Prior to the federal election in May 2019, the Government introduced the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 to Parliament. However, the legislation was not passed prior to the election.
If the legislation is passed it will amend director penalty provisions so that Director Penalty Notices can be issued for GST, as well as Luxury Car Tax and Wine Equalisation Tax. As most businesses are liable for GST, this article focuses on the GST Director Penalty Notice proposed amendments.
Current Provisions Relating to Director Penalty Notices
The current provisions relating to Director Penalty Notices are explained here. But in summary Director Penalty Notices can currently be issued to directors for unpaid PAYG Tax and superannuation and they cannot be issued for other types of taxes.
Amendments to Director Penalty Notice Provisions
A company must lodge Business Activity Statements (or similar type lodgements) and pay GST by required due dates. Currently the only recourse which the ATO has if a company fails to pay GST is to take recovery action against the company, such as issuing a Garnishee Notice (commonly to a company’s bank) or commencing action to place the company in liquidation.
If the above legislation is passed, the ATO will be able to issue Director Penalty Notices for unpaid GST in a similar manner in which they apply to PAYG Tax. The possible effects of this will be that:
- If a company fails to pay GST but it lodges its BAS within three months of the BAS being due, the ATO will be able to issue Director Penalty Notices to the company’s directors. The directors will be able to avoid liability if the GST is paid or if the company is placed in liquidation or voluntary administration within twenty-one days of the date of the Director Penalty Notice.
- However, if a company fails to pay GST and it also fails to lodge its BAS within three months of being due, the directors will be automatically personally liable for unpaid GST and the only way the directors can avoid personal liability is if the company ultimately pays the outstanding GST.
Estimates of GST Liabilities
The proposed amendments will also allow the ATO to estimate a company’s GST liabilities and issue Director Penalty Notices based on estimates. These types of Director Penalty Notices will most likely be Lockdown Director Penalty Notices, as in most circumstances GST will not have been reported to the ATO within three months of being due.
Advice and Assistance
If your company has a tax debt, even if it is not a debt you can be personally liable for under the current director penalty provisions, you should still seek advice about your and your company’s circumstances. So please contact the Pearce and Heers’ Brisbane or Gold Coast office for an initial, obligation free consultation.