The ATO will only make estimates of outstanding GST, WET and LCT liabilities where taxpayers are suspected of phoenix behaviour or dissipating assets, according to new draft guidelines.
Guidelines on director GST liability expansion released
The Tax Office has released draft Practical Compliance Guideline 2019/D4 on how it will administer the expansion of the estimates regime to GST, luxury car tax (LCT) and the wine equalisation tax (WET).
The expansion is currently being proposed in the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019, and allows the Commissioner to make company directors personally liable for outstanding GST, LCT and WET liabilities, on top of the current estimates and director penalty regimes for PAYG withholding and superannuation guarantee liabilities.
According to the draft PCG, the Commissioner will only make an estimate of outstanding GST, LCT and WET amounts where there are reasonable grounds to believe that the taxpayer, or related entities, are involved in phoenix behaviour, or have dissipated assets with the intention to defeat creditors.
Further, an estimate will only be made when the taxpayer fails to engage with the ATO or refuse to cooperate in establishing the overdue and unpaid amount despite the multiple attempts the Commissioner makes to contact the taxpayer.
Some indicators of phoenix behaviour include cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements; a director associated with prior instances of insolvency; and backdating of resignation of a director, appointment of a “straw” director or abandonment of a company without a resident director.
A director that receives a notice of estimate can provide a complying statutory declaration within the relevant time, request extra time to lodge a statutory declaration or make a payment of the estimated amount.
While the bill has yet to be passed, Worrells Solvency and Forensic Accountants partner Stephen Hundy previously told Accountants Daily that the proposal could potentially see the end of the corporate veil.
“In many cases, the directors have no choice but to provide personal guarantees in order to obtain credit from financiers and suppliers. In a lot of cases, however, we find that directors do not know what they have personally guaranteed, and also they are unaware that they are personally liable for PAYG withholding tax and SGC,” Mr Hundy said.
“With tax debts, we see the majority of debt owed to the ATO comprising PAYG withholding tax and GST. At present, a DPN cannot be issued in respect of unpaid GST; however, if the director penalty regime is extended as proposed to include GST, this will increase the extent to which directors’ assets may be at risk in the event of an insolvency.”