Analysis of Black Economy Taskforce Final Report

Running head: BUSINESS LAW
BUSINESS LAW
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BUSINESS LAW1
Answer 1:
In the present assignment, a thorough analysis of the Black Economy Taskforce Final
Report1 has been done (Static.treasury, 2017). This Report was released by the Australian
Government on October 2017 as a response to an investigation conducted initially by the
Taxation Board together with the support of the ATO and the Treasury2 (Treasury, 2019). The
Report aims at describing the development of a strategy in order to combat the black economy.
Before discussing the concepts of black economy as well as phoenixing, in-depth study of the
stated report has been done.
The term ‘black economy’ refers to all the people who deal with the transactions outside
the scope of taxation and in contradiction with the existing legal system. The authorities
concerned with these two departments where having knowledge their taxation yet their tax
applications are not reported correctly. Black economy generally consists of a very wide range of
activities as well as practices. Those practices and activities include welfare frauds,
understatement of income, paying as well as accepting wages in cash that were not marked in the
books, moonlighting, practice of the contractors of not declaring their incomes together with
phoenixing. On the other hand, phoenixing can be regarded to be the business operations of any
individual company structure where it is seen that all the profits incurred are taken out of such
company to some other entities and begin a new business with the help of those entities
separately. Black economy can be termed as cash economy, underground economy and Shadow
Economy. From the black economy Task Force final report, black economy is found to be an
1 Static.treasury. (2017). Black Economy Task Force. Retrieved 4 September 2019, from
https://static.treasury.gov.au/uploads/sites/1/2018/05/Black-Economy-Taskforce_Final-Report.pdf.
2 Treasury (2019). What is the black economy? | Treasury.gov.au. [online] Treasury.gov.au. Available at:
https://treasury.gov.au/review/black-economy-taskforce/what-is-the-black-economy.

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important economic problem which is very complex and fast growing3 (Wakefield & Finlay,
2018). It is a social problem also. From the report it is seen that this problem of black economy
has increased about 50% scenes 2012.
Phoenixing
The term ‘phoenixing’ can be regarded as the business operation of a company who has a
tendency of withdrawing is its profits and gains earned by conducting business to some other
entities and begin business with the help from those entities4 (Anderson, 2018). It also involves
transferring the assets intentionally from a company that has unpaid debts to another company
with an aim to avoid paying back the debts to the creditors. This is also done to avoid paying the
entitlements to the employees or to the tax department.
This act of phoenixing was observed in the Australian Securities and Investment
Commission v Somerville & ors [2009] NSWSC 9345 case. In this case Supreme Court of New
South Wales found a solicitor was held guilty of helping as well as abetting the directors of the
said company to violate their duties by getting involved in the Phoenix activity. This is a
landmark case that acts as a warning to the Advisors aiming at restructuring of business to take
additional care of not stepping out of the boundaries of legitimate financial as well as legal
advices. Illegal Phoenixing also occurs when a new company is formed when business of a
company which has been liquidated deliberately for avoiding paying of its debts and dues. Such
Phoenix activity has a huge impact on the business community, its employees, contractors
together with the government and the entire nation. Further instances of phoenixing include non
3 Wakefield, M., & Finlay, R. (2018). Understanding Demand for Australia's Banknotes| Bulletin–December Quarter
2018. Bulletin, (December).
4 Anderson, H. (2018). Combatting illegal phoenixing. Australian Restructuring Insolvency & Turnaround
Association Journal, 30(1), 28.
5 Australian Securities and Investment Commission v Somerville & ors [2009] NSWSC 934.

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paying of entitlements and superannuation of the employees, receiving unfair competitive benefit
when compared to other businesses and not paying the suppliers. Due to the phoenixing activities
there is a huge loss of the government revenue as well as high monitoring and enforcement costs.
This phoenixing not only imposes ill effects on the people who are directly involved in those
companies but also deprives the entire community of the funds that are necessary and required.
Such funds that are not collected can be used in the maintenance and development of hospital
roads education weather with other essential services.
Answer 2
While calculating estimated costs to the Australian economy of phoenixing, it is
observed that the cost of illegal Phoenix activity it is difficult to differentiate from the true
business rescue (Anderson, 2018)6. But specific costs like the revenue lost to the ATO together
with the cost to the FEG are found to be easier to quantify. In a very recent consultation paper
issued by the Australian treasury revealed that approximate cost of illegal phoenixing in
Australia amounts to 3.2 billion dollars annually7 (Matthew, 2015). Moreover according to the
estimations provided by the Australian Bureau of statistics in the year of 2012 was about 1.5% of
the gross domestic product of the country. In the final report issued by the task force the estimate
was about 3% of the GDP which was equal to about 50 million dollars approximately in the next
taxation year of 2015- 2016 . The 2018- 19 budget is being built considering the measures and
the recommendations made by the task force as seen in the final report and it includes $10,000 as
a limit8 (Haines, 2017). An estimate of about $5000000 has been wiped off from the economy of
Australia due to the phoenixing activity. Study known As Economic Impacts Of Potential Illegal
6 Anderson, H. (2018). Combatting illegal phoenixing. Australian Restructuring Insolvency & Turnaround
Association Journal, 30(1), 28.
7 Matthew, A. F. (2015). The conundrum of phoenix activity in Australia: Is further reform necessary?.
8 Haines, A. (2017). Australia gets even tougher on tackling MNE tax avoidance. International Tax Review.