Are you a company director?
Maybe a director of the corporate trustee of your family trust?
Then you should know that the Government recently passed Bills to amend the Corporations Act 2001 to introduce a ‘Director Identification Number’ (DIN).
What is a DIN for?
This means that all company directors will be required to prove their identity because they will have a unique DIN which will follow them to all companies to which they become a director.
Why has this been introduced?
These measures are aimed to assist regulators to investigate unlawful corporate activity including ‘phoenix activities’.
Phoenixing is where a company director may close an entity that is insolvent and transfer the assets to a new company to avoid debts and liabilities.
It will be used to help reduce fraud and illegal activities.
A DIN also helps to prevent the creation of false identities and allows tracing of a director’s previous involvement with any insolvent companies.
Things you should know
- Directors are only allowed to have one DIN even if multiple companies.
- The ATO will be the operator of the new commonwealth register.
- The DIN scheme will remove personal/sensitive information from the registry i.e. home addresses- a welcomed measure.
- You will have to make an application prior to acting as a director if you are going to be a new director of a company for the first time. The transitional period will enable you to apply for a DIN within 28 days of your appointment to the Board.
- Existing directors must apply within a timeframe specified by the Registrar.
- The DIN regime will also apply to:
- acting alternate directors.
- management committee members of registered bodies such as incorporated associations with an Australian Registered Body Number who are registered under the Corporations Act.
- directors of foreign companies registered in Australia.
- Aboriginal and Torres Strait Islander corporations.
Consequences if you do not apply for a DIN
There will be heavy penalties if a director does not apply or provides false or misleading information to obtain a DIN.
This will include infringement notices and both civil and criminal penalties. Once the regime commences, there will however be a 12-month transition period in place.
When will I need a DIN?
The commencement date is not yet set and still to be confirmed however it is expected that this new law will commence early 2021.
How to apply for a DIN?
It is expected that the DIN application will be completed via the MyGov system however it is unknown at this stage.
This latest legislation should also act as a reminder to anyone who is a director or is contemplating being a director that there are many requirements in being a director the most common of which are your fiduciary duty to act for all shareholders, to act honestly and to ensure the company complies with all its obligations.
Directors found wanting in these areas can face severe penalties including jail.
Directors can also be personally liable in instances of fraud, allowing a company to continue operating if insolvent and to pay tax related obligations including withholding tax, GST and superannuation guarantee.
Personal liability also extends in the area of Occupational Health and Safety.
Ken Raiss is director of Metropole Wealth Advisory and gives independent expert advice for property investors, professionals and business owners. He is passionate about real estate investing and small business and is a regular commentator for Michael Yardney's Property Update.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.