Viewpoint – Spring 2013

Self-education expenses cap delayed

The Government has decided to defer the introduction of the $2,000 cap on work related education expense deductions until 1 July 2015.

Upon announcement of the policy change, there were widespread protests from the education sector and professional associations. The government have stated the delay will allow them to further consult on how to best target excessive claims while ensuring genuine continuing professional development is maintained. 

Reminder – Super Guarantee increase

Just a reminder that as of 1 July 2013 the super guarantee was increased to 9.25% and the upper age limit has been removed.

The (non-definitive) Tax Office hit-list for 2014

The ATO has issued its list of compliance targets for the current financial year, which includes the “very rich”, multinational companies profit shifting, the “misuse” of trusts and small tradespersons.

The ATO will also make greater use of data matching to identify individuals failure to declare income and those who make incorrect claims for deductions.

Data matching has been used by the ATO for many years, using information from data matching to claw back revenue and plans to match over 640 million transactions in 2013-14, from sources such as BAS’s, employers, merchants (credit card details), state government (e.g. identifying property sales through title records), banks (including international) and share registries.

The ATO will work with overseas tax agencies and institutions to examine multinational businesses with focus on profit shifts and mis-matched income and expenditure. In addition to monitoring large multinationals, all companies with foreign dealings should be aware of the effect these dealings may have on the Australian tax position and the potential interpretation of transactions by the ATO.

Those who may be effected and have not already discussed matters such profit shifting, thin capitalisations (lending into Australian entities rather than capitalising the business), use of service-hubs and IP holding companies, should speak with us to see if a review is necessary. Clients need to be aware of inadvertent non-compliance and take appropriate action to remedy any deficiencies.

As a minimum, we can assist prepare profit sharing agreements and review the commerciality of the transactions between Australian and overseas jurisdictions.  

A trust taskforce has been established (with a grant for the Federal government) to recoup additional tax from taxpayers using trusts. The ATO’s new taskforce will target promoters, individuals and businesses that seek to “misuse trusts in an attempt to avoid paying their fair share of tax”. The focus is on mischaracterised transactions, profit extraction “schemes”, concealment of income, and hopefully will concentrate on the aggressive (mis-)use of trusts and not on family and small business trusts.

The ATO will undertake 500 income tax reviews and audits of 500 of the highly wealthy individuals (controlling net wealth greater than $30 million) and another 750 contacted to check claims or clarify transactions. The ATO will audit 1,000 wealthy taxpayers (controlling net wealth between $5 and $30 million), and contact a further 8,000.

The building and construction industry will be targeted to identify wrongfully claimed work deductions, concessions, offsets and credits.

Another focus is the review of businesses to identify whether employer obligations are properly met, particularly those that avoid tax and superannuation obligations by treating employees as contractors, and employers providing unreported fringe benefits. In cases uncovered by the ATO, some employers are incorrectly not registered for FBT, either because they fail to identify, or ignore, fringe benefits provided to employees.

The Tax Office advised that there are some 160,000 medium-sized businesses (turnover of between $2 million and $250 million) usually controlled by a “wealthy” family or individual. It will use data matching and data mining to analyse the relationship between individuals, trusts, partnerships and companies within a group and ensure consistency and compliance.

Smaller businesses (annual turnovers less than $2m) will have similar measures applied to them.

The ATO works in conjunction with United States, UK, Canadian and Japanese authorities as members of the Joint International Tax Shelter Information Centre to identify Australians involved in offshore structures in a number of jurisdictions, with a particular emphasis on low tax jurisdictions such as Singapore, British Virgin Islands, Vanuatu, Cayman and Cook Islands. It is also a member of Seven-country working group on tax havens       (Australia, Canada, Germany, France, Japan, the UK and the USA) which  cooperate to improve each country’s capacity to deal with the risks tax havens pose to their tax systems. The ATO wants to undertake 680 reviews and 115 audits of people who may be using secrecy jurisdictions to avoid paying tax. More can be expected to be identified as time passes. The ATO understand that in many cases there are legitimate reasons for businesses to operate in overseas jurisdictions, and hopefully will be able to discern between those that do the right thing and those that are up to mischief at an early stage and before compliant individuals and business are inconvenienced.

The ATO will continue to focus on self-managed super funds that misuse the concessional tax environment deliberately or unintentionally. It will review 1100 to check they comply with income tax obligations, 15,100 for compliance with regulatory obligations, and 160 approved auditors. In the 2012 year, the ATO reviewed over 9,000 funds, (raising $17 million in additional taxes), and made 132 funds non-compliant due to breaches of their obligations. Clients will understand our insistence on correct management of superannuation, and education of trustee’s obligations to protect the superannuation fund assets.

