Director IDs – ATO says no for resigned directors (and final reminder!)

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.