The Commissioner of Taxation has released a draft legislative instrument that relieves former directors from needing to apply for a director identification number. However, there are still some uncertainties.
The director identification regime requires most directors of companies to apply for a director identification number. (There are some very limited exceptions.) There is a grace period for directors of companies who were appointed prior to 31 October 2021-those directors have until 30 November 2022 to apply for a director ID. You can read more about it here.
Except for directors appointed before 5 April 2022, a person needs to have applied for and received a director ID before they are appointed as a director.
Some unintended consequences
The grace period for directors appointed prior to 31 October 2021 has created uncertainty-what happens if a person ceases to be a director before the grace period ends on 30 November 2022?
On 15 November 2022, the Commissioner of Taxation published draft legislative instrument ABRS 2022/D1. The effect of this is that directors who were directors of companies before 31 October 2021 but resign before 30 November 2022 will not be required to apply for a director ID.
What does this mean practically?
For directors who do not or cannot apply for a director ID, it is essential that they resign or are removed as directors by 30 November 2022. Directors who have not applied for a director ID before 1 December 2022 face substantial fines ($1.1 million in civil penalties - and there are also criminal penalties).
Ongoing concerns
One issue that is not resolved by ABRS 2022/D1 is how the ATO plans to deal with directors who lost capacity prior to 30 November 2022 and are not automatically removed by the company's constitution. A common sense approach would suggest that the ATO would not take enforcement action against a person who was a director at 1 April but lost capacity prior to 30 November. The legislation, however, imposes strict obligations and every person who is a director of a company at 1 December 2022 should have a director ID.
What does this mean for advisers?
If you have clients who have lost capacity or do not wish to apply for a director ID, there is a small window of time for those clients to be removed as directors before they face enforcement action.
Removing incapacitated directors is a fact-specific exercise that depends on the make-up of each company, its constitution, any shareholders agreements, corporations law and the laws relating to substituted decision-making.
If you would like advice about how to remove directors from companies prior to 30 November 2022, please contact a member of our team.
Final reminder - 30 November 2022
All existing directors, who continue as a director after 30 November 2022, must have applied for a director ID before 30 November 2022.
For most people, this is a simple process, which can be done online in 15 minutes. However, this is not always the case. We are aware of a number of instances where applying for a director ID has taken several days and required additional steps (such as contacting the ATO).
As a result, all directors who do not currently have a director ID should take steps immediately to apply for a director ID.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.
