The government expects to raise an additional $245 million in taxes and penalties over a four year period if new legislation to combat fraudulent phoenix activity is enacted later this year.
In the 2010-11 Budget the government announced a range of proposals to combat fraudulent phoenix activity. Draft legislation is expected to be re-introduced into parliament during the Autumn 2012 sittings after being postponed last year to allow for further consultation.
Separate to this legislation, an additional $22.1 million in extra funding has been allocated to enable the ATO to expand its focus on reducing fraudulent phoenix activity. This will include a coordinated program of raising awareness, compliance and debt collection as well as working closely with other government agencies to improve the exchange of intelligence.
What is fraudulent phoenix activity?
The ATO defines fraudulent phoenix activity as the evasion of tax and superannuation guarantee liabilities through deliberately and systematically liquidating related corporate trading entities.
There are many legitimate challenges associated with running a business but some businesses use liquidation as a means of avoiding financial obligations, including employee entitlements such as superannuation guarantee.
In its most basic form, fraudulent phoenix activity involves a company carrying on a business and accumulating debts without any intention of ever repaying those debts. This is done for the purpose of wealth creation or to boost cash flow. The company is placed into liquidation once it gets into an insolvent position and the business then continues via another corporate entity, controlled by the same person or group of individuals.
To report suspected phoenix activity visit www.ato.gov.au/reportevasion.
Case Study: Jail time for phoenix operators
A Perth based earthmoving, garden supplies and property development business created bogus payment summaries, moved employees between related companies and failed to remit monies withheld from employees' wages to the ATO. The business owner then deregistered the (non-compliant) companies to help reduce the risk of detection by authorities.
In 2010, the principal company director was sentenced to five years and three months jail for defrauding the Commonwealth of $6.7 million in unremitted taxes. He was also bankrupted following an investigation into his personal tax affairs.
A number of other people associated with this fraud have also been prosecuted and jailed, including a former tax agent.