DPN – ░░░ INSOLVENCY INTERFACE

Parliament sees new tax laws to protect superannuation and deter phoenix companies

Insolvency Laws, Regulation, Tax liabilities, Taxation Issues Comments Off

Oct 182011

On 13 October 2011 the Australian Government presented a bill which the Minister says “amends the tax law to better protect workers’ entitlements to superannuation, strengthen the obligations of company directors and enhance deterrence of fraudulent phoenix activity”.

Schedule 3 of the Tax Laws Amendment (2011 Measures No.8) Bill 2011 is described in the Second Reading speech by the Minister, Mr Bill Shorten, as follows:

“These amendments will provide disincentives for directors to allow their companies to fail to meet their existing obligations, particularly obligations to employees. They do not introduce new obligations on the company but, rather, penalise company directors who are failing to ensure that their companies meet their obligations.

These outcomes are achieved by extending the director penalty regime to superannuation guarantee. This will make directors personally liable for their company’s failure to meet its obligations to pay employee superannuation.

Secondly, this will allow the commissioner to commence recovery against company directors under the director penalty regime without issuing a director penalty notice. This power is limited to situations where the company’s unpaid pay-as-you-go (or PAYG) withholding or superannuation liability remains unpaid and unreported, three months after becoming due.

Thirdly, it is making company directors and, in some limited cases, their associates liable to a tax which, in effect, reverses the economic benefit of a PAYG withholding credit. This tax only applies if directors or their associates are entitled to a credit for amounts that have been withheld from payments made to them by the company and the company has failed to meet its obligation to pay PAYG withholding amounts to the commissioner. Further criteria must be satisfied before associates are liable.

Together, this package of amendments will improve the likelihood that employees will receive the superannuation they are entitled to. It will reduce the ability of directors to avoid paying director penalties for their company’s superannuation guarantee and PAYG withholding debts. Further, it will increase the disincentives for directors to allow their company to fail to meet its existing obligations.”

Introduced with the Pay As You Go Withholding Non-compliance Tax Bill 2011, the bill amends, inter alia, the Taxation Administration Act 1953 to allow the Commissioner of Taxation to commence proceedings to recover director penalties in certain circumstances without issuing a director penalty notice; the Income Tax Assessment Act 1997, Taxation Administration Act 1953 and Taxation (Interest on Overpayments and Early Payments) Act 1983 to make directors and their associates liable to pay as you go withholding non-compliance tax in certain circumstances; and the Corporations Act 2001, Superannuation Guarantee (Administration) Act 1992 and Taxation Administration Act 1953 to make directors personally liable for their company’s unpaid superannuation guarantee amount.

LINKS:

Minister’s Second Reading speech on 13/10/2011.

Text of Bill (See Schedule 3)

Explanatory memoranda (See Chapter 3) For a concise comparison of key features of the new law and the current law, see the chart at pages 30 & 31 of the Explanatory Memorandum.

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On 18 October 2011 the Treasury published the thirteen submissions it received in response to the consultation on an earlier exposure draft of this legislation. To view these click HERE.

Draft laws released on director liability for unpaid super

Employee Entitlements, Insolvency Laws, Insolvency practices, Priority Debts, Taxation Issues, White collar crime Comments Off

Jul 142011

Draft Australian tax laws intended “to better protect workers’ entitlements to superannuation, strengthen director obligations and enhance deterrence of fraudulent phoenix activity” were released on 5 July 2011 for public consultation. Treasury states that:

” The main aspects of these amendments involve:

extending the director penalty regime beyond its current application to Pay As You Go (PAYG) withholding to make directors personally liable for their company’s unpaid superannuation guarantee amounts;
allowing the Commissioner of Taxation (the Commissioner) to immediately commence recovery of all director penalties when the company’s unpaid liability remains unpaid and unreported three months after the due day, regardless of the character of the company’s underlying liability; and
providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has failed to pay amounts withheld to the Commissioner.”

To see the Explanatory Memorandum and/or the Exposure Draft Legislation CLICK HERE.

Closing date for submissions: Monday, 1 August 2011

I intend to write more about this soon.

Budget 2011: Tax Office director penalty notices (DPN) extended and tightened

Insolvency practices, Tax debts, Taxation Issues, White collar crime Comments Off

May 112011

Under the heading “countering fraudulent phoenix activities by company directors”, the Australian Government has announced in the Budget that with effect from 1 July 2011:

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 Australian Taxation Office (ATO) will be given the power to commence recovery against directors under the director penalty regime, without providing a 21 day grace period, for certain unpaid company liabilities that remain unreported after three months of becoming due; and
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.

The Budget paper describes fraudulent phoenix activity as:

“… 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 as another corporate entity, controlled by the same person or group and free of their previous debts and liabilities.”

This measure is estimated to result in an additional $260 million in revenue in fiscal balance terms over the forward estimates period. There is a related increase in ATO departmental expenses of $22.1 million over the same period. In underlying cash terms, the estimated increase in receipts is $245 million over the forward estimates period.

See http://www.budget.gov.au/2011-12/content/bp2/html/bp2_revenue-07.htm

” The main aspects of these amendments involve:

extending the director penalty regime beyond its current application to Pay As You Go (PAYG) withholding to make directors personally liable for their company’s unpaid superannuation guarantee amounts;

allowing the Commissioner of Taxation (the Commissioner) to immediately commence recovery of all director penalties when the company’s unpaid liability remains unpaid and unreported three months after the due day, regardless of the character of the company’s underlying liability; and

providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has failed to pay amounts withheld to the Commissioner.”