Insolvency Law Reform Bill 2013

Late last year, the draft Insolvency Law Reform Bill 2013 was released by the government for comment and suggestions. The first changes made under this Bill are to commence from September this year. The Bill will amend the Corporations, Australian Securities and Investments Commission and Bankruptcy Acts.

The aim is to benefit businesses that become creditors of insolvency administrations.

Protecting your business for customers’ insolvency

Running a business is all about managing risk – most acutely to avoid bankruptcy or insolvency. When providing services or goods to a customer, there is always the possibility that your customer will unexpectedly be unable to pay you according to your agreed trading terms or even leave your debt unpaid.

This has been highlighted recently in NSW with the collapse of a number of construction firms. Of all the companies going into administration in the financial year ending 2012, 22% were from the building and construction industry. 

As a creditor, protecting your interests should be a high priority. The insolvency of a major debtor can severely impact your business and cash flow. Business owners and managers must consider the risks and develop strategies to mitigate them.

Perform background checks

Background checks seem simple but are often neglected in the haste to secure sales. A background check on a new or existing customer may reveal details of their business or trading history and that of the key individuals involved in your customer’s operations.

Background checks may include Australian Securities and Investments Commission company searches, business name searches and personal name searches into the proprietors and managers of the business. Searches at the Land Titles Office in the name of the customer and the proprietors will reveal property holdings which may provide comfort when taking personal guarantees from directors.

A search of the Personal Property Securities Register will reveal other parties that have an interest in the customer’s business assets. Credit Reference Association checks will reveal whether the customer has had difficulty fulfilling obligations to suppliers in the past.

Ensure detailed contracts

Contracts may include provisions for the execution of security agreements to ensure that the title for goods remains yours until the customer has paid for them in full. In doing so, should the customer become insolvent without paying for goods, you are able to be repossess those goods. Various terms such as claims to extend or change payment terms should also be clearly detailed in any contract, to prevent any uncertainty in the event of insolvency. Similarly, if late payments do occur, actions may be considered to prevent this happening again, as this can be a sign that your customer is experiencing financial difficulties.

Register your interest in supply

Registering your interests on the Personal Property Securities Register (PPSR) may ensure that claims against your supply are enforceable and prioritised over other suppliers. In the event of insolvency, without registration and supporting security documentation, an administrator or liquidator may be able to retain your supply for the benefit of all creditors. To be enforceable, your interest must be detailed accurately on the PPSR and within time, otherwise the priority may be affected.

Keep accurate books and records

It is vital that you keep adequate, accurate and comprehensive records of all transactions, including written contracts, verbal communications and any claims made by customers. This will ensure that if a debtor does become insolvent, you will have evidence to support your claims, interests and rights regarding your supply.

Find ‘good’ customers

Easier said than done, however, reliable customers are particularly important for ensuring growth and smooth trading. Maintaining a good relationship with these clients will help keep your business sustainable and strong in the future.

Mediation is better than a legal trial

Litigation is in decline in the business community.

Alternative forms of dispute resolution are now becoming more popular and, in some circumstances, are mandatory. All family law disputes since 2006, for example, have required compulsory mediation.

Mediation is a cost effective avenue for parties in dispute.  The process can cost large sums, but the process allows both parties the flexibility to devise tax effective solutions.

Corporate gifts – part of business culture

With an increasing level of business now being traded in Asia, it is important that Australian companies understand cultural differences.  This is particularly important in regard to the cultural rules of gift giving.

Gift giving or ‘gifting’ is not a normal part of business in Australia, however when dealing with Asian customers gifting can benefit a business relationship and is considered a normal part of doing business.

In such a case, gifting Australian items, such as Aboriginal art design, quality food or wine would be construed as normal cultural relationship building.

It is recommended that research be undertaken to understand the particular cultural situation you are entering as not all Asian cultures are alike. It is critical that culturally appropriate gifting take place as inappropriate gifts may sour the relationship completely.

Source: BRW

Coles turn around

Managing Director of Coles Supermarkets, Ian McCleod has a simple strategy to build the business.

McCleod simply walks the floor of a Coles supermarket and checks the fresh produce, including squeezing the avocados to test that they are ripe and ready to sell. He also understands which market garden the broccoli had been delivered from within the last 24 hours.

He completely understands the efficiencies of the supply chain, the customer’s needs and customers pricing points.

McCleod has turned Coles around. Today, it has become the market leader.

Business managers can learn valuable lessons from Ian McCleod by understanding the supply chain, efficiencies, and knowing what the customer wants.  This sets a culture in the organisation that top line management understand the customer’s experience.

Source: BRW

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