What a start to a new year! Bushfires, floods, and tornadoes causing immense problems to primary producers, small business operators and residences all around Australia. The Prime Minister has announced an election will be held on the 14th September 2013. It will be interesting to see what the unprecedented advance notice for a Federal Election has on the business community during the next 8 months. What is likely to happen during 2013? Various economists have had their say on the key economic data, as follows:
|- Growth in 2013: 2.4-2.8%
||- Growth - around 4%
|- Business investment in 2013 - 10-10.5%
||- Business investment - around 9.5%
|- Budget deficit 2013 - $12 billion
||- Budget forecast - $25 billion
|- Cash rate 30/06/13 - around 3-3.25%
||- Cash rate 30/06/14 - 5.2%
|- CPI growth during 2013 - 2.5-3.25%
||- CPI growth to December 2014 - 3.3.5%
These figures will be significantly distorted if there are continued uncertainties on the European debt situation and/if the Federal Election does not give a majority to either the Coalition or ALP and we end up with another hung parliament.
Unemployment is expected to be around 5.5% nationally, but in some States, will be over 6%. Currency rates between $AUD and $US is expected to remain around $AUD0.95 to $AUD1.05.
Whilst there have been some questions in relation to the Chinese economy, most economists believe that China will continue to purchase large quantities of product, primarily iron ore and coal, from Australia.
Many of these items are outside the direct control of small to medium enterprise operators but the market uncertainties dictate the need for continuing planning of business operations, the monitoring of interest and exchange rates, and changes in Government policies. It is a good idea to prepare a calendar year budget and to ensure that you then receive departmentalised management accounts monthly or quarterly (at the most), so you can check actual performance against your budget. There is still a high priority to monitor debtors, stock and work in progress, as these are the key ingredients for effective cashflow control within a business.
If you would like our assistance on reviewing your business performance, or preparing a budget and cashflow forecast for the 2013 calendar year, please do not hesitate to contact your Harris Black team member.
If you have been affected by the fires, floods or tornadoes, there are Federal and State government funds available to assist eligible primary producers and small business operators to recover the costs of cleanup and immediate restoration of business costs, but not providing compensation for losses. Assistance is currently available for eligible primary producers and small businesses in Tasmania, New South Wales, Queensland and Victoria.
If you would like our assistance in submitting a claim for Natural Disaster Assistance or determining your eligibility for assistance from the government, please contact us.
There have been some recent court cases in regard to Company director duties. These cases have highlighted the following:
- Reconfirmed that directors and senior managers, irrespective of the size of the company, can face heavy penalties if they have breached their duty of care and diligence in the company's operations.
- Officers under the definition contained within the Corporations Act, includes directors and the company secretary and can include senior management, such as the executive management team or other people who contribute to making decisions.
- Emphasised the necessity for the accurate preparation of the minutes for the Board of Director meetings and, in particular, highlighting the names of any directors who vote against a motion.
- In one case the company's directors were severely criticised for approving misleading financial accounts which related to misclassification of liabilities in the company's financial accounts. Liabilities which should have been treated as current liabilities (i.e. debts repayable in the next 12 months) were treated as long term liabilities. The court decided "the directors have a responsibility to read, understand and focus on the financial statements before approving:-
- Directors should be financially literate and ask appropriate questions to satisfy themselves on the accuracy of financial accounts.
- That the directors cannot uncritically rely on other people
- The court also emphasised that the directors need to read management reports and make their own decisions.
- In small to medium enterprise companies each director has the same legal responsibilities and that one director cannot safely opt out of their responsibilities. A court, in all probability, will assess that an "opt out" director is equally liable with the director who has been performing the director's duties.
Directors also need to be aware of risks associated with "trading whilst insolvent". Directors have to ensure that the company is not incurring debts that the company cannot pay for in the normal course of business.
Taxation laws have also been updated whereby directors can now be responsible for paying PAYG tax deducted from a company's employees' wages and superannuation payments on a personal basis.
There are also onerous responsibilities under the Workplace Health and Safety laws. Directors and officers need to satisfy themselves that there are no inherent risks in the workplace to employees or visitors. Directors cannot delegate this responsibility; directors need to physically inspect premises to ensure that risks have been eliminated.
