Contributed by Andrew Howe, Director and Rebecca Lawrence, Senior Associate, Greenwoods & Herbert Smith Freehills
Director Penalty Notices (DPNs) for GST, similar to those already in place for PAYG and the superannuation guarantee charge (SGC), are set to come into play from 1 October 2019 following the recent introduction of Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019.
However, as there are far more companies with GST liabilities than PAYG and SGC liabilities, the introduction will have a big impact on the people and processes responsible for preparing, lodging, and paying GST returns as directors seek reassurance they will not be personally liable for GST.
The new legislation contains a raft of measures aimed at reducing phoenixing activity and gives the Commissioner new powers to make directors personally liable for a company’s unpaid GST and to collect GST on the basis of estimates where an entity fails to lodge a GST return.
Where a company has an “assessed net amount” including a GST instalment or an estimated net amount, every director has a personal obligation to ensure it is paid or, if it is not — recognising the company may be insolvent — put the company into administration.
DPNs can be issued where an amount is not paid on the due date. New directors can also become liable 30 days after their appointment where they are appointed after the due date and an amount is still outstanding.
The amount of the DPN is the unpaid liability of the company and becomes recoverable from the director personally within 21 days of the DPN being issued.
DPNs can be remitted where the director complies with the obligation either before the penalty is issued or within 21 days of the notice being issued.
If the director complies by placing the company into administration/winding up, then this must be done within three months of the relevant due date (being the time the net amount was due). If it has not been done within this time frame, then the DPN may be locked down and may not be remitted in whole or in part.
Defences for director penalties
The usual defences for DPNs will also apply to GST DPNs, namely:
- illness/other good reason plus taking all reasonable steps, or
- the company adopted a reasonably arguable position and has taken reasonable care.
The expected result of these measures are that the reporting and reassurance that is provided to directors for PAYG and SGC will now extend to GST — impacting many more companies and staff responsible for GST.
Estimates for GST
Also from 1 October 2019, assuming the Bill passes before then as expected, the Commissioner is able to issue notices of estimated net amounts to taxpayers who have failed to lodge a return (companies or any other entities). The taxpayer is then under an obligation to pay the estimated net amount — with that net amount deemed to be due on the GST lodgement due date.
The estimated amount can be over-ridden by lodging an actual net amount (ie by lodging the overdue return). Estimates can also be reduced by providing certain sworn statements to the Commissioner.
Payment of the estimated net amount can be applied against payment of the actual net amount determined when the return is lodged, although general interest charge (GIC) will continue to accrue on any actual net amounts which remain unpaid. Requirement of payment is not dependent upon the accuracy of the estimate.
The Commissioner cannot issue an estimate of a net amount where an assessment has already been made, ie if a return has been lodged or the Commissioner has already raised an assessment.
Estimated amounts will be provable in the event of a bankruptcy provided they occur prior to the bankruptcy, helping to protect the Commissioner’s position as creditor.
Commissioner can retain tax debts
Finally, the Bill also includes the ability for the Commissioner to retain tax refunds where a taxpayer has failed to lodge or provide other information that may be relevant to other amounts the taxpayer has outstanding with the Commissioner.