Government Looking to Move on Phoenix Activities

The Assistant Treasurer has flagged coming Government action against phoenix activities. Phoenix activity is typically associated with directors who transfer the assets of an indebted company into a new company of which they are also directors.  The directors then place the initial company into administration or liquidation with no assets to pay creditors, meanwhile continuing the business using the new company structure.

The Assistant Treasurer said the Tax Office estimates that the annual cost to revenue of phoenix activities is around $600 million. He said the activity has been prevalent in the building construction industry, hospitality, cleaning services, but is spreading into other sectors.  

The Government released a discussion paper on this in November 2009 and Senator Sherry outlined some of the possible action the Government might take, such as:

• Change the law so that directors engaged in fraudulent phoenix activity cannot avoid personal liability for paying the tax that is owed by the company and the superannuation guarantee;
• Extend Pt IVA to give the Commissioner specific powers over phoenix-type activities as well as possibly including a description of phoenix-type activity in the law. The aim would be to ensure there are anti-avoidance provisions in the taxation law (either through an expansion of Pt IVA or through the creation of a specific provision) to effectively negate any taxation benefit derived from fraudulent phoenix activity;
• Stopping a company from reusing the same name that it used when it collapsed;
• If someone has a previous record of phoenix-like activity, they may have to pay some tax up front (ie effectively a bond) before they can activate the business through the company structure. This would provide the Commissioner with the discretion to require a company to provide an appropriate bond (supported by sufficient penalties) where it is reasonable to expect that the company would be unable to meet its tax obligations and/or engage in fraudulent phoenix activity.

The Assistant Treasurer has stated the problem is a serious one, and he was ‘prepared to wear some flak on this issue, frankly, in order to protect workers’ entitlements and also legitimate businesses who’ll lose out when not paid for their supplies’. The Assistant Treasurer said he would receive the detailed analysis from Treasury on the submissions in the next month and then he would be keen to get ‘some specific amendments, proposals to the law, out for this year’.

For more information contact Taxation Principal, Darren Shone, via email or (02) 4962 2688: Email Darren