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Australia May Make Directors Liable For Unpaid GST In Folded Companies

by Mary Swire, Tax-News.com, Hong Kong

22 August 2019


Legislation before Australia's parliament would make company directors liable for a failed company's GST liabilities in certain circumstances.

The measure is part of the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019, which was recently tabled once again in parliament, having been withdrawn after it was earlier deposited in February 2019. Parliament is to consider the bill now that elections have been completed.

Schedule 3 to the Bill allows the Commissioner to collect estimates of anticipated GST liabilities and make company directors personally liable for their company's GST liabilities in certain circumstances.

The measure is targeted at illegal phoenixing and was announced in the 2018-19 Budget.

Phoenixing occurs when the controllers of a company strip the company's assets and transfer them to another company to avoid paying its debts, including taxes, creditors, and employee entitlements. A recent report by the Phoenixing Taskforce estimated that illegal phoenixing activity costs the Australian economy between AUD2.85bn (USD2.03bn) and AUD5.13bn a year.

The Government will introduce new phoenix offenses and civil penalty provisions, carrying the highest penalties available under the law. The aim is to target both those who conduct and those who facilitate illegal asset stripping. It will introduce a new recovery power for the Australian Securities and Investments Commission, extend the recovery provisions available to liquidators, and expand the ATO's power to retain refunds where there are outstanding tax lodgements.

The Government will also seek to prevent directors improperly backdating resignations to avoid liability or prosecution and will limit the ability of directors to resign when this would leave the company without any directors.

The legislation includes safeguards to ensure that the new laws do not affect honest businesses and genuine efforts to rescue a business in financial distress. The Government will extend it safe harbor for directors of companies in financial distress and ensure that these provisions continue to operate as intended.

TAGS: tax | business | law | goods and services tax (GST) | Australia | legislation | penalties | services | Investment | Invest | Investment

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