I wanted to start with something I am passionate about, and glad to see the ATO cracking down on, and that is essentially widening the net in regards to illegal phoenix activities. For those of you that do not know, Phoenixing is essentially abandoning a company and then recommencing a similar company with similar stakeholders, but essentially your tax liabilities from the former company are neglected, and abandoned. Hence the term Phoenix, it is essentially a company that rises form the ashes of another. The benefit of a company is that the directors are protected by the corporate veil and generally are not personally liable for the liabilities of the company. This has changed in recent years, and the recently enacted Treasury Laws Amendment (combating Illegal Phoenixing) Act 2020 takes this further still.
What is new in this is act, which is already in effect, is that there are new phoenix offences, which essentially serve to prohibit creditor-defeating actions. This essentially prohibits any transfer of company assets for less than market value that would delay or hinder a creditors access to company assets in a liquidation. In the past essentially, it was only employees via superannuation obligation,s and the ATO, via director penalty notices that were protected. Any unsecured creditor was hung out to dry, with no affordable and effective recourse.
If a company officer is found guilty of these new offences, there are new criminal offences and civil provisions.
There is also a denial and restriction of backdating resignations. Typically a form can be submitted to ASIC outside of the 28 day lodgement obligation period, but a fine applies. Now however, these forms will essentially be denied, especially in situations where the company would be abandoned, that being, have no director at all. The director would only be able to resign from the date the form is reported to ASIC. Furthermore, abandonment of a company by a resigning director which would leave the company without any directors, is now prevented.
Furthermore, directors may become personally liable for the company’s GST liabilities. This is in addition to the existing director penalty regimes in respect of pay-as-you-go and superannuation liabilities. This is 100% a welcomed addition, as ensuring ALL liabilities can be met is part of the internal governance obligations of the company directors and officers.
Finally, the ATO now have the authority to retain tax refunds in certain situations, which allows the ATO to ensure that companies satisfy their tax obligations and pay outstanding amounts of tax before being entitled to a tax refund.
If you are a director of a company make sure you are compliant. I know it goes without saying, but the corporate veil is certainly thinner now than it was before February 18th.
The ATO has commenced an inquiry in to the tax treatment of employee share schemes. Based on my Linkedin feed this has certainly been welcomed by the accounting profession and what the committee will inquire is:
1. How effective the changes in 2015 have been in their goal of bolstering entrepreneurship in Australia and start-up companies.
2. The costs and benefits of these concessional taxation treatments and deferred taxing points for options, to the broader community.
3. Whether the current tax treatment of ESS remains relevant to start-up companies and whether any changes are appropriate to ensure that the taxation treatment remains relevant
4. How companies currently structure their ESS arrangements and how taxation treatment effects these decisions, and
5. The challenges faced by companies in setting up an ESS arrangmenet and how the standard documents introduced by the ATO in 2015 assist this process and whether additional improvements should be made.
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