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Government's Phoenix crusade continues into 2012 - Part 2

20 Jul 2012

Further to our previous article regarding the implementation of the Corporations Amendment (Phoenixing and Other Measures) Act 2012 (CAPLAM Act), click here to read the Federal Government has now implemented a second piece of legislation aimed at deterring fraudulent phoenix activities.

The Tax Laws Amendment (2012 Measures No. 2) Act 2012 was assented to on 29 June 2012 (TLAM Act).

Below is a brief summary of the basis of the TLAM Act and how it may impact you.

The TLAM Act was enacted to amend the law relating to taxation, and for related purposes. Whilst it was promoted as being an Act against fraudulent directors who engage in phoenix type behaviour to try and avoid their debts, in reality the TLAM Act will considerably increase the obligations of all directors, and increase their potential exposure to personal liability in relation to company debts.

The recent amendments impose obligations on directors personally in relation to their company's duties in respect of superannuation guarantee amounts and PAYG withholding.

Prior to the TLAM Act a director could avoid personal liability by taking certain action (paying the debt in full, appointing a voluntary administrator or winding up the company) within 21 days of being served with the Directors Penalty Notice (DPN), this is no longer the case. The TLAM Act has retrospective operation where a company has existing PAYG debts that remained unreported for 3 months and for some pre-enactment superannuation guarantee amounts.

By way of summary the key amendments now in place by virtue of the TLAM Act are:

  • The penalty notice regime will now extend to superannuation guarantee amounts.
  • Directors will now no longer be able to avoid personal liability for a PAYG tax debt or superannuation guarantee charge, if the following applies:
    • your debt is older than three months; and
    • your debt was not reported to the ATO within three months of the lodgement date.

An employer is required to pay a minimum of superannuation benefits to its employees' complying superannuation fund. The minimum is currently nine per cent per annum and must be paid at least four times a year into the fund.

Under the previous regime, if a company failed to meet its superannuation obligations, a director could avoid being personally liable for the failure of the company's obligations. Now, liability will now extend to directors personally.

PAYG withholding remains as a debt owed by the company to the Commissioner of Taxation. If the company were then to go into liquidation, the debt to the Commissioner would remain outstanding.

As with superannuation entitlements, directors can now be held liable should their company be unable to meet its obligations to the Commissioner.

  • New directors must undertake tax due diligence and where appropriate resign within 30 days of appointment (and ensure there is clear evidence of resignation).

PAYG credits may be denied to directors and associates.

What does this mean for you?

The TLAM Act along with the TALAM Act impose significant amendments to companies and company directors. If you are a company director or officer and are concerned about your new obligations please contact Kylie Tate in our dispute resolution team who will be able to provide advice in relation to these issues.