Changes to Director Penalty Notice Regime On Hold

15 February 2012

BACKGROUND

In our May 2011 edition of Business Debrief, we posted an article in relation to proposed changes to the Director Penalty Notice (“ DPN”) provisions.

The changes were wide reaching and were designed to deter fraudulent phoenix activity by company directors. In essence the proposed changes were as follows:

the director penalty regime to be extended to superannuation guarantee amounts, making directors personally liable for their company’s failure to pay employee superannuation;
the Australian Taxation Office (ATO) to 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 legislation to enact these changes was introduced into the House of Representatives on 13 October 2011 which was immediately referred to the House of Representatives Standing Committee on Economics (“ the Committee”) in order to allow a review of the public submissions on the proposed changes.

UPDATE

The Committee has decided to remove the proposed changes relating to the extension of the ATO’s DPN powers from the current legislation and in response to the public submissions received, the Committee made the following recommendations:

1. The Government investigate whether it is possible to amend the law to better target phoenix activity;

2. The Government explore whether to expand and strengthen the defences for company directors available;

Notwithstanding the recommendations, the Committee noted as follows:

“…the committee is of the view that the Bills show great potential in striking a reasonable balance between the interests of the victims of phoenixing, many of whom are low income earners, and compliant company directors. The committee has recommended two refinements to the Bills, but the committee remains of the view that stronger legislation in dealing with phoenix operators will be required.”

The Assistant Treasurer, Bill Shorten noted in November 2011 that “some further consultation and possible modification to the phoenix company measures may be required to ensure the proposed amendments do not affect company directors inappropriately in certain circumstances. After further consideration the Government intends to bring the provisions back to Parliament next year.”

As such, the existing DPN regime will remain in place, including the maintenance of the 21 day notice period that is currently given to company directors prior to the ATO commencing recovery action under the DPN regime, however it will be interesting to see what amendments, if any, are made to the proposed legislation in the forthcoming months.