And you thought DPNs were tough already? The use of ‘estimates’ and the introduction of GST

September 5, 2019

DPN

As readers will be aware, the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 is strengthening the Director Penalty Notice regime.

Last month I reminded readers about how the DPN regime currently works and introduced the subtle change to SGC reporting and the ‘lockdown’ liability of directors moving forward after 1 April 2019.

This month I want to talk about how the Bill intends to alter the use of estimates calculated by the Commissioner and how GST may be bought into the picture.

Estimates

Presently, the Commissioner can make an estimate (not an assessment) of a taxpayer’s liability to pay PAYG-w and SGC and then take action to recover this amount from a director under the DPN regime.

The Bill proposes to bolster the Commissioner’s powers by adding in the ability to estimate a ‘net GST’ amount in circumstances where BAS lodgements are outstanding.

Just ask yourself, how will this play out in practice? And how accurate will the estimates be?

Introducing GST to the DPN regime

A significant potential update to the DPN regime will be the inclusion of GST (and LCT and WET) as a liability that can be recovered from a director.

In these challenging financial times, just consider how many taxpayers out there are trying to pay down a historical GST debt. I will give you a helping hand – there’s a lot. Often these circumstances go hand in glove with arrears for PAYG-w (normally on the integrated client account along with GST) and sometimes SGC also.

The current DPN regime (i.e. PAYG-w and SGC only) is very persuasive in encouraging directors to lodge returns on time and to either get on top of ATO arrears or to raise the white flag.

With GST on the radar too potentially, this further weakens the ‘corporate veil’ on the basis that not all creditors have personal guarantees. The corporate veil is there to protect directors from the liability of company debts. If the ATO can go behind that veil for more and more company debt, I wonder how many directors will be energised to take up the challenge of turning a business around?

The Bill is still before the House of Representative as at the date of this article. We at HLB Mann Judd Insolvency WA are watching on with interest and we will keep you informed of any developments.

About the author

Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the HLB Insolvency team and looks after the operations of the practice.

If you have any queries about insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to gquin@hlbinsol.com.au.

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