The controversial new Director Identification Number (DIN) system is now a step closer, but the business community remains deeply divided over the new legislation – for good reason.
While the DIN will allow for regulators to better track directors of failed companies with fictitious identities, it will also add to the administrative burden placed on Australian companies.
The DIN regime aims to combat illegal phoenixing but also directly and significantly impacts all directors and companies.
The Federal Government passed the laws for the long-time-coming registry legislation without amendment in June 2020.
Snapshot of what Director Identification Numbers will mean:
New legislation will facilitate the creation of a mega-business registry from 32 individual registries. This move is part of a $60 million program to optimise reporting and licensing for businesses. Operated by the ATO, the program will consolidate 31 ASIC business registers, including 2.6 million registered companies and 7.9 million active ABNs. The idea is that the composite registry will provide a powerful foundation for fraud management and regulatory oversight.
The ATO plans to automate compliance and other functions by linking the registry to private business technology infrastructure. The integration of private accounting systems with the single touch payroll (STP) software is set to build a powerful multifunctional platform. This will enhance lawful transactions and interaction between businesses and government.
Director Identification Number Transition Period
The new identity system permits a 28-day period for directors to verify themselves and obtain a director identity number within the first twelve months. Following that period, new directors must have a DIN prior to their registration. Different rules apply for current directors, who have 18 months to verify their identity.
New legislation aims to combat the corporate act of phoenixing. The act of phoenixing involves a company deliberately dodging debts or liabilities by shutting down an indebted entity and transferring its assets to another one. The practice is detrimental to both creditors and employees. Additionally, the general public misses out on the would-be benefits from dodged taxes. The Australian economy loses between $2.9 billion and $5.1 billion to corporate phoenixing every year.
The Director Identification Number is unique and stays with any director throughout their entire lifetime. Directors have not been required to verify their identities previously. This has led to the registration of many false and satirical name selections. The mega-registry and DIN system will increase corporate accountability as well as improving transactional activity between organisations and the government.
If you’re unsure about the implications of the new legislation or have any more questions regarding any of the above developments, please reach out to your Morrows advisor.