New weapons in the war against phoenixing.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 (Bill) passed through Parliament and received royal assent on 17 February 2020.
As reported in my previous article, Combating Illegal Phoenixing Bill reintroduced into parliament the government has ramped up its attack in the ongoing war on illegal phoenix activity perpetrators. The latest laws come under a suite of legislative initiatives introduced to Parliament in recent times to combat this illegal activity, which is estimated to cost taxpayers billions of dollars annually.
The reforms are significant, including:
- restricting director resignations being backdated
- preventing directors from resigning if it leaves the company without a director
- extending the director penalty regime (DPN) to cover a company’s GST liabilities in certain circumstances
- prohibiting “creditor-defeating dispositions” of company property.
Limiting backdating of director resignations
The Corporations Act 2001 now limits the “backdating” of director resignations by providing that any late resignation lodgements to the Australian Securities and Investments Commission (ASIC) (i.e. received 28 days after the director’s resignation date) become effective from when ASIC receive the notice.
However, the director or company can apply to ASIC or the court to backdate a resignation to the “actual” effective date, and in doing so, must satisfy ASIC or the court that the director did in fact resign on the purported date.
When applying to ASIC, it must be made within 56 days of the purported resignation date. Whereas, applying to court can be made within 12 months of that date (or later if the court allows).
To prevent the “abandonment” of companies, the Corporations Act now provides that a director may not resign if the resignation would leave the company without a director.
To accommodate temporary director absences, the amendment applies at the end of the day the director purports to resign. If another director is appointed the same day as the resignation, the resignation is effective.
A single director may resign or be removed if the company is being wound up at the time.
GST estimates and director penalties
The most significant reform is the Commissioner of Taxation power to now collect estimates of anticipated GST liabilities and make directors personally liable for their company’s GST liabilities (through the DPN regime) in certain circumstances. The reforms also apply to luxury car tax (LCT) and wine equalisation tax (WET).
The DPN regime already applies to a company’s liabilities to pay as you go (PAYG) withholding amounts and superannuation guarantee charges (SGC), including estimates of both.
The Australian Taxation Office (ATO) must issue a DPN before it can use any recovery options against a director. These include issuing garnishee orders to third parties, offsetting personal tax credits against the director penalty and initiating legal proceedings for debt recovery.
If an unpaid amount of GST, WET, or LCT is reported within three months of their due date, a director has 21 days from the DPN issuance to remit (cancel) the director penalty by either:
- paying the liability
- appointing an administrator under section 436A of the Corporations Act
- causing the company to be wound up.
If the unpaid amount of GST is reported after three months of its due date or business activity statement (BAS) return is not lodged, then the only option available for remitting the penalty is by paying the liability.
The new legislation also allows the ATO to estimate the aggregate of GST amounts a company owes and issue a DPN based on that estimate.
New “phoenix” offences and civil penalties introduced
New provisions that prohibit “creditor-defeating dispositions” of company property and penalise those engaging in or facilitating such dispositions also allow liquidators and ASIC to recover the relevant property.
Notably, the new criminal offences and civil penalty provisions apply to:
- company officers who fail to prevent the company from making creditor-defeating dispositions
- other persons (e.g. professional advisors) who facilitate a company making a creditor-defeating disposition.
Reforms relating to creditor defeating dispositions and director resignations are effective from 18 February 2020 (the day after the Bill received Royal Assent).
The GST, LCT, and WET estimates and director penalties will become effective on 1 April 2020.
For further information or advice regarding these changes please contact your local Worrells Partner.
Combating Illegal Phoenixing Bill reintroduced into Parliament
Director penalty notice change to superannuation rules
ATO Hotline: another measure to prevent illegal phoenix activity