A decision by the Government to withdraw an amendment to the director penalty regime from its recent tax laws amendment means the initiative to target phoenix directors may be lost, according to partner at Holding Redlich lawyers, Jenny Willcocks.
On 21 November, the House of Representatives passed the Tax Laws Amendment (2011 Measures No 8) Bill 2011, but without the Schedule 3 section of the Bill that would have extended the director penalty regime to make directors personally liable for their company’s unpaid superannuation guarantee amounts.
The House of Representatives Economics Committee had previously recommended deleting Schedule 3 (described as "badly drafted" by Coalition members of the committee) to allow further consultation. This would help identify additional defences that would allow innocent directors to avoid exposure to the director penalty regime.
Willcocks said there had been a concern directors not involved in wrongdoing could be caught up by the measures, and while the Bill provided defences to overcome this it would still be up to the directors to bring themselves within those defences – effectively a ‘guilty until proven innocent’ approach.
But if the measures were to only target directors found guilty of phoenix activity, that would mean it could not be applied until those directors were convicted – inevitably, long after the assets have been disposed of and became unrecoverable, she said.
It seems the initiative may be lost unless the Government can work out defences that are seen as offering adequate protection to innocent directors, Willcocks said.
"I doubt that directors will consider any defence acceptable, as it will always be up to them to successfully plead that defence," she said.
"While this debate continues, members continue – through no fault of their own – to lose superannuation contributions as a consequence of these schemes. It is disappointing, but it seems the opportunity may have been lost."
