Now, Directors are required to register for Director IDs – a unique identification number that they will keep for life, much like a tax file number.
The introduction of the Director Identification Number (DIN) regime is part of the Government’s Modernisation of Business Registers (MBR) Program, designed to create greater transparency. The MBR will unify the Australian Business Register and 31 ASIC business registers, including the register of companies.
In effect, the system will create one source of truth across Government agencies for individuals and entities and will be managed by the Australian Taxation Office (ATO).
Why do we need Director IDs?
Under the new regime, all directors need to have their identity confirmed when they consent to being a director.
You will then keep this number permanently, even if you cease to be a director. The number will not be issued to another person. The result is an ID system that traces a director’s relationships across companies, enabling better tracking of directors of failed companies and prevents the use of false identities.
The target is illegal phoenixing. Phoenixing is when directors transfer the assets of an existing company to a new company without paying full value, leaving the debts with the old company. Once the assets have been transferred, the old company is liquidated leaving creditors out of pocket – mostly customers and contractors, unpaid employee entitlements, and unpaid taxes.
Once the assets are transferred to a new company, the directors then continue to operate the business in a new entity. They start again with the benefit of having the assets of their old company as a foundation.
Who will need a Director ID?
The Director Identification Number is very broad and introduces the concept of an ‘eligible officer’.
An eligible officer is a director who:
- is appointed to the position of director, or is appointed to the position of an alternate director and is acting in that capacity (regardless of the name that is given to that position); or
- any other officer of the registered body who is an officer of a kind prescribed by the regulations.
The definition picks up the concept of ‘shadow directors’ who act in the capacity of directors through influence and control but are not directors by title. So it is feasible that someone who is not a director but is seen to be making decisions on behalf of the company can be held to account.
An eligible officer is a director of a:
- registered foreign company
- registered Australian body under the Corporations Act such as an association or a charity, or
- an Aboriginal and Torres Strait Islander corporation (which are registered under the CATSI Act).
Directors need to apply for Director IDs through the Australian Business Register system through their myGov account. If you do not have a myGov account, it would be a good idea to create an account and become familiar with how it works, and set up your myGovID.
When you register, you will need to declare that the information you have provided is true and correct, you are or will be an eligible officer within 12 months, and you do not have an existing Director ID (or applied for one).
The table below outlines the regulations for existing and proposed Directors when dealing with Director IDs.
Existing Directors that were appointed before 1 November 2021 will have until 30 November 2022 to acquire a DIN (30 November 2023 for directors of corporations under CATSI). If someone became a Director between 1 November 2021 and 4 April 2022, they will have 28 days to apply for a DIN from the time of their appointment. From 5 April 2022, you will need to have a DIN prior to being appointed as a director.
Unlike the existing system that merely registers information, the new regime will verify a director’s information and may utilise other sources of information such as your driver’s license and/or link to your client record held by the ATO.
Why is this change necessary?
The new regime will not overcome one problem area – where naive participants are encouraged to become directors in name only such as elderly parents, or a spouse. That is, the identity of that person is legitimate but their role as a director is merely window dressing and they do not fulfil the role as active participants – a situation that is not uncommon in family groups.
It’s important that anyone agreeing to be a director understands the implications. Being a director is not just a title; it is a responsibility. At a financial level, directors are responsible for ensuring that the company does not trade while insolvent. The by-product of this is that the directors may be held personally liable for the debt incurred.
The director penalty regime has also been tightened up in recent years to ensure that directors are personally liable for PAYG withholding, net GST and superannuation guarantee charge liability if the company fails to meet its obligations by the due date. For many small businesses the directors are also often personally responsible for company loans secured against property such as the family home.
Failing to perform your duties as a director is a criminal offence and can result in fines and prison time. There is a great deal of risk and responsibility involved and we highly recommend that anyone considering taking on such a role seeks advice from a qualified professional such as an accountant and/or lawyer.
Regulators will be able to enforce the law with civil penalties if someone fails to obtain a Director ID within the set timeframe. The penalties include:
- $13,200 fines for criminal offence
- Fines up to $1,100,000 if the court thinks it is appropriate to apply a penalty.
The failure to register for Director IDs when required is a strict liability and the regulator does not have to prove fault, they will simply issue an infringement notice.
How to set up your Director ID:
Please note that your tax agent cannot apply for a Director ID on your behalf. It must be done yourself.
Step 1: You will need a myGovID to begin the process. You can read our guide to setting up a myGovID here. If you don’t have a myGovID you can apply via phone
Step 2: You will also need to gather your tax file number, your residential address (as held by the ATO) and two other identity documents such as a Notice of Assessment, Super or Bank Account details or PAYG Payment Summary. These identity documents need to match the details the ATO has on file for you.
Step 3: Once applications open in November, you can complete yours online using your myGovID.
Step 4: Let your accountant/tax agent know! We don’t receive a notification when you get a Director ID, so it’s very important that you forward your Director ID Number and any confirmation documents to us for our records.
If your personal information in myGov doesn’t exactly match other Government records, there may be additional steps involved in the process. If your application is unsuccessful for this reason, please get in touch with us.
A full list of the the step by step guide is also available on the ABRS website.
Other Content for Directors:
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