Submissions are sought on draft legislation designed to protect workers' superannuation from so called 'phoenix' companies, Assistant Treasurer Bill Shorten announced today.
The Gillard Government has released for public consultation exposure draft legislation on the 2011-12 Budget measure: Tax compliance - countering fraudulent phoenix activities by company directors.
Fraudulent phoenix activity involves the deliberate liquidation of a company to avoid paying liabilities - including employee entitlements, such as superannuation, and taxes. The business then 'rises' and continues operations through another corporate entity, controlled by the same person or group of individuals, often with a very similar name and free of the debts.
"These amendments will help to secure workers' superannuation, and are not limited to directors of phoenix companies, but apply broadly to directors' obligations to cause their company to pay certain tax liabilities and superannuation guarantee amounts for employees," Mr Shorten said.
The Government will address these issues through three measures in the tax law:
- Extending the director penalty regime to make directors personally liable for their company's failure to pay employees' superannuation guarantee amounts
- Allowing the Australian Taxation Office to immediately pursue directors under the director penalty regime where the company's unpaid PAYG withholding and superannuation guarantee liability remains unpaid and unreported three months after the due day
- Providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has an outstanding PAYG liability.
"The Government is committed to ensuring employees receive their entitlements and to taking strong action to deter phoenix activity. However, we recognise the importance of ensuring these changes do not discourage entrepreneurialism and commercial risk-taking or impact unnecessarily on genuine businesses."
"The measure will include safeguards to ensure it can be targeted to the highest risk and most egregious cases, which often involve phoenix operators. The Commissioner of Taxation will have discretion in applying the law. Directors will have the ability to raise objections and legal defences where they have been made personally liable for their company's non-compliance."
"Fraudulent phoenix companies gain a competitive advantage over their upstanding counterparts, having a negative impact on the economy as a whole. Employees often pay the price when companies 'phoenix' or neglect their commitments to employees when entitlements are left unpaid and are often not recoverable," Mr Shorten said.
Submissions close on 1 August 2011 to allow for the introduction of the measure in the Spring sittings of Parliament.
The draft legislation and explanatory materials can be obtained on the Treasury website.