactions around luxury cars, boats, real estate etc.
As recognised by many policy-makers and industry bodies, the role of liquidators in combating illegal phoenix activity is an important one, in conjunction with ASIC’s role as both regulator and funder. Much will continue to depend, outside of the budget, on liquidators being funded to carry out their investigations into such activity that enables reports to be made to ASIC, for it to consider prosecuting those involved.
However, the ABC News also reports that ASIC’s funding will be reduced by $28 million over the next three years.
It will be interesting to see how these factors will ‘recalibrate’ the economy and specifically, the insolvency industry’s black hole of illegal phoenix activity.