The changes implemented in Part VI of ITAA 1936 can be broken down into three broad areas:
- Division 1 – General rules about collection and recovery of Income Tax;
- Division 8 – Prompt recovery of certain income tax liabilities through estimates;
- Division 9 to 10 – Director Penalties for non-compliance.
Division 1 Changes
The major area of focus within the Division 1 changes is the expanded ability of the Commissioner to seek a security deposit from a taxpayer for future tax liabilities. Although this provision has been available to the Commissioner since 1936, the changes have expanded the provision to include all taxes administered by the ATO, as opposed to just income tax which previously was the case. Refusal to provide the security sought is a criminal offence.
The provisions have also been updated to include guidelines for the ATO about the process they need to go through, along with rights and obligations of the taxpayer.
Division 8 to 10 ChangesThere are only small differences in the rewrite of these divisions; however the changes do allow the Commissioner to assess unreported PAYG and take legal action based on those estimates. This option was not previously available to the Commissioner. There were also updates to the divisions to bring them up to current ATO protocol, for example to reflect the use of the Running Account Balance System by the ATO.
Division 9 to 10 Changes
As with the changes to the other Divisions the rewrite of the Divisions was aimed at simplifying the provisions of the Act, and it also aimed to provide Directors with a clear set of rights and obligations.
The changes also took into account recent court decisions by increasing the time a director has to respond to a notice from 14 to 21 days (from the date the notice is posted, not when it is received) and ensuring that postage is proof of service as governed by section 28 of the Acts Interpretation Act 1901 and the Taxation Administration Regulation 1976. It also makes clear that the ATO can rely on certain ASIC information, such as the registered address when dealing with a tax payer.
The company will have a period of 21 days rather than 14 days to either comply with its tax obligation, appoint a voluntary administrator or wind the company up – again, allowing more time and in this circumstance, bringing the time limit in line with the time for a creditors’ statutory demand (although that of course runs from the date of receipt by the company and not the date of posting).
The division has also seen a redefining of what a business is, with references to ‘carrying on a business’ in section 213 have been changed to ‘carrying on an enterprise’ to reflect the widened application of the provisions to other taxes, including the goods and services tax.
The provisions have been amended so that entering into an instalment arrangement will not remit the director’s obligations under the DPN – this changes the position previously as an arrangement to pay the tax would bring the DPN to an end.
The provisions have also been amended to make it more difficult for a director to rely on the defence that the director did not take part in the management of the company as a result of ‘illness or other good reason’ - it is now a requirement that the director show it would have been unreasonable to expect the director to have taken part in the management of the company at that time. This overcomes a number of decisions where the ATO was unsuccessful in DPN proceedings where directors have relevantly relied upon an extended illness or even, in one case, the illness of their wife to say that they were not involved in management.