If you would like us to have a discussion with you relative to your responsibilities as a Company Director, please do not hesitate to contact us.
Unfortunately, intellectual property theft is growing. Intellectual property theft can be quite expensive for your business. Intellectual property that can be very valuable includes:
- customer lists
- pricing lists
- details of how prices are calculated for various important customers
- contract lists
- trade secrets
- products under development in your research & development section
- and other similar items.
The key risk area is when an employee has indicated that they wish to leave your employment. Unfortunately, some employees believe that they can enhance their value to a new employer or kick start their own business by stealing key intellectual property from your business. This can be done by emailing documentation to their home email address, downloading it onto a memory stick or photocopying it and removing as a hard copy. In considering your risk strategies it's a good idea to develop policies of limiting access to certain documentation to any employee who has resigned so as to remove the temptation to illegally obtain copies of your business' intellectual property.
If you have any concerns in relation to intellectual property being stolen from your business, we recommend that you contact your solicitor. If you would like to discuss with us a risk management strategy for the protection of intellectual property within your business, please contact your Harris Black team member.
Setting the correct price for your business's products or services can be vital to its success. Some common traps to avoid when setting prices include:
- When developing a new product or service, "start with the price in mind at the beginning". Conduct some marketing surveys. Ask your customers or prospects how much they'd be prepared to pay for a particular product. Once you've ascertained what the market is prepared to pay, sit down and determine, with the product development team, how much it is going to cost to develop a product to suit what the customers have told you is an acceptable price point for them. Therefore, setting the pricing point should be a very important part of the product development process right from the very beginning of the product development.
- Don't use pricing to fix a "profit & loss problem". Businesses trying to recoup a set amount in its profit performance by having a general price increase invariably fail with that policy. The only way this type of policy succeeds is if there is an improvement in "product value", from the customer's point of view, introduced at the same time.
- Avoid an "across the board" approach to price rises. Products have variable levels of demand, from a customer's point of view and customers place different values on different products, therefore you'd probably find that some of your products could bear a higher price whilst some might have to stay virtually at the same price. To be able to manipulate your prices in this way, management needs to have continual feedback from the customers as to their perceptions on the different types of products sold by your business.
- Avoid "cost plus prices". Customers don't purchase from you based on your manufacturing cost plus a mark up percentage. They purchase from you because they are looking for a product with a certain amount of value, from their point of view. It's easier to defend price points based on value, from the customer's point of view, rather than cost.
- Don't "follow competitors". You've got no idea of knowing how sophisticated a competitor's analysis has been when they've been setting their pricing. They may have no strategy at all, so why follow them. Customers' choices are very wide. One of the secrets to an effective pricing strategy is to differentiate your services so the total package, not only includes the product, but non-price differentiators, such as:
- pre-sale service
- post-sale service
- availability of product
- vast knowledge of the product
If you would like to discuss an effective pricing strategy for your business, please do not hesitate to contact Harris Black.
The ATO has warned trustees of self managed superannuation funds (SMSFs) to exercise care in ensuring that arrangements entered into to invest in property are properly implemented, particularly those involving limited recourse loans.
The ATO is concerned about arrangements that do not comply with the superannuation law. It warned that such arrangements may not be simple to rectify. Further, it added that unwinding an arrangement may involve a forced sale of the asset, which could cause a substantial loss to the fund.
TIP: Given the complexity involved, a trustee should obtain detailed advice in relation to a borrowing arrangement. It is vital to plan ahead to mitigate any adverse tax or stamp duty consequences. Please contact our office for further information.
The ATO has released the third edition of it's 'Your case matters' publication which sets out key data and analysis regarding Australia's tax and superannuation litigation from 1 July 2012 to 31 December 2012. Highlights from the data include (for the period):
- 350,000 audit and review activities were completed resulting in just over 226,000 amended assessments;
- 16,500 objections were lodged of which 82% related to income tax assessments;
- 210 cases were settled, 37% of which were in the micro and individuals market segment;
- 43 AAT cases used the alternative dispute resolution (ADR) process, of which 10 have been resolved in full, and 1 has been resolved in part;
- 71% of the litigation cases dealt with concerned income tax assessment issues;
- 66% of the decisions were favourable to the ATO;
- 2 test cases were discontinued by the ATO, and 3 test cases were conceded by the taxpayer;
- the ATO spent $41.3m on legal costs including litigation and other legal services.
