The following article is an update to the original article published on the 5th of August 2020.
Directors should be preparing for the start of the new director identification number (DIN) regime in November 2021. But what exactly is this new requirement and does it apply to charities and not-for-profits?
With the requirement for directors to have DINs quickly approaching, we summarise the top five things you need to know about the DIN requirement so you can be prepared.
1. What is a DIN and why are they being introduced?
A DIN is a unique identifier number to be issued to each person who is a director or acting alternate director of a company or the equivalent role (such as a management committee member) of some incorporated associations.
Once a person’s identity has been confirmed, they will be issued with a single DIN which they will keep permanently even if they cease being a director, change directorships, act as a director for multiple organisations or move overseas.
DINs are being introduced primarily to combat ‘phoenixing’. Phoenixing describes the process where directors transfer all the assets of one company to a new company for little or no consideration and carry on the same business as the old company through the new company, usually in circumstances where the old company is in some form of financial distress. A phoenix, as taken from mythology, rising from the ashes of the old company.
Phoenixing negatively affects creditors who fail to receive payments for goods or services from the old company, employees who have unpaid wages or superannuation entitlements with the old company and the general public through lost revenue to the Government. It is estimated that phoenixing costs the Australian economy between $2.9 billion and $5.1 billion per year.
DINs are expected to reduce phoenixing by ensuring directors can be properly traced between organisations and by preventing the use of fake identities. The introduction of DINs is also expected to promote good governance, streamline general corporate administration and improve data integrity and security.
2. Who will need a DIN?
Once the DIN requirement takes effect, all directors, acting alternate directors and management committee members of ‘registered bodies’ will require a DIN. Registered bodies are:
- companies, registered foreign companies, or registered Australian bodies (such as incorporated associations with an Australian Registered Body Number (ARBN)) which are registered under the Corporations Act; and
- Aboriginal and Torres Strait Islander corporations which are registered under the CATSI Act.
Initially, officers that are not directors and de facto or shadow directors will not be required to have a DIN. However, the law leaves flexibility for this in the future. The DIN requirement will not apply to sole traders, partnerships or trusts unless the trust has a corporate trustee.
3. Will directors of charities and not-for-profits need a DIN?
Although there are little to no reports of phoenixing in the charity and not-for-profit sector, the DIN requirements will apply to all ‘registered bodies’ (including charities and not-for-profits) even if the organisation is also regulated under another law such as the Australian Charities and Not-for-profits Commission Act 2012 (Cth). This means that directors of not-for-profit registered bodies (including charities registered with the Australian Charities and Not-for-profits Commission) will be required to have a DIN.
4. When will DINs be required?
The table below sets out when a person must apply for a DIN:
5. What happens if a director does not obtain a DIN?
It is crucial that directors comply with the DIN requirements once they come into effect because there are hefty civil and criminal penalties if you don’t. For example:
- if a director of a CATSI organisation fails to apply for a DIN within the applicable time frame, they can face a civil penalty of up to $200,000; and
- if a director of an organisations registered under the Corporations Act fails to apply for a DIN within the applicable time frame, they can face a civil penalty of 5,000 penalty units (which is currently $1,050,000) or three times the benefit derived, or detriment avoided because of the contravention (whichever number is higher).
There are also other large civil and criminal penalties associated with actions which undermine the DIN regime, such as providing false identification documents. Given these penalties, it is crucial organisations and directors (or prospective directors) stay up to date with the new DIN laws to ensure DINs are obtained when required.
For more information about DINs see the Australian Taxation Office’s Modernising Business Registers page.