Unpaid GST Debts Have Directors Facing Liability

On 5 February 2020, the Senate passed the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019.

We must bring the below to your attention as we feel accountants should be given the “heads up” about recently passed legislation:

Directors to be personally liable for unpaid GST from 1 April 2020

…Would a subject line like that have you feeling hot under the collar? If you have clients who have not been paying their GST, now is the time to have a serious conversation.

On 5 February 2020, the Senate passed the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019.

While the press surrounding this bill centered around anti-phoenixing provisions, tucked inside the bill was the requirement 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 responsibility for their company’s unpaid GST.

Window of opportunity

There is a window of opportunity for directors to avoid personal liability, but they will need to act fast.

To avoid personal liability for unpaid GST, directors will need to ensure they have done one of the following before 1 April 2020:

  • have the company pay the debt
  • have the company enter into a repayment arrangement with the ATO
  • or consider the appointment of a liquidator or administrator to the company.

If you have clients who have unpaid GST liabilities, you need to let them know that they are at immediate risk of personal liability.

Doing nothing will have significant consequences. 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’s director and provide for a higher chance of rehabilitation, but time is of the essence.

A word of caution

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 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 genuine and caution when dealing with the clients in financial difficulty needs to be exercised. Specialist advice should always be obtained.

Please reach out to us if you need to discuss any matters further.

Adrian Hunter
Adrian Hunter

February 25

Adrian Hunter
Adrian Hunter

By actively working with all involved stakeholders, Adrian is able to formulate and deliver on agreed outcomes for the benefit of all parties involved