In a recent decision, the Administrative Appeals Tribunal (AAT) allowed a taxpayer's claim for rental deductions in respect of two properties for the 2008 income year.
The taxpayer owned the properties with her two sons as joint tenants and for part of the year, the properties were rented to her ex-husband and one of her sons. The taxpayer, in her 2008 tax return, declared a 50 per cent share of the rental income. She also claimed a 50 per cent share of the rental deductions.
The Tax Commissioner argued the tenancies were not commercial and therefore the deductions claimed were not allowable. However, the AAT found that there was no evidence that the taxpayer was assisting her ex-husband or her son. Further, the AAT noted the rent charged by the taxpayer did not differ greatly from the figures presented by the Commissioner. In conclusion, the AAT held the rental income was assessable and the expenses incurred were deductible.
The AAT has found that a taxpayer was a resident of Australia and therefore affirmed the Tax Commissioner's decision to assess the taxpayer's foreign income earned for the 2006 to 2008 income years.
The taxpayer migrated to Australia in 2005 with his family on a business migration permanent visa. He worked as a pilot, which required him to be away from Australia for extended periods of time.
The taxpayer argued that he was a foreign resident and should not be taxed on the income. However, the AAT said this was a case where the taxpayer was "clearly an Australian resident for tax purposes". Among other things, the AAT took into account the taxpayer's desire to live in Australia as stated in his permanent resident visa application, that his family lived in Australia and that he stayed in hotels when working overseas.
The AAT also noted that the taxpayer held an Australian driver's licence, retained private health insurance in Australia, had Australian bank accounts and owned an investment property in Australia.
A taxpayer has been unsuccessful before the AAT in arguing that her "mistaken belief" as to the timing of a superannuation contribution was a "special circumstance" that warranted reallocating excess superannuation contributions to an earlier financial year.
The taxpayer had started salary sacrificing in 2005 to build up her superannuation balance, which was relatively low due to her work patterns being affected by child care responsibilities over her working life. The taxpayer exceeded her $25,000 concessional contributions cap for 2009–2010 by $3,398 and was issued with an excess contributions tax assessment of $1,070.The issue in dispute centred around an employer contribution that was made on 3 July 2009, but which was attributed to the 2009–2010 financial year.
The taxpayer was under the mistaken belief that an employer contribution made before 28 July would be treated as a concessional contribution for June 2009 and therefore allocated to the 2008–2009 year. The taxpayer argued that the timing of the contribution was beyond her control. She also claimed that the superannuation law could not have been intended to adversely affect women in her situation who have had child caring responsibilities.
Although the AAT was sympathetic, it nevertheless upheld the Tax Commissioner's decision not to reallocate the contribution because it found that the taxpayer's "mistaken belief" as to the timing of concessional contributions did not, in its view, constitute the "special circumstances" that are required under the superannuation law in order to reallocate a contribution.
TIP: This case highlights the need for individuals to know when their super contributions are being paid into their super fund by their employer. Individuals should also consider checking their salary sacrifice arrangements to see if there is an agreement as to when salary sacrifice amounts will be transferred by their employer to their super fund. Please contact our office if you have any questions.
The Government has proposed to establish what it calls a fairer administrative penalty regime for trustees of SMSFs for certain contraventions of the superannuation law. Administrative penalties would range from $850 to $10,200. Broadly, the new regime will give the Tax Commissioner another way to encourage recalcitrant SMSF trustees to remedy defects quickly, rather than rely purely on existing heavy-handed enforcement powers.
The changes also propose to give the Tax Commissioner a new power to issue SMSF trustees with "rectification directions" and "education directions" for superannuation law contraventions. A rectification direction may require the person to take a specified action to "rectify" the contravention and to provide the ATO with evidence of the person's compliance with the direction. An education direction may require a person to undertake a specified approved course of education within a specified time frame and to provide the ATO with evidence of completion of the course.
If implemented, the new regime will apply from 1 July 2013.
Renee Bettenay will be returning from maternity leave on the 2nd April 2013