The Government has announced that it is taking action to crack down on illegal phoenixing activity. The package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity.
The DIN will identify directors with a unique number and interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.
The Government’s comprehensive package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity. The DIN will identify directors with a unique number and interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.
Kate Carnell, Australian Small Business and Family Enterprise Ombudsman, believes the move will be good for small business.
“We support a unique identifier that will enable identification of rogue directors to ensure they can’t be involved in multiple instances of phoenixing,” Carnell says.
“Phoenixing hurts small business. When companies phoenix it’s usually the subcontractors and small businesses who suffer; they’re the ones who aren’t paid.
“This is a definite step in the right direction to ensure that small businesses get a fair go. The challenge for the government is to ensure this is not just another number with more red tape.”
“We’ve already got an ACN, ABN, a TFN and many licences and regulatory requirements for businesses,” Carnell warns. “We want to see a scenario where all of this data is consolidated into a single portal that contains all relevant information.”
BDO Tax Partner, Mark Molesworth, also broadly welcomes the move.
“The introduction of the DIN, if done well, has our support. Identity crime is a rising issue and anything that the regulators can do to seamlessly prevent such crime is to be encouraged. Of course, this will require that he security of the DIN system is first rate otherwise it runs the risk of identity fraud itself,” Moelsworth says.
He goes on to say, however, that he finds the the extension of the director penalty notice regime to GST liabilities troubling.
“Using this regime to ensure payment of ‘other people’s money’ – such as PAYG withholding and superannuation guarantee – is a defendable reason to pierce the corporate veil and make directors personally liable. Extending that personal liability to other tax liabilities of the entity is a large step because it militates against ordinary businesses and directors having a ‘licence to fail’ – which the government itself acknowledges is important in encouraging entrepreneurship and innovation – and it makes the government more likely to collect money out of an insolvency than ordinary creditors and, in some cases, employees,” he says.
“As such, we will be scrutinising the proposed implementation of this measure very closely. The other proposed measures appear to be reasonable responses to perceived issues. As always, the devil will be in the detail. We will be participating in the consultation to attempt to ensure that the rules strike the right balance between penalising criminal behaviour and not stifling entrepreneurship,” Molesworth concludes.