Company directors must apply for their Directors Identification Numbers ASAP or face $13,000 fine.

More than 1 million people could become ineligible to run companies by the end of this month — and face fines of up to $13,000 — as the Australian Taxation Office introduces a new hurdle to crack down on “dummy directors” and the practice of “phoenixing”.

It will be mandatory for all company directors covered by the Corporations Act to have a unique ID number by the end of November.

The Directors Identification Numbers (DINs) will allow authorities to track activities through various government databases.

This covers people running major entities, many small businesses, and even charities and not-for-profit groups. The only exception is company directors of Indigenous corporations, who have been given an extra year, until November 30, 2023, to apply for a DIN.

Currently half of Australia’s estimated 2.5 million directors have not yet been issued one, with just weeks to the deadline.

Why do directors now require Directors Identification Numbers?

Previously, people with little-to-zero connection to the everyday running of a company could have been appointed as its director.

This opens these people up to legal ramifications, including fines and bankruptcy, if the company collapses and is found to have acted against the law.

It also makes it very hard for liquidators to investigate the true dealings of a failed entity and its business connections.

Dummy directors allow companies to be placed into liquidation owing significant amount of debts, allowing new companies to be incorporated, with the original business assets transferred.

The practice of “phoenixing” (when a new company rises from the ashes of another) costs the nation’s economy between $2.9 billion and $5.1 billion annually, according to the ATO.

Often the loser is the ATO itself, when a company liquidates having avoided paying taxes for itself or its workers. However, the practice can also leave sub-contractors, employees, customers and suppliers owed money and entitlements.

Construction is one of the industries most commonly associated with phoenixing and dummy directors.

The ATO says DINs will crack down on this issue, because they will authenticate who is controlling companies and make it easier for liquidators to connect dodgy dealings.

The scheme is being implemented by the Australian Business Registry Services (ABRS), which is a unit within the ATO.

As of this week, just 1.14 million DINs had been issued. The process of applying for a DIN can all be completed online, and takes about 15 minutes if you have a passport and driver’s licence. Apply here: https://www.abrs.gov.au/director-identification-number/apply-director-identification-number

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.