ATO carries out raids on phoenix advisors

ATO raids on phoenix advisors

Fiona Boyce and Divyansh Sharma, Tax Law specialists, report on the ATO's recent compliance focus targeting phoenix activity.

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Documentation and paper work

The Australian Taxation Office (ATO) and Australia Securities and Investment Commission (ASIC) have recently made surprise visits to businesses and residential sites of self-proclaimed ‘pre-insolvency advisors’ who have been identified as promoting and facilitating illegal phoenix activity.

These unannounced visits are in line with a similar operation across Sydney in 2015, conducted by the ATO and other law enforcement agencies. The decision to make such visits last year was substantiated by Deputy Commissioner Michael Cranston, who said at the time:

“Sometimes the element of surprise is needed to get a result, particularly when dealing with companies we suspect are setting out to cheat the system and where records may be destroyed if we give notice.”

There is no legislative definition for ‘phoenix activity’, however it is commonly known as the deliberate administration or liquidation of a company to avoid its liabilities to creditors, employees and the ATO, followed by the establishment and transferal of assets to a new entity, which carries on the same business. The ATO has reported that phoenix activity costs the Australian economy up to $3.2 billion every year.

In response to this issue, a ‘whole-of-government’ approach was adopted in 2014-15, which led to the establishment of the ‘Inter-Agency Phoenix Forum’ and ‘Phoenix Taskforce’. Since these initiatives, the ATO has intensified its approach in its fight against phoenix activity through raids and the development of a phoenix model, to assess whether further compliance action is required.

Penalties

Where phoenix activity is established, directors can expect to face serious criminal penalties as well as penalties under the Corporations Act 2001, relating to breach of director duties, director disqualification and insolvent trading.

Furthermore, avenues available to the Commissioner under the Taxation Administration Act 1953 (Cth) for deterring phoenix activity include:

  • obtaining security for an existing or future tax liability from an entity
  • issuing a director penalty notice (DPN) to make directors liable for unpaid Pay-As-You-Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) contributions. Alternatively, the Commissioner can impose a PAYG withholding non-compliance tax on directors
  • issuing garnishee notices to third parties which owe or may later owe money to the debtor company.


Watch this space for further assertive ATO activity in combatting phoenix activity.

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