Grant Darmanin, Phoenix Risk Manager, Small and Medium Enterprises updated the meeting on the Australian Taxation Office (ATO) response to addressing the phoenix risk including the announcement of countering fraudulent phoenix activity made in the Federal Budget 2011 - 2012.
The government will strengthen the tax law to counter fraudulent phoenix activity - which 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 utilising another corporate entity, controlled by the same person or group and free of prior debts and liabilities.
During 2011 the government will create legislation to achieve the following:
- the director penalty regime will be extended to superannuation guarantee amounts, making directors personally liable for their company's failure to pay employee superannuation
- the ATO will be given the power to commence recovery against directors under the director penalty regime, without providing a 21 day grace period, for unpaid PAYGW and/or superannuation guarantee liabilities that remain unreported after three months of becoming due
- in certain circumstances directors and associates of directors will be prevented from obtaining credits for withheld amounts in their individual tax returns where the company has failed to pay withheld amounts to the ATO.
Legislative progress
The ATO is working closely with Treasury to prepare these amendments for introduction into the spring 2011 sittings of parliament.
Treasury have advised that they expect to publish an exposure draft of the amendments for community consultation in June in order to allow a full four week consultation period.
Background
The Budget announcement follows election announcements made on 25 July and 8 August 2010.
25 July 2010 Protecting worker's entitlements package
On 25 July 2010 the government announced the Protecting workers' entitlements package: strengthening corporate and taxation law. The government announced that it would examine the following:
- An extension of the director penalty regime to include amounts withheld under pay as you go withholding (PAYGW) arrangements, the superannuation guarantee charge (SGC) and indirect taxes
The director penalty regime already covers PAYGW and the Budget announcement extended the regime to SGC (this includes an extension of the estimates regime to SGC).
- An extension of the promoter penalty regime to include schemes to avoid payment of a tax
The Protecting workers' entitlements package: strengthening corporate and taxation law formed part of the government's response to the Action against fraudulent phoenix activity proposals paper released for community consultation on 14 November 2009.
Of the tax law options in the 2009 Action against fraudulent phoenix activity proposals paper, four have been adopted:
- three are reflected in the Budget announcement, and
- the fourth was an earlier change to the security bond provisions that received royal assent in July 2010.
The following options are currently under advisement:
- the introduction of further offence provisions and anti-avoidance provisions to combat phoenix activities, and
- an extension to the promoter penalty regime.
8 August 2010 Addressing fraudulent phoenix activity
This announcement further refined the government's intention and the Budget announcement is a 'reannouncement' of an election commitment that stated.
- director penalties would be extended to superannuation guarantee charge payments;
- the director penalty regime would be automated so that recovery can commence three months from when the obligation to remit taxes arises if the company has not reported those unpaid liabilities; and
- the ATO would be provided with powers to deny directors and their associates withholding credits where the company had failed to pay withheld amounts.
Sections within Agenda items
Last Modified: Tuesday, 15 November 2011