Quite often in the liquidation or failure of a business, the largest creditor is the ATO. Even just in day to day tax debt apparently about $24 billion is owed to the ATO, with $15.1 billion of this debt relating to small business. In addition to this, according to the ATO it estimates that 7 billion is lost each year to the Black (Cash) Economy. Also, it’s reported that there are directors who make a habit of collecting as much tax as possible, clearing the business of cash, and leaving the company shell potentially owing large amounts of tax, super and employee benefits.
So we can see why the government is concerned about small businesses owing so much tax. But the latest legislation change is not good news for small business owners who already have a high compliance requirement in keeping their organisations financially healthy.
With the passage of The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019, directors could now be personally liable not only for Super and PAYG Withholding, but also the Goods and Services Tax (GST) should their business be unable to pay their debts.
This means that the director/s, in their personal capacity could be held liable. ie your family home and other assets could be at risk for GST now, as well as unpaid super and PAYG Withholding (group tax).
The message is very clear:
1. If you are a director of a company, make sure to settle the company’s GST when due, or enter into an ATO Payment Arrangement. It looks as though the ‘Corporate Veil’ is truly becoming a thing of the past with tax debt.
2. If you are asked to become a Director of an existing Company, be very wary of accepting unless you have all the relevant facts, and can be sure of the true situation regarding business & tax debt.
