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Extension of director penalties to GST liabilities

Extension of director penalties to GST liabilities

Anti-phoenixing legislation extending the Director Penalty regime, which lapsed when the federal election was called earlier this year, was re-introduced in the House of Representatives on 4 July 2019.

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Among a number of measures, Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 proposes to allow the Australian Taxation Office (ATO) to make, in certain circumstances, directors personally liable for their company’s Goods and Services Tax (GST) liabilities and to collect estimates of anticipated GST liabilities where lodgements have not been made. We note the amendments will apply equally to outstanding LCT and WET liabilities.

While the majority of the 37 submissions received by the Government during the public consultation process in 2018 were broadly supportive of the measures deterring illegal phoenix activity, some concerns were raised by stakeholders.

The GST law contains complex provisions that give rise to legitimate disputes over the existence of a GST liability. The introduction of Director Penalty Notices for GST liabilities are likely to encourage director’s to take conservative positions where alternative positions may be supportable under the law.

If the Commissioner of Taxation (Commissioner) makes an estimate of an entity’s net liability, the entity is liable to pay the amount of the estimate to the Commissioner as if it arose on the day the Commissioner determines the entity was required to lodge its GST return. The amount is provable in the event of a bankruptcy provided they occur prior to the bankruptcy, protecting the Commissioner’s position as a creditor.

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