ATO Tackles Phoenix Companies

Posted on Aug 30, 2012 | 0 comments

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The Tax Office has acted to strengthen the protections for workers’ entitlements and increase director penalties in the case of phoenix companies.

A phoenix company is one in which the directors intentionally accumulate debts to improve cash flow or wealth and then liquidate to avoid paying the debts accrued. The business is then continued with a new company being established to run the old business, controlled by the same person or group and free of their previous debts and liabilities.

In a press release the Assistant Treasurer David Bradbury said “this legislation makes it clear that directors have an obligation to ensure that provision is made for the ongoing payment of workers’ superannuation.

“It also ensures that fraudulent directors who use phoenix companies to try and avoid their debts will be held personally liable for their PAYG withholding and superannuation obligations.”

The changes to the law increase director obligations and worker safeguards by:

  • extending the director penalty regime and the estimates regime to include unpaid superannuation guarantee charge
  • ensuring that directors cannot discharge their director penalties by placing their company into administration or liquidation when pay as you go (PAYG) withholding or superannuation guarantee charge remains unpaid and unreported three months after the due date
  • in some instances, making directors and their associates liable to PAYG withholding non-compliance tax, a tax equivalent to reducing PAYG credit entitlements where the company has failed to pay amounts withheld to the Commissioner.

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