Business
Services News
Monday, July 25, 2005
Documentation and compliance critical for SMEs
It pays for small business to be tax compliant, say CPAs.
Record keeping and compliance includes having appropriate commercial contracts and review systems for all appointments, outsourcing arrangements and transactions.
A report recently released by CPA Australia says there is a direct link between poor record-keeping and the likelihood of an adversely amended tax assessment where a small business has been subjected to a tax audit. CPA Australia's Small Business Policy Adviser, Judy Hartcher, said that the report, Record-Keeping: Its Effect on Tax Compliance, proves that it pays for small business (SMEs) to have a good system in place, not only in the event of a tax audit, but also from a strong business management perspective.
Ms Hartcher said it was crucial for small business to have a correct system in place to avoid future tax compliance problems. Correct record management could potentially save business thousands of dollars in the event of a tax audit, when hefty fines can be imposed on those who have made mistakes in their tax reporting, whether intentional or not, she said.
The research, conducted for CPA Australia by the University of New South Wales' Australian Taxation Studies Program (Atax), explores the relationship between the record-keeping practices of small businesses and their potential exposure to tax and related business compliance problems. It used a mixture of qualitative and quantitative methodologies and involved tax practitioners, small business owners and managers, and ATO auditors.
The report also found that:
- SMEs which had been audited recently by the Tax Office were more likely in the future to prepare more comprehensive sets of accounting reports as a result of the audit.
- SMEs which had been recently audited were far more likely to view tax compliance as the main reasons for record-keeping than those small businesses that had not been exposed to an audit.
- One-third of tax practitioners were not confident in the accuracy of clients' record keeping systems, but 80% believe the systems are adequate for tax compliance.
The report emphasises the need for SMEs to properly document and record all their commercial dealings and arrangements. Please contact us if you would like to obtain a legal audit of your current business arrangements.
Friday, July 22, 2005
At call loans to small business to be treated as debt
In a press release issued on 15 July 2005, the Minister for Revenue and Assistant Treasurer, Mal Brough, announced changes to simplify the debt/equity tax rules (Division 974 of ITAA 1997) for related party "at call" loans made to small companies. Small business will now have only one test to apply in determining whether the debt/equity rules apply to their at call loans.
Originally changes were to apply to companies which had capital gains tax (CGT) assets with a net value of $5 million or less and annual deductions in relation to the loan of $100,000 or less. However, further consultation with industry has helped to simplify the rules further. "As a result of these consultations and further consideration by Government, the proposed changes will now apply to companies with an annual turnover of less than $20 million. This is a much better outcome for small businesses," Mr Brough said.
The amendments will take effect from 1 July 2005 to coincide with the end of the transitional rule for related party at call loans.
For private companies with related party at call loans that can't take advantage of the proposed changes because their turnover exceeds the $20 million limit, the Government will allow a further opportunity of reducing their compliance costs. This will apply where:
- the terms of an at call loan are changed so it will be treated as debt for income tax purposes, and
- the change to the loan is made between the end of the income year in which the company failed the $20 million turnover test and the earlier of the company's due date for lodgment of its tax return and the actual lodgment date.
A private company may elect to have such a loan treated as a debt interest from the start of the year of income in which it failed the turnover test.
Mr Brough also announced that amendments to the material change provisions of the debt/equity rules will ensure that where before 30 June 2005 an at call loan was changed so as to be treated as debt, it will continue to receive debt treatment after that date.
For a copy of the Minister's press release, No 2005/063, 15 July 2005, go here
Thursday, March 10, 2005
Senate passes bankruptcy and family law reforms
New legislation passed on 9 March will make it harder to use family law to avoid paying creditors and easier for people to have bankruptcy and family law cases resolved at the same time, Attorney-General Philip Ruddock has announced.
The Senate passed the Bankruptcy and Family Law Legislation Amendment Bill 2005, which will harmonise the bankruptcy and family law regimes, enabling the Family Court to deal with both matters concurrently.
It also formally recognises, for the purposes of bankruptcy proceedings, the non-financial contribution made by spouses to a relationship.
"It means post-separation, former spouses will be able to line up alongside other creditors in the division of assets to be recognised for the contribution they may have made to running a household and raising a family," the Attorney-General said.
The Bill implements key recommendations of the Joint Taskforce Report on the Use of Bankruptcy and Family Law Schemes to Avoid Payment of Tax.
An additional mechanism will also be available to trustees in the form of a supervised account regime which gives trustees access to all of the bankrupt's income sources before it reaches the bankrupt.
Tuesday, January 18, 2005
Paternity Testing and Child Abduction - Legislation Amendments
The Family Law Regulations 1984 (the Regulations) have been amended to tighten up the laws on DNA paternity testing, and to conform to the child abduction provisions in the Family Law Act 1975 (the Act). The regulations relating to child abduction are also amended to conform with the Act and rectify defects. The new provisions commenced on 23 December 2004.
