The GST measure was announced as part of a suite of measures aimed to further address concerns about fraudulent ‘phoenix’ activity and its impact on the recovery of tax revenue, including the introduction of a unique Director Identification Number (“DIN”) for all company directors.
Broadly, phoenix activity involves a company carrying on business and accumulating debts (including tax debts) without any intention of paying them. The company is then liquidated and wound up without the debts being paid and the business is re-started in a new company.
Currently, GST is not one of the taxes covered by the Director Penalty provisions that impose personal liability on directors. Those provisions currently capture unpaid PAYG and Superannuation Guarantee liabilities. If implemented the proposed measures would expand the Director Penalty provisions to include GST within their scope.
It is likely that personal liability for unpaid GST would operate in a similar way to current Director Penalty Notices that currently affect only unpaid PAYG and Superannuation. That is -
- If a Director does not report by lodging a Business Activity Statement within 3 months of the due date for lodgement, there will be an automatic personal liability for a Company’s unpaid GST debt as well as its unpaid PAYG and Super debts.
- Where a Director does report within the 3 month window, they will be able to avoid personal liability for the various company tax debts provided the Company is placed into liquidation within 21 days of the date on the Director Penalty Notice.
The date of effect for the changes has not been announced. Currently, in the absence of fraud or evasion the Commissioner is able to recover GST liabilities of a company going back four years, but only from the company itself. Where fraud or evasion is proven the retrospective recovery period is unlimited. Penalties and interest can also apply to unpaid GST amounts.
We recommend that directors of companies take action to ensure that the GST affairs of their companies are in order. A GST Health Check completed by a GST specialist can provide directors with assurance that the company is correctly accounting for GST on its transactions. A GST Health Check also has the added benefit of identifying any overpaid GST amounts and GST refund opportunities, while at the same time ensuring that the company has adequate controls around its GST accounting and BAS preparation processes.
If you would like further details about a GST Health Check and its benefits, please contact your Pitcher Partners expert.