Company directors personally liable for GST

Recent legislative reforms designed to tackle illegal phoenixing activity mean that if a company fails to meet its GST obligations when they arise, the company’s directors may be personally liable for the unpaid GST, increasing the exposure of company directors. Phoenix activities refer to the practice of directors allowing one company to go into administration to avoid debt and shortly thereafter commence business using a new company.

What’s changed?
The Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019 was passed by Parliament in February 2020. The legislation amends various provisions of the Corporations Act 2001, the A new Tax System (Goods and Services Tax) Act 1999 and the Taxation Administration Act 1953 (TAA) and provides ASIC and liquidators with additional powers to combat phoenix activity.

From 1 April 2020, company directors are personally liable for any unpaid GST, Luxury Car Tax and Wine Equalisation Tax, in addition to the Pay as You Go Withholding and Superannuation Guarantee Contributions debts already captured under the current Director Penalty Notice (DPN) regime (TAA pt 4-15). Company directors are under an obligation to ensure that the companies they run pay the above tax debts or, if that is not possible, to promptly appoint a voluntary administrator/liquidator to the company (TAA s 269-15).

If the company has not paid (and an administrator/liquidator has not been appointed), DPN’s can be issued. The amount of the penalty is the unpaid tax liability of the company and becomes personally recoverable from the director 21 days after the DPN is issued. If there are multiple directors, each has this exposure.

Are there any defences?
Yes. It may be a defence if the director was ill or, for some other good reason, can demonstrate they took no part in the management of the company at the relevant time. A further defence may be that the company had a “reasonably arguable position” (RAP) and had taken reasonable care to comply with its tax obligations up to the time the DPN was issued. The best evidence of there being a RAP is a legal opinion confirming that such a position exists (TAA s269-35).

What is the impact on directors?
Personal liability means that individual directors face the possibility of bankruptcy and the loss of their personal assets, in the event of their company failing to meet its obligations. Tax credits can be offset against a DPN liability, so that if a director is due for a tax refund, that money can be used to reduce or settle the DPN debt (TAA s 8AAZLG).

Are new directors liable?
Yes. New directors can be held personally liable 30 days after their appointment where historical liabilities remain unpaid after the Due Date (TAA s269-20(3)).

Are former directors liable?
Yes. If a director resigns after the Initial Date, but prior to the Due Date, they remain liable for the penalty.

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