On 8 May 2018, Scott Morrison, Treasurer of Australia, delivered the 2018 budget. In addition to a number of tax cuts and related proposals, the budget includes new measures to increase director liabilities and compliance, specifically targeting illegal company ‘phoenix activity’. The Treasurer has committed $40 million over four years to tackle illegal phoenix activity in response to reforms proposed in 2017. The measures will make changes to company and tax laws in relation to directors’ personal liability for company debts.
The Australian Taxation Office (ATO) has also been given greater powers to retain tax refunds where there is outstanding debt.
The new measures would:
- Prevent directors from improperly backdating resignations to escape liability or prosecution
- Limit the ability of directors to resign from a company that would otherwise be left with no directors
- Extend the Director Penalty Regime to include the GST, luxury car tax and wine equalisation tax
- Introduce director identification numbers that will interact with other identification numbers such as ABNs to track relationships between directors and companies
It is important for directors to always ensure that their companies are able to pay their debts as and when they fall due, or engage in pre-insolvency actions which prevent the directors from becoming personally liable (for example, by engaging external administrators to deal with the company’s assets in a legitimate way). To learn more about the consequences for directors arising from the newly introduced budget, please contact your Ally Law corporate or tax lawyer.