Viewpoint – Spring 2010

ATO’s compliance program for 2010-11 released

On 8 July 2010, the ATO Commissioner, Michael D’Ascenzo, issued a media release announcing the release of the Compliance Program 2010-11. The program outlined refund fraud, the cash economy, employer obligations, wealthy Australians and tax secrecy havens as some top priorities for the ATO in the coming year.

The Commissioner stated his belief thatAustraliahas a strong culture of voluntary tax compliance. Part of supporting honest taxpayers was, however, taking firm action against those who do the wrong thing.

The ATO has also said it will focus on trusts to ensure the ‘basic requirements’ for compliance are being satisfied. That includes the lodgement of returns and the distribution of income of the trust.

The Commissioner also announced they would extend the ATO’s Small Business Assistance Package for a further year.

Bamford Case & Primary Producers

 Farmers carrying on their business through a trust structure may be impacted by the ATO’s interpretation of the March High Court decision on the Bamford case. Previously the ATO’s approach to Trusts operated by farmers enabled access to concessions such as primary production averaging and farm management deposits (FMD’s). These concessions have proved very beneficial to primary producers as a result of their often uneven income stream due  to market and seasonal conditions.

However, in recent weeks the ATO has indicated where trusts are in a loss position the beneficiaries of those trusts will no longer be considered to be primary producers.  Ceasing to be a primary producer will disqualify the taxpayer  from access to income tax averaging provisions and any FMD’s are required to be repaid (and therefore become assessable income) within 120 days.

The ATO is yet to publish a definitive interpretation on the matter however it is important primary producers operating through trusts monitor their situation closely whilst we await further developments from the ATO.  If the ATO persists with this treatment it will be more important that affected primary producers have their position reviewed prior to year end. At an appropriate time, we will be discussing this with relevant clients to consider action to be taken.

Collectables and in-house assets for Superannuation Funds

The Cooper Review was delivered to the Government on 30 June 2010. It contained a number of recommendations, some of which the Government has already announced they will take up.

One such recommendation was MySuper – a low cost default fund for employees who do not actively choose a superfund.

Another recommendation of the Cooper Review was to ban self managed super funds (SMSFs) from holding investments in collectibles such as art, wine and antiques. SMSFs have been provided with five years to sell existing collectables.

If you have a SMSF and are thinking about purchasing collectables talk to your Chartered Accountant first.

Collapsed Agribusiness MIS

The ATO has advised that it will be contacting approximately 60,000 identified participants of recently collapsed Agribusiness managed investment schemes (MIS) during August 2010 to help them understand the tax consequences of their investments.

The ATO has advised that affected taxpayers will need to factor in any changed tax implications in these schemes when they prepare their tax returns.

GST and requirements for tax invoices

Recent changes to GST law have simplified the requirements for documents to be considered tax invoices or recipient created tax invoices (RCTIs). They have been replaced by requirements with equivalent but more flexible principles.

Where you receive a document from a supplier that is missing key information, you may still treat the document as a tax invoice under certain circumstances. It must be clear that the document is intended to be a tax invoice and you must be able to clearly ascertain the missing information from other documents issued by that supplier. This concession does not apply to adjustment notes or recipient created adjustment notes.

The regulations commenced on 1 July 2010 and apply in relation to net amounts for tax periods starting on or after 1 July 2010.

Non-commercial loans – tightening the rules

The expanded application of the Income Tax Assessment Act 1936  – Division 7A (Cwlth) announced in the 2009/2010 Federal Budget has been made law. Central to the changes is the ability for the ATO to tax the use of private company assets by shareholders or their associates.

Most would be aware of the implications of loans made by a private company to its shareholders and/or their associates. The use of other assets held by private companies such as property, vehicles and boats, either for free or for a non arm’s length value by the shareholders and/or their associates has remained largely unchecked.

Changes to Division 7A allow for a deemed ‘payment’ to be included in the shareholder’s income and taxed accordingly. It would represent the amount they would have had to pay to use the asset.

Where a shareholder and/or associate has exclusive use of such an asset, the deemed payment amount would be equivalent to what would be required to be paid to secure that exclusive use. For example, consider a holiday home held by a private company for the exclusive use of a shareholder and their family. The home may only be used for three months of the year but as it is not available for any other party to use, the deemed payment amount would be equivalent to commercial rent for the entire year.

As originally announced in the 2009/2010 Budget, these changes apply from 1 July 2009. It is crucial you talk to us about reviewing your situation if you hold such assets in a private company.

