April Fool’s Day 2020 is no laughing matter. From the 1st of April this year, directors will be held personally liable for unpaid GST.
This is not a drill! If you have clients who have not been paying their GST, now is the time to have a serious conversation.
New Senate bill holds directors liable for unpaid GST
So where did this new liability come from? On 5th February 2020 the Senate passed The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019.
While all the fanfare centred around the anti-phoenixing provisions of the bill, tucked inside was the provision that directors of companies who have a GST debt which is three months overdue will become personally liable for the GST collected but not paid.
What this means, is that in addition to the personal liability that directors already face for non-payment of PAYGW and superannuation, directors will now also face liability for their company’s unpaid GST.
The good news? If you act fast you can avoid liability
The good news is that there is a window of opportunity for directors to avoid personal liability - but they will need to act fast.
The bill - which passed on 5th February 2020 - does not come into effect until it receives Royal Assent, which usually takes between 7 and 10 days from the time the bill is passed. The amendments to the GST Act and TAA are to take effect from the start of the first quarter after Royal Assent is given. The first quarter is anticipated at this stage to be the quarter commencing 1st April 2020.
What you need to do to avoid personal liability
In order to avoid personal liability for unpaid GST directors will need to ensure prior to 1 April 2020 they have done one of the following:
- Have the company pay the debt; or
- Have the company enter into a repayment arrangement with the ATO to repay the debt in full; or
- Consider the appointment of a liquidator or administrator to the company.
If you have clients who have unpaid GST liabilities, then you need to bring to their attention they are at immediate risk of personal liability.
Act now! The cost of inaction now = significant debt later
Doing nothing will have significant consequences, as by doing nothing come 1st April for GST debts which are three months past their lodgement date, directors will be automatically liable for the unpaid GST.
As GST is often the largest component of unpaid taxes when a company is liquidated, we expect the debts falling on to the shoulders of directors to be significant. Early intervention may eliminate personal liability for a company director and provide for a greater chance of rehabilitation, but time is of the essence.
A word of caution about illegal phoenix activity
The bill, in addition to imposing personal liability on directors for unpaid GST, also provides for the criminal prosecution and the levying of hefty fines for anyone engaging in illegal phoenix activity.
From time to time we see some accountants so invested in protecting their client’s interests that they stray into the area of illegal phoenix activity. The penalties for people found to have been deliberately or unwittingly involved in facilitating illegal phoenix behaviour are very real, and caution when dealing with the clients in financial difficulty needs to be exercised. Specialist advice should always be obtained.
Worried about what all this might mean for you? Contact our team if you wish to discuss anything related to these new changes.