Proposals to make company directors personally liable for GST go beyond the aim of combating illegal phoenixing, and instead put SMEs with legitimate trading difficulties at risk.

Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 proposes making directors personally liable for unpaid GST if the unpaid liability is not paid within 21 days of a director penalty notice (DPN) being issued.

The proposed legislation raises concerns about piercing the corporate veil.

Options are available for SME directors when their business is in trouble. But the amount of tax owing under a DPN will greatly increase, as will the risk of bankruptcy for SME directors who have little or no assets.

The bill was introduced to combat phoenixing by opportunistic, systematic directors where the directors are involved in moving assets from one company to another. However it goes beyond its intended target and captures companies that are legitimately wound-up because of trading difficulties.

Furthermore, the bill does not define a phoenix activity. This raises added concerns and gives an idea to the business community that there are no restrictions on government piercing the corporate veil.

The fear is that although this legislation may weed out those taxpayers who drive GST losses through illegal phoenix activity, it will also target otherwise honest directors who get caught in a spiral when their business goes into meltdown.

Small business is a vital ingredient of a thriving Australian business community. Given that GST is often one of the largest liabilities for business, the impact for SMEs that are already struggling could be significant. Readmore