A sinister tax loophole which has left thousands of vulnerable Australians with secret debts could soon be closed by the federal government.

Perpetrators are taking advantage of the tax system with a little-known form of economic abuse known as "coerced directorships" – and it can cost people millions of dollars in fines.

Coerced directorships are a complicated type of financial abuse and typically involve abusive partners forcing or convincing victim-survivors to become a co-director or sole director of a business that they control.

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Assistant Treasurer Daniel Mulino today said the government aimed to crack down on the "dodgy use of directorships by perpetrators".

"Too many people have been left with liabilities they never agreed to and penalties for decisions they never made," Mulino said.

"Our goal is to build a system that protects people from exploitation and ensures perpetrators cannot hide behind corporate structure."

A newly released consultation paper has delivered some options for how legislation may stop financial abusers exploiting Australia's tax system.

This includes strengthening the Australian Securities and Investments Commission's (ASIC) powers to remove non-consenting company directors and making it easier for victims to engage with the Australian Tax Office (ATO).

The report also suggests stronger criminal consequences for fraudulent or coerced director appointments.

Submissions to the consultation will close on December 24.

Is economic abuse a crime in Australia?

In Australia, economic abuse or financial abuse can be considered a crime it if involves fraud, theft or coercive control.

Every Australian state and territory also recognises that economic abuse is a type of domestic violence.

And every state and territory has a form of a domestic violence order which is designed to protect victims.

According to the Centre for Women's Economic Safety, these orders aren't often used to protect money or assets but you may be able to request this if necessary.

Currently, there is no legislation that specifically outlaws "coerced directorships".

Support is available from the National Sexual Assault, Domestic and Family Violence Counselling Service at 1800RESPECT (1800 737 732).