The paternity testing amendments, amongst other things, add further safeguards to the prescribed parentage testing procedures to reduce the risk of fraud. The process for obtaining a bodily sample for DNA paternity testing is changed so that an adult donor must swear or affirm their consent to a sample being taken, and a photograph of the donor must be attached to the affidavit provided to the sampler. In the case of a child donor, a parent or guardian must swear or affirm that they consent to a sample being taken from the child.
The child abduction amendments, amongst other things:
- enable the court to have a discretion concerning the country or person to which or to whom a child is to be returned;
- provide that the discretion to refuse to return a child because of the child's wishes must not be exercised unless the child's objection imports a strength of feeling beyond the mere expression of a preference or of ordinary wishes;
- enable a party to apply for the discharge, suspension, revival or variation of a return order in appropriate circumstances;
- incorporate the term "contact" in Pt 4 of the Child Abduction Regulations to more closely reflect the current terminology used in and thinking behind the Act;
- provide that the court may make an order for contact whether or not a contact order has been made in another convention country;
- remove any doubt that the evidence provisions of the Child Abduction Regulations have effect despite any inconsistency with the Commonwealth Evidence Act 1995 or with any other law about evidence; and
- provide that an application for orders for the return of a child may be made by an individual as well as by the Central Authority, the body which carries out Australia's convention obligations;
- clarify that only a responsible Central Authority, and not an individual, may make an application for contact orders under the Child Abduction Regulations; and
- make other various amendments, including minor technical amendments.
The amending legislation can be accessed from http://www.familycourt.gov.au/presence/connect/www/home/judgments/legislation/.
Monday, December 20, 2004
Major change accounced for income tax self assessment system
An extensive overhaul of the Income Tax Self Assessment regime is set to proceed after the Federal Treasurer announced his decision to adopt all 54 recommendations made by a Treasury-commissioned review into the system. The announcement, made on 16 December 2004, will result in extensive refinements to the current self assessment system and is claimed to move the balance of fairness markedly in favour of taxpayers who act in good faith.
Key recommendations include reducing the time in which the ATO is permitted to begin auditing individuals and businesses within a wide range of situations from four years to two years. Mr Costello estimates approximately 8 million individual taxpayers and over 745,000 very small businesses will now have shorter period of review. The time in which the ATO can being audits pursuant to the anti-avoidance provisions will also be reduced.
The review aims to improve certainty through establishing a stronger framework for the timely provision of advice by the ATO to taxpayers and will introduce ways to make advice more accessible and binding in a wider range of cases. Interest and penalties arising out of taxpayer errors resulting from uncertainties in the system will also be refined.
Most changes are proposed to take effect from the 2004-05 income year with legislation to be introduced with sufficient time for it to be passed before 30 June 2005.
The report can be obtained from http://selfassessment.treasury.gov.au.
Monday, December 06, 2004
Faster private tax rulings
The ATO will give large companies access to an accelerated system for obtaining private rulings on unorthodox tax structures in a move to encourage them to seek approval before embarking on major transactions. In return, businesses will be expected to make full disclosures of information and attend pre-ruling briefings with senior tax representatives.
Tax Commissioner Michael Carmody wants to support tax compliance as a corporate governance issue by offering commercially realistic turnaround times for rulings on major transactions. Complex private rulings will be assigned a senior case manager with a centralised point of reference in the office of the chief tax counsel.
Whilst details of precise turnaround times are yet to be announced, the accelerated system will be of great assistance in a variety of industries where market pressures often prohibit participants from obtaining private rulings before engaging in complex transactions.
Thursday, December 02, 2004
ATO getting tough on SMSFs
The ATO is getting much tougher with self-managed super funds that blatantly ignore superannuation laws. It has recently imposed heavy sanctions against 10 funds which could result in them losing nearly half their assets in penalty taxes.
Common offences identified by the ATO were:
- allowing the fund to make loans or provide financial assistance to members or their relatives;
- giving members early access to preserved superannuation benefits (eg by allowing the fund to pay off a member's home loan);
- using assets of the fund as security for a personal loan to a member;
- permitting the fund to invest more than 5% of its assets in investments associated with members or trustees. (Note: This limit does not apply when funds invest in premises used by a member's business.)
Auditors are obliged to report contraventions to the ATO. The ATO can then classify the fund as non-complying, disqualify trustees, ask trustees to make enforceable undertakings, apply to the court for an order requiring compliance, and/or seek civil penalties against trustees.
The ATO's tough approach coincides with preparation for the Federal Government's long-awaiting introduction of fund choice for members in July next year. More information about SMSF regulation is available at
http://www.ato.gov.au/super/.