DPNs for GST liabilities - are you serious?

Thursday March 26, 2020

Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020

With everything that is going on in the world right now, and with the announcement of new legislation and Government initiatives to address COVID-19, it would be easy to let this important new legislation slip through the cracks. In these difficult times it is more important than ever that directors and their professional advisors are aware of these changes.

This month we are going to look at one important element of this new legislation.

As we had previously predicted, the new law has passed and gained Royal Assent on 17 February 2020. At de Jonge Read we strongly support any move to target rogue operators who promote illegal phoenix schemes. The new law introduces some important changes that could impact business owners and company directors in a number of ways, but this update will focus on one specific area.

Director’s Penalty Notices (DPNs) for GST Liabilities

Currently directors can be held personally liable for unpaid PAYG and superannuation under a DPN. There are 2 varieties of DPNs; non-lockdown and lockdown. The difference is whether the liability was reported within the prescribed timeframe or not. If the debt has been reported appropriately, a director can achieve remission of the penalty by making payment or placing the company into Voluntary Administration or Liquidation within 21 days of the date of the DPN. If the liability has not been reported within the required timeframes the director cannot remit liability, meaning they will either need to pay it in full or enter into some type of personal insolvency.

So, why all this talk about DPNs? The new legislation expands the Director Penalty Regime to include GST. This also applies to Luxury Car Tax (LCT) and Wine Equalisation Tax (WET), but the big one is GST. This is a massive expansion of the DPN regime and could potentially expose many company directors to additional risk. If the corporate veil has not been shredded, it has at least had a number of big holes cut into it.

The new law takes effect from the first day of the quarter following Royal Assent. This means 1 April 2020. Yes – April Fool’s Day, but this is no joke!

The ATO will also have the power to make estimates of the GST amount owing in the event the company has not reported its obligations. A DPN can be issued based on these estimates. The same rules will apply in relation to reported and unreported obligations to determine whether any penalty under a DPN would be lockdown or non-lockdown. For GST, the debt must be reported within three months of the due date for payment. So, for the quarter ending 30 June, the due date is 28 July. If the liability is reported more than three months after this date any penalty could not be remitted.

This is a major change and is due to come into effect very shortly. This aspect of the new law may have been buried in language about illegal phoenix activity, creditor-defeating dispositions etc. In fact, in the Explanatory Memorandum released by the Government, this change is not discussed in detail until page 45. Most directors out there though may never face issues relating to illegal phoenix activity. At the same time though, the issue of DPNs will potentially affect far more directors but has not received much air-play.

Key Take Homes

We believe most directors out there don’t know about this huge change to the Director’s Penalty Regime. They would have no idea they could be held personally liable for the GST debts of the company. This could be a great opportunity for accountant, lawyers, book keepers and other professional advisors to add value to client relationships by making them aware of the new regime.

Making sure that all GST liabilities are reported within the prescribed timeframe is critical. Ensuring that clients have the right reporting disciplines could be the difference between them having the opportunity to remit any penalty or not.

Further updates on other changes will be issued later – so stay tuned!

Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1721814904c.arj1721814904d@ofn1721814904i1721814904

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Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.

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