GST obligations to be included under the director penalty regime

The strengthening of the director penalty regime has been reported here before — for instance, having director penalty notices (DPNs) extended to superannuation guarantee obligations from 1 March 2019.

Now it looks like DPNs for GST are set to take affect from 1 October 2019 on the back of recent legislation, Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019, which lapsed at the dissolution of Parliament in the lead up to the last federal election, but has just been revived.

Schedule 3 to the bill allows the Commissioner to collect estimates of anticipated GST liabilities and make company directors personally liable for their company’s GST liabilities in certain circumstances. This also applies to LCT and WET as these taxes are jointly administered with the GST.

The estimates regime (Division 268 in Schedule 1 to the TAA 1953) enables the Commissioner to estimate unpaid amounts and to recover the amount of those estimates from taxpayers. The new legislation extends this regime to include GST.

As well as directors possibly facing personal liability, the options available to the ATO under its director penalty regime includes garnishee proceedings to recover amounts owed, offsetting amounts owed against any other tax credits, and initiating legal recovery proceedings. Before any of such actions are taken, the ATO is obliged to issue a “director penalty notice” outlining the unpaid amounts and remission options open to the concerned directors.

Once the bill is passed, from 1 October 2019 the ATO will be able to issue notices of estimated net amounts of GST to businesses that have not lodged a return. The estimation will then be due at the GST lodgement due date unless this is over-ridden by an actual GST amount through the lodgement of the overdue return. Estimates may be reduced if sworn statements are provided, although there may be some discretion in this area.

As with the other categories of director penalties, the penalty arises when the director’s obligation is unsatisfied on the due date, in this case, the day the company is required to pay the assessed net amount or GST instalment. The legislation also adds an ability for the ATO to retain tax refunds if a return is not lodged or other relevant information is not provided.

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