On 29 June 2012, changes were made to the tax laws to reduce the scope for companies to engage in fraudulent phoenix activity or to escape liabilities and payments of employee entitlements. Phoenix activity involves a company intentionally accumulating debts to improve cash flow or wealth and then liquidating to avoid paying the debt. The business is then continued as another corporate entity, controlled by the same person or group and free of their previous debts and liabilities.
By introducing further disincentives for companies to avoid their tax law and employee obligations, these changes are intended to deter directors from engaging in fraudulent phoenix activities and to improve the regulatory environment for businesses that comply with the tax law.
The changes protect worker’s entitlements and strengthen director’s obligations by:
• extending the director penalty regime and the estimates regime to apply to unpaid superannuation guarantee charge better secures workers’ entitlements. A director penalty can now arise from amounts of unpaid superannuation guarantee charge that should have been applied for the benefit of the employee, by paying it to their superannuation fund.
• ensuring that directors cannot discharge their director penalties by placing their company into administration or liquidation when pay as you go withholding (PAYG withholding) or superannuation guarantee charge remains unpaid and unreported three months after the due date
• in some instances, making directors and their associates liable to PAYG withholding non-compliance tax (NCT), a tax equivalent to reducing PAYG credit entitlements where the company has failed to pay amounts withheld to the Commissioner.
Why the law has changed
The law has changed to address the following limitations:
• the director penalty and estimates regime applying only to PAYG withholding liabilities
• a director’s ability to achieve remission of director penalties by placing their company into administration or winding up within the director penalty notice period, irrespective of the length of time that the liability has gone unpaid and unreported
• a director’s ability to benefit from using PAYG withholding credits to offset their own income tax liability when the company had not paid withheld amounts to the Commissioner. From 29 June 2012, directors and their associates will, in some instances, be liable to pay the new NCT where their company has a PAYG withholding liability for an income year and the individual is entitled to a credit for amounts withheld by that company during the income year.
Here at The Quinn Group our team of experienced tax lawyers and tax accountants are able to assist you in dealing with the ATO and the new changes to Director obligations. For further assistance or queries, please contact The Quinn Group on 1300 QUINNS or submit an online enquiry.