- Since 1 April 2020, directors have been personally liable for any unpaid GST and other unpaid taxes.
- When advising a company on the sale of a business or property it is prudent to inform the company of the potential liability of its directors and advise the directors to seek independent advice.
- If a client receives a Director Penalty Notice, consider and advise promptly.
Advising clients on the GST implications of a transaction or conveyance can be an area of risk for solicitors. Is the sale GST-free or subject to the GST Margin Scheme? Ticking a box doesn’t make it so. If a client is wrongly advised, the company may find itself with an unexpected (and hefty) GST liability in addition to penalties and interest, and the solicitor may be held liable. Further, 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.
The Treasury Laws 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).