From 1 April, the Commissioner of Taxation will be able to hold directors personally liable for their company’s GST liabilities, following the extension of the director penalty notice (DPN) regime.
The DPN regime, which had previously principally applied to a company’s unpaid pay-as-you-go (PAYG) withholding and superannuation guarantee liabilities, will now be extended to GST, luxury car tax (LCT) and wine equalisation tax (WET) liabilities.
The new law, tipped to pierce the corporate veil, enables the Commissioner of Taxation to collect estimates of anticipated GST liabilities where there are reasonable grounds to believe that the taxpayer, or related entities, are involved in phoenix behaviour, or have dissipated assets with the intention to defeat creditors.
According to the ATO’s draft Practical Compliance Guideline 2019/D4, an estimate will only be made when the taxpayer fails to engage with the ATO or refuse to co-operate in establishing the overdue and unpaid amount despite the multiple attempts the commissioner makes to contact the taxpayer.
Rigby Cooke Lawyers tax counsel Tamara Cardan said the new powers present significant risks for company directors, particularly passive directors.
“It is common for businesses, particularly small and medium-sized businesses, to struggle with GST liabilities due to cash-flow issues,” Ms Cardan said.
“It is also fairly common for passive directors to not be actively involved in their businesses."
“In light of these new powers to penalise directors and hold them personally liable for unpaid GST, I think it will be very risky to be a passive director.”
Ms Cardan said that with the changes presenting real and significant risks of directors being personally held to account for inadvertent oversights and systemic errors within the business, it was crucial for directors to get across GST and their accounting systems.
“Directors will need a better understanding of the operation of the GST system overall, and be actively involved in their companies, to ensure that GST liabilities are being properly reported to the ATO,” Ms Cardan said.
“Right now, I would be recommending all directors review the accounting systems their businesses are using to identify any systemic or processing errors which may lead to GST liabilities."
“Directors can’t escape a liability by resigning, as the ATO takes the position that if you resign as a director before the due date, you will still be liable."
“Furthermore, if you haven’t notified the ATO by the lockdown date, the only way to remove the liability is to pay the outstanding amount.”