The Australian Taxation Office says its fight against the rising level of phoenix activity is being thwarted by court penalties that are too lenient.
Tax commissioner Michael D’Ascenzo told a joint Parliamentary committee hearing in Canberra on Friday that there has been a noticeable rise in phoenix activity, which occurs where struggling companies deliberately go into liquidation to avoid tax, creditors and employee entitlements and then re-emerge as a another corporate entity.
“It’s hard to say whether it’s due to the economic conditions or whether it’s due to people promoting and getting more involved in such activities,” D’Ascenzo told the public hearing.
However, just 10 company directors have been prosecuted under phoenix trading laws since 2000. Deputy commissioner Mark Konza says one reason for the lack of prosecutions is the especially light sentences being given to those convicted in recent years.
In some cases, courts have imposed a sentence of home detention whereby the accused was allowed to leave the home during daylight hours to conduct business.
“So, there was essentially no penalty,” Konza said.
Phoenix activities have become a particularly focus of the ATO in the last few years and the ATO estimates the cost to the Australian economy from phoenix practices is between $1 billion and $2.4 billion a year.
In the 12 months to 30 June the ATO raised more than $83 million in tax penalties and liabilities from its crackdown on phoenix practices and in the May Federal budget the organisation was given more specific funds to hunt for phoenix cheats.
“Tax avoiders involved in phoenix operations deny vital funds to Australian public services and even cheat employees of wages, superannuation and other entitlements,” Assistant Treasurer Nick Sherry said earlier this year.
The ATO is considering pushing the Federal Government to toughen the penalties for phoenix behaviour and is working closely with the Commonwealth Department of Public Prosecutions on six phoenix cases currently under investigation.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
