Director Penalty Notice Regime – New Measures to Combat Illegal Phoenixing
What has happened?
The Federal Government’s package of reforms aimed at addressing illegal phoenix activity are now law. One of the more significant measures under the reforms is the extension of the Director Penalty Notice (DPN) regime to include GST, luxury car tax and wine equalisation tax. The new DPN regime will commence from 1 April 2020.
This means that directors can now be personally liable to the ATO when a company fails to remit PAYG, Superannuation, GST, luxury car tax and wine equalisation tax.
Why did this happen?
In 2018, as part of the federal budget, the government introduced a package of reforms aimed at addressing illegal phoenix activity. Illegal phoenix activity occurs when assets of a company are stripped and transferred to another entity that is controlled by the same director, for little or no consideration. The main purpose of these transactions is to attempt to avoid payment of accumulated company debts.
The Government was advised that the direct annual cost to businesses, employees owed entitlements including superannuation, contractors and the ATO as a result of illegal phoenix activity is between $2.85 billion and $5.13 billion each year.
How will the DPN regime work?
If the company does not meet its tax obligations, the ATO can issue a DPN against the directors of a company and impose a penalty that is equal to the amount of the company’s unpaid liability.
Under the new laws, the Commissioner of Taxation can now collect estimates of anticipated unpaid taxes and superannuation even if a company does not lodge their BAS or SGC Statement. The new laws also allow the Commissioner to retain a refund to a taxpayer that has other outstanding lodgements or information that needs to be provided.
Going through a restructure or winding up of your business?
If you’re going through a legitimate restructure or winding up of your business, we can organise to ensure that all the legal requirements are met with the relevant authorities. Contact our office to discuss further.