The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 received assent on 17 February 2020. The legislation includes a range of measures targeting illegal phoenixing including penalties for directors related to GST liabilities (making directors personally liable for unpaid GST if the unpaid liability is not paid within 21 days of a director penalty notice being issued) and retaining tax refunds.
The legislation, which lapsed at the dissolution of Parliament in the lead up to the last federal election but was revived months later, had been the topic of much debate in the lead up to its expected enactment last October.
The bill’s aim is to combat phoenixing by opportunistic, systematic directors where the directors are involved in such activities as moving assets from one company to another. Schedule 3 to the bill allows the Commissioner to collect estimates of anticipated GST liabilities and make company directors personally liable for their company’s GST liabilities in certain circumstances. This also applies to LCT and WET as these taxes are jointly administered with the GST.
The “estimates” regime enables the ATO to estimate unpaid amounts and to recover the amount of those estimates from taxpayers. The new legislation extends this regime to include GST.
As well as directors possibly facing personal liability, the options available to the ATO under its director penalty regime includes garnishee proceedings to recover amounts owed, offsetting amounts owed against any other tax credits, and initiating legal recovery proceedings. Before any of such actions are taken, the ATO is obliged to issue a “director penalty notice” outlining the unpaid amounts and remission options open to the concerned directors.
The ATO will be able to issue notices of estimated net amounts of GST to businesses that have not lodged a return. The estimation will then be due at the GST lodgement due date unless this is over-ridden by an actual GST amount through the lodgement of the overdue return. Estimates may be reduced if sworn statements are provided, although there may be some discretion in this area.
As with the other categories of director penalties, the penalty arises when the director’s obligation is unsatisfied on the due date, in this case, the day the company is required to pay the assessed net amount or GST instalment. The legislation also adds an ability for the ATO to retain tax refunds if a return is not lodged or other relevant information is not provided.