Director ID numbers are coming: SMEs need to apply by end of 2022

Australian company directors will have until the end of 2022 to apply for a director identification number, as part of the federal government’s efforts to stamp out illegal phoenix activity. 

According to draft legislative instruments issued by the Treasury, the deadline for new and existing company directors to apply for a director ID will be November 30, 2022. 

Directors of Indigenous companies will be given an additional 12 months to apply for a director ID number under the proposed timeline, with a separate deadline of November 30, 2023 applied to those businesses. 

The federal government has been working for a number of years towards the introduction of a director ID regime, which will effectively allow directors to be traced across companies. 

It is hoped this system will prevent the use of false identities and help prevent illegal phoenix activity, where directors deliberately liquidate companies to avoid paying debts, which is estimated to cost the Australian economy between $1.8 billion and $3.2 billion each year.

Legislation for the director ID system was passed in June 2020.

Additional funding was announced in the 2020 federal budget to integrate the system with the government’s Modernising Business Registers (MBR) program. This integration will create a super registry by bringing together the Australian Business Register and 31 other registers currently administered by the Australian Securities and Investments Commission, forming the Commonwealth Registrar. 

According to the Treasury, the new director ID system is expected to cover 10% of the Australian population, or 2.5 million individuals. 

How the director ID system will work

The director ID system will be administered by the Commonwealth Registrar, which will operate under a separate statutory function of the Australian Taxation Office (ATO). 

All directors will be required to establish their identity with the Commonwealth Registrar before receiving their unique director ID, which they will retain throughout their lifetime, even if they cease to be a company director. 

This process will involve directors providing their names and former names, addresses and former addresses, contact details, and their date and place of birth. 

Directors will also need to prove their identity using key identifying documents, such as a driver’s licence, passport, birth certificate or visa, and may be asked to provide their tax file number (TFN). 

While the Commonwealth Registrar will operate separately to the ATO, it may ask the ATO to provide the TFN of applicants in order to verify their identities, and details provided to the registry may be cross-checked against the taxation office’s records. 

Directors will face significant civil and criminal penalties if they fail to apply for a director ID by the deadline, and for conduct that contravenes the new rules, including falsifying identify information or intentionally apply for multiple director IDs. 

For companies registered under the Corporations Act, directors face potential civil penalties of up to 5,000 penalty units, or $1.1 million. 

For Indigenous companies overseen by the Corporations (Aboriginal and Torres Strait Islander) Act 2006, the maximum civil penalties will be set at $200,000. 

What happens next?

According to the proposed arrangements, the director ID regime will first go through a testing phase, which will run until October 31 this year. 

As part of this phase, the Commonwealth Registrar will invite a group of existing directors to test the system to make sure it has a “robust, reliable and consistent user experience”.

After this testing is completed, existing directors and those who became directors during the testing phase will have a little over 12 months to apply for their director ID number. 

Anyone who wishes to become a company director after November 30, 2022 will need to apply for a director ID before being appointed as a director. 

Consultation on these transitional arrangements is still underway and interested parties have until April 16 to make submissions. 

More information is available here.