It’s fair to say that the roll out of the director ID regime has been far from perfect… and with such a large number of directors having not yet obtained their director IDs, the Government’s late ‘call to action’ is trying to kick people into gear, but arguably should have started much earlier. Some of these issues for the delay can be centered around the lack of clarification from the Registrar about who needs to be registered.
It is this lack of detail that has now lead the Commissioner of Taxation, as Registrar to make draft legislative instrument, ABRS 2022/D1 that provides relief for a specified class of persons from having to obtain a director identification number (director ID) under the Corporations Act or CATSI Act. The instrument ensures that resigned directors and non-individual directors under the Corporations Act do not have to obtain a director ID prior to the end of the transitional period at 30 November 2022.
The requirements for a director ID
There is a requirement for directors of a company (or alternate directors) to obtain a director ID – a transitional period is available until 30 November 2022 for individuals who were directors as at 31 October 2021.
From this date through to the end of the transitional period, a range of scenarios with your SMSF clients (as directors of the corporate trustee and/or bare trustee) may play out – an individual may be removed from the role (e.g. resign or due to incapacity) or may have died. It had been unclear for some time from the Registrar as to how some of these issues were to be dealt with… until now.
The instrument will exclude resigned directors from being an eligible officer, relieving them of the obligation to apply for a director ID in certain circumstances. This means persons who have ceased to hold any role as a ‘director or alternate director acting in that capacity’ (directors) prior to 1 December 2022 (for Corporations Act) or 1 December 2023 (for CATSI Act).
The Registrar now acknowledges that whilst transitional arrangements do apply, the requirement to have some eligible officers who have resigned during this period to obtain a director ID would not achieve the policy intent underlying the director ID regime, and imposes an unnecessary compliance burden. As a result this instrument determines that such persons are not eligible officers, and therefore are not required to obtain a director ID.
To help understand this further, let’s take a look at the following example:
David and Penny are directors of Thrifty Co Pty Ltd which acts as trustee of their SMSF. They have made the decision to wind-up their SMSF at 30 June 2022. Both individuals have been directors since the company and fund were established on 1 July 2005. Neither person holds any other directorship roles, and don’t intend to in the future.
Under the director ID rules, as David and Penny were directors at 31 October 2021, they were required to obtain a director ID – regardless of the fact that they were ceasing their director roles and de-registering the company as part of the fund wind-up. With the operation of this legislative instrument, David and Penny will no longer be required to obtain the director ID due to the policy intent of the law.
These principles with resignation of the director role can be applied in a number of scenarios within SMSFs including:
- Winding up the SMSF before 30 November 2022 (where no other directorships are in place);
- Removing a director prior to 30 November 2022 – e.g. resignation, incapacity, where issued via a court order (e.g. divorce), or switching from corporate to individual trustees.
Becoming a director in the future
It is noted that if a person within the prescribed class who resigned before 1 December 2022, and become a director again in the future, they are only excluded as an eligible officer for the period to 30 November 2022. This means that any subsequent registration will require a director ID to be obtained prior to their appointment as a director.
It is pleasing to see this ‘common sense’ approach by the Registrar to this issue, albeit far to late in the process when many people have fumbled their way through the process now unnecessarily.