As of the 1st of November 2021, if you are a director of a company, including one serving as a corporate trustee of a trust or a self-managed superannuation fund (SMSF) – or if you are intending on becoming a company director – you must apply for a Director Identification Number (Director ID).
What are Director IDs?
Director IDs are 15-digit unique identifiers that company directors will apply for once and keep forever with the aim of creating a fairer business environment. Director IDs will make it easier for ASIC, the Tax Office and other government agencies to trace director relationships across companies with the aim of identifying and preventing fraud and eliminating director involvement in illegal activities such as illegal phoenix activity.
How do I apply for my Director ID?
Applying for your Director ID is something that you need to do yourself as it requires that you first authenticate your identity using the myGovID app. The following will help guide you through the myGovID set-up process, however, if you find you still need assistance, please let us know.
What do I do with my Director ID now that I have one?
Once you have your Director ID, you must provide it to the person or organisation responsible for updating your company’s records (which may well be us, in which case please call us on 9221 4100 with your 15-digit number). As Director IDs are sensitive – like tax file numbers – we do not recommend that you email them to anyone.
ASIC hasn’t yet rolled out the functionality required to link Director IDs to relevant companies. Until it does, you must keep a record of your Director ID in a safe place because you will eventually be required to provide it. It is anticipated ASIC will be ready for Director IDs in late 2022 / early 2023.
How soon do I need to get this done?
Your deadline for applying for a Director ID depends on the date you officially became a director.
We will be following up with our director clients in the coming weeks about the need for them to obtain a Director ID and will issue reminders again in the new year.
Business Tax Debts & Consumer Credit Scores
From the 1st of July 2018, a significant change took effect in terms of the finance industry and comprehensive credit reporting (CCR). My Credit File explains it as follows:
“Comprehensive credit reporting changes the type of consumer credit information that can be collected by credit bureaus and used by credit providers when making a lending decision.
Previously, Australia had a negative reporting system. This meant consumer credit reports could only contain information such as credit enquiries (typically applications for credit e.g. a personal loan or credit card) and information from credit providers such as payment defaults and serious credit infringements.
Under a comprehensive credit reporting system, positive data is able to be included on credit reports. The positive data that can be included on credit reports includes account information such as the date an account was opened and closed, credit limit, type of credit account as well as 24 months repayment history. Repayment history information can only be provided by and shared with licenced credit providers – this doesn’t include telco and utility companies. This means that if you make your repayments on time each month this good credit behaviour will be recorded on your credit report.”Positive data has the potential to reward those people who consistently pay their bills on time and are good at managing their finances with an improved credit score. The better your credit score, the more likely it is that any credit applications you make will be approved.
A little-known fact about the new CCR system, however, is that the Australian Tax Office is now capable of disclosing outstanding tax debts owed by self-employed individuals and companies. This move by the ATO is unprecedented, however, the Tax Office argues that its disclosure to credit reporting agencies enhances the transparency of the credit reporting system by making tax liability information available when a lender is determining an applicant’s creditworthiness. Credit files will start seeing ATO-reported information from the 1st of January 2022.
What does all of this mean to me?
Before now, a lender would only know a tax liability existed if the ATO had commenced proceedings and been awarded judgment, which would then have been recorded on a credit file, or if the applicant themselves disclosed the debt.
Now, however, in the event that you owe the Tax Office money and can’t pay your debt off in time, the ATO will advise credit reporting agencies of your debt regardless of whether or not you enter into a manageable payment arrangement with them. In such situations, your diligent adherence to your payment arrangement will be crucial and could ultimately be viewed as a positive. Provided you are able to successfully pay down the entire sum owed and do not fall further behind (your credit report will display your most recent 24-months of credit history), your capacity to repay your debts will be viewed favourably by future lenders.
For those of you working as brokers, this change could prove problematic for your commercial clients, impacting their creditworthiness and capacity to obtain finance for property acquisitions and large-scale projects.
While the CCR was designed to give lenders better insight into an applicant’s creditworthiness, so too does it allow consumers (ie: you, us) the opportunity to ensure the use of credit positions them in such a way that future loan applications will be accepted. (We will discuss how to position yourself to improve your likelihood of success with finance in a future newsletter.)
Lastly, it’s important to note that an increase in the volume of information being recorded against our respective credit files brings with it an almost inevitable increase in the volume of information being inaccurately recorded. If you have not recently requested a copy of your personal credit file, we encourage you to consider doing so and checking that no outdated or incorrect information is recorded against your name. You can request a free copy from mycreditfile.com.au every 12 months. If you think there has been a mistake, be sure to contact your relevant credit provider to discuss.
If you would like to arrange a meeting with us to review your financial position and discuss opportunities for improvement, please let us know.
Alternatively, if you feel you are in over your head and need some urgent support, we encourage you to reach out to a free financial counsellor. (And keep us in the loop in case there’s any way we can support you through that process.)
Attention Sole Directors: You need a Successor
A successor director is a person who automatically becomes your nominated successor – a fully-fledged director of your company – in the event that you lose capacity or die. That means that if you are suddenly out of the picture, your family can retain control of your interests and your entity can continue trading and maintain access to any related business bank accounts with next to no interruption. Your successor steps in to carry out your wishes and minimises some of the difficulty associated with not having you around.
If your company Constitution doesn’t already provide for a successor director, it’s crucial that you have it updated so that a successor of your choosing can step in, if and when needed.
What About Alternate Directors?
While alternate directors certainly have their place, they are not the same as successor directors. Their positions cease in the event that their appointing person (i.e.: you) loses capacity or dies. A successor director, on the other hand, much like the executor of a will, is only appointed in the event the latter occurs.
Who Can Be A Successor Director?
Your successor director must be at least 18 years of age and consent to taking on the role and responsibilities of director. Practically speaking, they should be a person you trust to carry out your wishes and someone with good general knowledge and comprehension skills. Importantly, they should be someone who recognises when they need to access professional advice or additional support. They will also now need a Director ID, which is a further consideration.
What Needs To Happen?
Again, for a successor director to be appointed, your company Constitution must allow it. Therefore, we recommend that the Constitutions of any companies you control are reviewed, which we can help you with. Then, if necessary, we can arrange to have your Constitution(s) updated to specifically allow a successor director, after which a Resolution of Directors must be prepared to allow for the appointment of a successor director.
This work can happen quickly and painlessly on your part. All you have to do is contact us to get the ball rolling, and we’ll do the rest.
Having a successor director in place is so important for sole director companies that we will be contacting all of our sole director clients and urging them to put this safeguard measure in place. It doesn’t require much of your time at all, and you’ll be glad to have done it.
“My wife organised an update to her company’s constitution the same week Up-To-Date first mentioned it. The knowledge that I would not legally be able to access or control her company’s assets – and in turn, our trust’s assets – in the event something happened to her made the both of us feel deeply uncomfortable. Thankfully, she is more proactive than I am, and Jody made the entire successor director implementation process a breeze. Now I’m in a position to do the same for my company and will be very grateful once it’s done. The peace of mind stuff like this gives me is virtually priceless.” – Ken, Lodestone Pty Ltd