Director Personal Liability for Tax Debts – the ATO and Treasury furphies
New legislation is currently before Parliament to dramatically extend Director personal liability under the Director Penalty Notice. I think the legislation is well founded but, make no mistake, it is a very significant legislation and I remain dismayed at the reasons being proposed by the ATO and Treasury in support of the legislation.
I’ve previously published an Information Sheet for Accountants and if you want details of the legislation and its effects on Accountants and Directors I’ve banged on about that here. As for the arguments in support of the legislation, the Fin Review (page 13) and SmartCompany today gave coverage to the comments of ATO officials and Treasury officials in support of the legislation. In brief they claim it is good legislation because:
- the current Director Penalty Notice regime is inadequate because it requires a 21 day Notice be given to Directors which is a “tip off” of impending personal liability; and
- there needs to be a crackdown on Phoenix company activity.
Both arguments are absolutely flawed. I say:
- Firstly, the reference to the current 21 days Notice as a “tip off”. That is an unusual way to look at it. It is fairly standard practice at law that when someone is looking to enforce legal rights then a “Notice” of some sort is given. I guess a Notice is a “tip off” but that’s a weird way to look at it.
- Secondly, it was proposed in the budget and is still being touted as legislation to combat Phoenix Companies. There is nothing in the legislation that restricts it to Phoenix Companies. It will affect the majority of directors in the 10,000 or so liquidations every year, and only a small number of those liquidations are Phoenix companies.
The legislation is probably well founded but make no mistake that it is a massive move towards director personal liability for company tax debts. The simple message is that directors need to be lodging their tax returns on time, or be confronted with automatic personal liability.