One ID to Rule Them All

The current focus on director details and registration requirements as a result of the incoming director Identification number (Director ID) program provides a great opportunity for advisors and their clients to ensure their records are up to date.

Director IDs will be rolled in over the next six months and as part of the application process, directors will need to evidence their residential address amongst other details. Ensuring a director’s registered address details are correct will ensure a director is notified in the instance where a Director’s Penalty Notice (DPN) is issued by the Australian Taxation Office (ATO). If a DPN is issued to a director’s registered, but out of date or incorrect, postal address a director may not be aware they are at risk of becoming personally liable for a company’s taxation debts. Read on for an overview of the Director ID and DPN regimes and a discussion of why compliance is critical from a pecuniary and a corporate veil perspective.

By now you are all aware of the incoming Director ID requirements and (hopefully) made the necessary steps to ensure compliance. Having said that, with deadlines looming, it has been reported that half of Australia’s estimated 2.5 million directors have not yet been issued a Director ID. The Director ID has been introduced to help prevent the use of false or fraudulent identities, assist external administrators and regulators keep track of directors and their relationships with companies and identify director involvement in illegal phoenix activity. Under the prior regime, the requirements to evidence one’s identity when applying to sign up as a director were far less stringent, inviting abuse of the system by unscrupulous individuals.

You will need a Director ID if you or your client are a director (or someone acting in that capacity) of a company, registered Australian body or registered foreign company under the Corporations Act 2001 (Corporations Act). The Director ID will be a fifteen-digit identifier and directors will only ever have one Director ID, regardless of whether they change companies, stop being a director, change their name or move overseas. A central component of the Director ID application will be ensuring the registered postal address for a director is current and up to date.

The deadline by which a director must apply for a Director ID depends on when an individual was first appointed as a Director and under which Act. The following table summarises the timeframes under the Corporations Act:

*There are different deadline requirements for directors registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).

The vast majority of currently registered directors must apply for a Director ID by 30 November 2022.  The ATO has confirmed that individuals who have not applied before the deadline could face penalties of up to $13,000. Instances where individuals intentionally avoid applying and registering could face much greater fines and penalties.

Like all new systems, there will be teething issues and some individuals will face complications while applying. There are systems in place for people who cannot apply by the due date and applications for an extension can be lodged (see the Australian Business Registry Service website for more information).

Critically, applications must be accurate and registered details must be correct and up to date. Failure to ensure a director’s details are correct could be catastrophic if a DPN is issued and sent to the director’s registered, but incorrect or out of date, postal address.

A DPN issued by the ATO can pierce the corporate veil and make an individual personally liable for certain amounts. If a DPN is issued and posted to the director’s registered address as it appears on the Australian Securities and Investments Commission’s (ASIC) register it is considered to be validly issued. If the address is incorrect or out of date the DPN is still considered to be validly issued and the same timeframes for action (if appropriate) will apply.

The ATO is currently ramping up debt collection activities, after a significant period of quiet in consideration of the impact of the COVID-19 pandemic on Australian businesses. The ATO’s DPN system warrants a whole series of articles unto itself on the potential impact on a director personally. For this article’s purposes we will provide a very high-level overview and reinforce why the introduction of the Director ID is an opportune time to ensure all registered details, especially addresses, are correct.

The ATO can issue a DPN to a director of a company for unpaid amounts of pay as you go withholding (PAYGW), goods and services tax (GST) and super guarantee charge (SGC), collectively referred to as director penalties. The DPN outlines the unpaid amounts and the remission options available.

Remission of a DPN is only possible if the director penalties are paid in full or; where the PAYGW and GST payable was reported to the ATO within three months of the due date (or within three months of the date of appointment for new directors) and SGC was reported by the due date. To facilitate remission, one of the following must be actioned within twenty-one days:

• appointing a Voluntary Administrator; or
• appointing a Small Business Restructuring Practitioner; or
• the company begins to be wound up (i.e. the appointment of a Liquidator).

This type of DPN is known as a non-lockdown DPN. If the GST and PAYGW remains unreported or is reported more than 3 months after the due date or the SGC obligation is reported after the due date, the only way to remit the director penalty amount is to pay the debt in full. This is known as a lockdown DPN.

If a non-lockdown DPN is issued to a director’s registered address, the twenty-one day period commences on the day it is posted, regardless of whether the director has kept the records up to date. This scenario could result in a director being unaware they have been issued a non-lockdown DPN and the window of opportunity to take action could be shortened or missed entirely.

The introduction of the Director ID is an opportune reminder for director’s, advisors and clients to review their details and ensure that all information is correct and current. In the short term, all directors need to be aware of the timeframe for applying for the Director ID and the necessary steps to request an extension if required, to avoid any potential fines. Moving forward, systems should be put in place to ensure that registered addresses are maintained and kept up to date and accurate to help ensure that critical information and notices, such as a DPN, are received in a timely manner and can be actioned within the respective timeframes.

References:

‘Company directors scrambling to get ID or face $13,000 fine in bid to stop ‘dummy directors’

About director ID

Application for an extension of time to apply for a director ID

Apply for your director ID

Director penalties

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.