Under changes passed by Federal parliament, directors can now be held personally liable where entities fail to pay GST, luxury car tax (LCT) and the wine equalisation tax (WET).This extends the existing director penalty regime which applies to non-payment of PAYG tax and superannuation.
The director penalty regime allows the Tax Commissioner to make an estimate of amounts owing by entities and when it remains unpaid, require directors to pay it themselves. In the case of GST, LCT and WET liability the Tax Commissioner has released a Practical Compliance Guidance which sets out how it will apply its far reaching powers.
The ATO has stated that they will only apply the estimate powers where they suspect phoenix activity, that is, where there is evidence of directors cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements. The Guidance sets out a process the ATO will apply including how estimates can be challenged by directors and entities.
The AICD opposed the introduction of the legislation, we argued it was inappropriate, without a compelling justification, to expand personal liability for all directors rather than targeting those criminals and companies engaged in misconduct. We also made extensive suggestions on the drafting of the Practical Compliance Guidance many of which were picked up in the final version, which was pleasing.
While the changes to the director penalty regime are intended to only apply to phoenix activities, directors would be well advised to satisfy themselves on compliance arrangements in place within their entities around payment of these obligations.