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Federal body announces grace period on Director IDs, after concerns about $13,000 fines

A federal body is giving 700,000 people who have not yet signed up to new legal hurdle a two-week grace period, after a "bureaucratic" process made people wait on phones for hours or deal with a crashing government website.

The Australian Tax Office (ATO) is making so-called director IDs mandatory for every person covered by the corporations act by November 30.

This covers people running major entities, many small businesses, and even charities and not-for-profit organisations, such as sports clubs and community groups.

There are an estimated 2.5 million directors in Australia.

People who do not sign up for the process by the deadline could face fines of up to $13,000 each, as well as be deemed ineligible to run a company.

However, the federal body managing the scheme confirmed on the day of the deadline that it would not yet be fining people yet to sign up.

Australian Business Registry Services (ABRS) registrar Chris Jordan said it would be applying "a pragmatic compliance approach to directors" if they applied by December 14.

"Whilst penalties or offences can apply, the community can expect ABRS to take a reasonable approach to support people to apply," he said.

It's thought 700,000 people have not signed up yet.

Signing up for an ID requires sending in identification documents through a website, the post or calling up a hotline.

Solar recycling company director Julie Dimmick signed up to the ID system in the past week.

"It took me two solid days of my life," she said.

Ms Dimmick said she "had no idea" that she needed to get a Director ID until ABC News published an article in early November.

She said she started trying to register using the myGovID app process suggested by the ABRS, but was having problems with the software.

She then switched to calling the hotline set up for the Director ID process and was on hold for long periods of time "and couldn't get through".

"I think I called six different numbers," Ms Dimmick said.

"I ended up calling one of their complaints hotlines for [the corporate regulator] ASIC. They got me through from there."

Another director of several small entities, who wished to stay anonymous, told ABC News he tried to sign up online on November 28 and the website wasn't working.

"It gave error messages and basically asked me to call the call centre, and then I couldn't get through to the call centre or anything," he said.

He said he called five times and was on hold for up to 30 minutes at a time.

He finally signed up at 1:30am.

He said he had only been aware of the legal requirement since early November, and hadn't been able to sign up earlier as he had been out at sea.

"It wasn't publicised very well," he said.

"It's typical government bureaucrats not doing a proper job."

The ID system was first introduced into law a few years ago, and the looming deadline for all people under the corporations act has been known all year.

A smaller number of people who run Indigenous entities covered by the corporations (Aboriginal and Torres Strait Islander) act have been given until November next year to get an ID.

The ABRS, which is an entity of the Australian Tax Office, has previously defended its communication of the policy.

It said it had communicated widely through information in annual electronic reminders, by going through accountants who work with company directors, and with a wider advertising campaign in November.

A surge of people rushed to sign up as deadline approached, with almost 78,000 directors applying on November 29 alone.

The ATO told ABC News that there was "quite a lot of traffic" on the website and phone lines currently, and it was urging people to apply online if they could.

About 90 per cent of people have signed up online.

"Applying over the phone takes some time," an ATO spokesperson said.

"Whilst we've put on extra staff and are doing our best to answer everyone's query as quickly as possible, we are currently experiencing high wait times on our phone lines.

"We recommend people have their identification ready if they need to call us, this will speed up the call."

"We also recommend that you don't call us to check the status of your paper application. We will be in touch if we need anything from you."

The IDs are being implemented in a bid to crack down on so-called "dummy directors" and company phoenixing, where an entity collapses without paying creditors and rises from the ashes as another entity.

Until the scheme was introduced into law under the corporations act, people could sign up as a director with little proof of their identity.

The people intentionally avoiding signing up could be those the ATO and ASIC are trying to flush out.

As previously reported by ABC News, there is an underground corporate culture of people signing up so-called "dummy directors".

Some people who deal with company collapses say it is not unusual to see the names of dead movie stars or cartoon characters lodged as running entities.

There have also been stories of real people with little-to-zero connection to the everyday running of a company officially appointed as its director, including backpackers, distant relatives and even the homeless.

This opens these real people up to legal ramifications, including fines and bankruptcy, if the company collapses and is found to have acted against the law.

So-called phoenixing costs the nation's economy between $2.9 billion and $5.1 billion annually, according to the ATO.

Often the loser is the tax office itself, when a company liquidates having avoided paying taxes for itself or its workers.

However, the practice can also leave sub-contractors, employees, customers and suppliers owed money and entitlements.

Taken from ABC 30 November 2022 Media Release.

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