SMSFs encouraged to begin planning for new director ID regime

The director identification number regime is a new initiative requiring all company directors to have a unique identification number.

Private testing with a number of existing directors is currently underway, with provisional deadlines set by the Treasury to see all directors required to obtain a director ID by 30 November 2022.

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The ATO said its primary purpose is to deter and detect phoenix activity by ensuring directors can be traced across companies and preventing the creation of fictitious identities.

In an SMSF context, this includes the directors of the corporate trustee of an SMSF as well as persons appointed as an alternate director and acting in that capacity, according to Heffron. The law does not currently cover company secretaries but may be expanded to do so in the future.

“While the law to give effect to the regime was passed in June last year, it is not currently operational,” Heffron head of education Lyn Formica said in a recent online update.

“This is because a new information technology platform and systems had to be developed before the changes could be implemented. Live testing of the new technology systems will begin shortly and is expected to be completed by 31 October 2021, according to the ATO.

“Eventually, a prospective director will be required to apply for their director ID before their first appointment as a director. However, there are transitional rules for existing directors depending on when they were appointed.”

While the new rules are not currently operational, Ms Formica said SMSFs can start planning ahead for these new changes and review systems in place for the transition process.

“Start reviewing your current systems to ensure they are able to capture and store this new identity number, particularly if you are using bespoke systems,” she said.

“Furthermore, they can ensure clients who don’t already have a digital identity have the proof of identity documents they will need to apply for one, e.g. driver’s licence, passport, birth certificate, Medicare card etc.

“Also, start thinking about how your internal processes might need to change, e.g. eventually a director ID will need to be obtained before the corporate trustee of an SMSF can be created, which may mean the process of establishing an SMSF takes longer,” she added.  

Ms Formica said the preferred means of applying for a director ID will be electronically; however, it is understood there will be a paper-based system for those unable to apply electronically.”

She noted the first step in the application process will be verifying the individual’s identity. This is because, while details of a company’s directors must be lodged with ASIC under the current system, ASIC is not required to verify the identity of those directors.

“It is expected that individuals who don’t currently have a ‘digital identity’ (e.g. they don’t have a myGovID) will need to do so before they can apply for a director ID,” she said. 

“Further details will become available over the coming months, but existing directors should be aware that they will be expected to complete the director ID application form themselves. Agents or other third parties won’t be able to apply for a director ID on behalf of clients, as the process is all about proving identity.

“However, for directors of corporate SMSF trustees, there is no need for a director ID that is specific to that company. In fact, the whole idea is that a director ID will identify when a particular person is a director of multiple companies.

“Think of the director ID as being similar to a tax file number — even people who have multiple jobs give each employer the same personal TFN.”