Legislative changes
A draft statement to combat the illegal Phoenixing activity (where a new company is created to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts) has been released. The statement provides clear guidance on when the ATO can, and may consider utilising, the Commissioner’s powers to retain tax refunds, which is now possible due to legislative changes.
The Commissioner’s discretion extends beyond those taxpayers potentially involved in Phoenixing activity. It can now be applied to taxpayers who are identified as engaging in “high-risk” behaviour as well. These changes became law on 1st April 2020.
High-risk behaviour
In the first year of operation, the Commissioner indicated that he would not be limiting any investigation into high-risk behaviours that would allow him to use his discretion. To understand what the “high-risk” behaviour means, the practice statement has provided a list of such practices, which include:
- Non-compliance in the past and present with taxation and superannuation of any form
- Circumstances involving bankruptcies or insolvencies
- Penalties imposed related to tax and subject to director penalty notices or committing any offence against the ATO.
- Being in contact or in connection with advisors who have had a history of penalties or sanctions regarding taxation or superannuation.
- Any past information that provides reasonable doubt on fraud, intentional disregard, or recklessness
- Participation or likelihood of the involvement in any tax evasion scheme
All these high-risk behaviours indicate that the ATO is likely to retain a considerable amount of refunds for clients with poor compliance history or other lodgement problems. This scheme will provide additional incentive for clients to lodge documents and pay the tax owed to ATO on time to ensure they remain compliant.
Further information can be found in PS LA 2020/D2.
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Note: This article contains general information and has not considered your particular circumstances. Before you decide based on this advice, you should consult with an adviser whether any action is appropriate to your financial circumstances. In addition, the examples provided on this site are only for illustrative purposes.
