Unpaid Luxury Car Tax – Directors soon to be personally liable

As of 1 April 2020 Australian company directors will become personally liable for any of their company’s unpaid Luxury Car Tax, as well as other indirect taxes.

Under the recently enacted Combating Illegal Phoenixing legislation the director penalty rules have been extended to encompass the indirect taxes, Luxury Car Tax (LCT), Goods and Services Tax (GST) and Wine Equalisation Tax (WET). These changes essentially extend the Commissioner’s powers which previously used to only apply to the superannuation guarantee and PAYG withholding.

Directors’ liability regarding LCT

From 1 April 2020, directors will be jointly and severally liable for any unpaid LCT liabilities unless they have taken corrective action within specified time limits. This includes liabilities arising whilst they were a director even if they have subsequently resigned.

LCT estimates & Tax refunds

The legislation allows the Commissioner to estimate an amount of LCT owing where a return has not been lodged, and the taxpayer will be liable to pay the estimate. The Commissioner will also be able to withhold tax refunds where an entity has not lodged a return.

Action required

Even though the changes are focused on phoenixing activities they can still apply for other indirect tax defaults and perhaps now is the time for directors to consider:

• whether the company is fully meeting its LCT requirements (including GST and WET requirements);
• whether the company is up to date with indirect tax lodgements;
• whether the company is able to meet its requirements in the event of unusual circumstances such as staff departures or current circumstances surrounding COVID-19;
• whether any additional internal training is required; and
• whether processes are in place for the appropriate escalation of indirect tax issues.

Get in touch

To discuss how we can provide support to you and your business in relation to the above, please reach out to one of our tax experts.