Sydney company director sentenced to three years jail for operating phoenix scheme

The former owner of a building company has been found guilty of running a phoenix scheme and sentenced to three years in jail, after failing to provide $6.7 million to the Australian Taxation Office.

The sentence comes as the ATO is continuing to clamp down on phoenix activity through its Project Wickenby tax probe. Last year, the Government pumped a further $122 million into the project until 2012 with the aim of reducing the damage.

The Sydney Downing Court found James Soong deducted $6.7 million from the wages of employees at two separate companies, and this money was not given to the ATO.

After the first company was liquidated, the employees were then moved into a second company. The ATO said Soong continued to withhold funds.

The case is only the 12th time since 1998 that a company director has been prosecuted for conducting fraudulent phoenix activity, the ATO said.

Tax commissioner Michael D’Ascenzo said in a statement Soong’s activities were typical of a phoenix operation, in which an individual or group operates through a second company in order to skip out on debts.

“They take deliberate steps to disguise themselves from creditors such as the ATO,” D’Ascenzo said. “Phoenix activities can be hard to identify and prosecute, so our main focus is stopping the activity before it occurs.”

Last year, D’Ascenzo told a Parliamentary committee hearing that there has been a noticeable rise in phoenix activity as companies deliberately head into liquidation in order to avoid paying tax, creditors and employee entitlements.

“It’s hard to say whether it’s due to the economic conditions or whether it’s due to people promoting and getting more involved in such activities,” D’Ascenzo told the hearing.

He also said the ability of the ATO to prosecute people involved in these cases is difficult, given that court penalties are too lenient.

However, it seems D’Ascenzo is pleased with yesterday’s outcome, saying in a statement that the ATO will continue in its crusade against the practice.

“This money is being used to help us identify and monitor people who get involved in phoenix arrangements so we can prevent them up front from ripping off Australia’s tax and superannuation systems.”

“However, where we find serious cases of phoenix activity, we will prosecute those involved to the full extent of the law.”

Phoenix activities cost the economy between $1-2.4 billion per year. The ATO said its investigation into phoenix practices along with the Federal Police will continue.

“We continue to look closely at taxpayers who abuse the system to try to gain an unfair competitive advantage against those businesses doing the right thing.”