Government says yes to company director ID numbers: What small businesses need to know

SmartCompany, September 12, 2017

After years of discussion, the federal government has decided to introduce an identification tracking system for company directors in Australia, as the Labor Party questions why it has taken so long to sign off on changes to protect Australian businesses from phoenix activity.

Under the policy announced today by Minister for Revenue and Financial Services Kelly O’Dwyer, every company director in Australia will be assigned a unique identifier, or Director Identification Number (DIN), that will be tracked by a range of government agencies.

The hopes are that the scheme, which has been recommended for years by experts on illegal phoenixing, will allow the Australian Taxation Office, the Australian Securities and Investments Commission and other government agencies to catch out company directors shirking their responsibilities.

Phoenix activity, which involves company directors transferring assets from one business entity to another in order to avoid paying debts to stakeholders, including creditors and the ATO, costs Australia more than $3 billion a year.

“The Turnbull Government is committed to ensuring individuals who engage individuals who engage in illegal phoenixing activity are held to account and that the regulators are equipped to take stronger action to both deter and penalise phoenixing activity for the benefit of all Australians,” Minister O’Dwyer said in a statement.

She said the reforms also build on the government’s plan to tackle financial crimes and the nation’s black economy, but has not indicated a timeline for when the new system will come into effect.

There has been widespread agreement that more needs to be done to track the behaviour of company directors across their lifetimes, and the Labor Party has questioned the delay in implementing the popular ID number policy.

“My colleagues and I have been calling for action for months, but it seems the Turnbull Government has only grown interested now that they need a distraction from its crisis of the day,” Shadow Assistant Treasurer Andrew Leigh told SmartCompany this morning. 

“The Tax Commissioner confirmed the need for action back in May, when he told one member of a Senate committee that ‘I could appoint you as a company director without you even knowing and me then controlling the company’”.

Council of Small Business Australia chief executive Peter Strong has welcomed the news, saying he has been in talks with the tax office and regulators to ensure the balance is right on the policy.

“I think we’re basically saying, ‘we’ve done a really good job of making it easy to start a business in Australia, but it’s probably become too easy’. We want to make sure the people who get ABNs [Australian Business Numbers] are bona fide,” Strong says.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell shares similar sentiments, saying in a statement this morning that “phoenixing hurts small business”.

“This is a definite step in the right direction to ensure that small businesses get a fair go,” she said.

However, Carnell said she will be watching to see how the policy is implemented in practice.

“The challenge for the government is to ensure this is not just another number with more red tape,” she said.

“We’ve already got an ACN [Australian Company Number], ABN, a TFN [Tax File Number] and many licences and regulatory requirements for businesses. We want to see a scenario where all of this data is consolidated into a single portal that contains all relevant information.”

What will the policy mean for Australian businesses?

There are two elements of the governments plan: the introduction of DINs for all company directors, as well as a commitment to consult on a range of other changes to the extend the powers of the ATO and penalties for non-compliance.

The areas of focus include:

Reporting of behaviour

Consultation will take place about how to introduce specific laws against phoenix activity, the introduction of a hotline to report directors doing the wrong thing, and extending penalties that apply to those promoting tax avoidance schemes.

Extending ATO powers

Areas up for consultation on this front include giving the tax office powers to ask for and claim a security deposit from company directors if they are suspected of phoenix activity and want to start a new business.

The government will also look at giving the tax office the power to withhold tax refunds if needed, and to commence immediate action to recover a debt if a director penalty notice is issued.

Limiting behaviour of suspected phoenix operators

Consultation will also begin on ways to limit how company directors can behave and what they are liable for in terms of business debts.

This includes the possibility that company directors become personally liable for any company GST liabilities, and preventing “related entities” to a phoenix operator from appointing a liquidator to a business.

The government will also look to make it unlawful for a director to backdate their resignation to prevent personal liability, or from resigning as a company director if this will leave the company without any directors.