Payments by direction

A recent case, FCT v Rozman [2010] FCA 324, has been decided in the Commissioner’s favour. The case involved a private company owed money by offshore debtors. The shareholders directed those debtors to pay the outstanding amounts into the shareholder’s private accounts.

The court held that the payment direction by the shareholders constituted a payment from the private company to the shareholders in accordance with Income Tax Assessment Act 1936 – Division 7A (Cwlth). Accordingly, the shareholders were taxed on the amount deemed a dividend.

Interpretations and new legislation are extending the reach of integrity measures such as Division 7A all the time. If you are concerned about the impact of these rules or would simply like to know more you should contact us.

As part of our annual review of your accounts, we review your loan accounts for any potential issues and will advise you accordingly.

Change in law on dividends

 Recently royal assent was given to the Corporations Amendment (Corporate Reporting Reform) Act 2010 (Cwlth).  This legislation amends a number of provisions – particularly provisions dealing with the payment of dividends.

Section 254T of the Corporations Act (and earlier equivalents) has long provided that a dividend may only be paid out of the company’s profits.  The section has been replaced with a new provision which essentially prohibits a company from paying a dividend unless:

• The company’s assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend
• The payment of the dividend is fair and reasonable to the company’s shareholders as a whole, and
• The payment of the dividend does not materially prejudice the company’s ability to pay its creditors.

For directors, there are a number of practical implications including:

• The need for directors to calculate the assets and liabilities of their company
• The effect of paying a dividend on the rights of shareholders (as a whole) and the company’s creditors.
• If a company constitution provides (as did the old Section 254T of the Corporations Act) that a dividend may only be paid out of profits, the directors should consider an amendment to the constitution to ensure that the company has the ability to pay dividends as contemplated under the new Corporations Act provision.

If you have any questions regarding these legal changes please contact us.

OH&S obligations for employers

As an employer you must provide a safe and healthy workplace for your workers and contractors. This includes:

• Providing safe premises
• Maintaining machinery and materials
• Having safe systems at work (such as controlling entry to high risk areas)
• Providing information, instruction, training and supervision of employees to ensure they work in a safe and healthy manner
• Having a suitable working environment (ensuring fire exits are not blocked. worksite is tidy, etc)
• Providing adequate facilities (clean toilets, clean drinking water and hygienic eating areas).

If you do not comply with these legal requirements you can be prosecuted and fined.

To find out your specific obligations go to the occupational health and safety area at www.business.gov.au. There you will find a step-by-step: Workplace Safety guide.

Risk management for unthinkable events

Recent events worldwide have again highlighted the importance of risk management; how your business would survive the ‘unthinkable’.

BP and theGulf of Mexicooil spill brought attention to a lack of foresight and planning for the unthinkable.

This disaster will cost BP billions of dollars and has put the business as a whole in a perilous position. BP has already had to sell major assets to cover the cost of the clean up.

TheIcelandvolcano was another unthinkable event to occur without any warning. The volcano left thousands of people stranded and the repercussions were felt globally. Qantas alone lost $10m during just five days of disruption.

These events prove that management, even in small business must undertake disaster planning and recovery as a serious matter.

Factors beyond your control can impact your business and will affect productivity, output and profits.

Management has a responsibility and duty to undertake planning so that when the ‘unthinkable’ happens contingency plans and procedures are in place to allow the organisation to continue to operate, or at least minimise the disruption.

Opportunity to plan

 With the new financial year underway and your BAS returns for 30 June 2010 now completed, businesses have an opportunity to do some planning for the forthcoming year. For example, you now have some materially reliable figures to put together an operating budget for your business for the year ahead.

You should also be in a position to start assessing your revenue estimates and review your expenditure in the areas of marketing and other cost areas.

Working through this process will allow you to focus on increasing your income so that it comes into line, and hopefully exceeds, your expenditure levels.

You can then also produce a cash flow forecast.

Contact us to help you with the final review of your operating budget and to help you review the cash flows that flow from the operating budget.

Allworths Brisbane Office

The partners are pleased to announce Allworths has opened an office inBrisbane,Queensland.  The new premises will be located on Level 23,127 Creek Street,Brisbane, QLD 4000.

This office will provide us with a base when we visit ourQueenslandclients.  We look forward to more regular meetings with our Queensland and northern NSW clients, closer to their home territory.

Our Queensland office will be managed by Pasandi Gunasekera who has been with us for 10 years.  She will be happy to assist you with any enquiries.

Contact details for the Queensland office are as follows:-

Operating hours:    8.45 am to 5.15 pm

TheQueenslandoffice can also be contacted by phone through ourSydneyoffice numbers.

DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein.