JUNE Direct Selling Legal Update

Transcription

1 JUNE 2017 Direct Selling Legal Update Level Carrington Street SYDNEY NSW 2000 DX 262 SYDNEY Tel Fax

2 Overview Welcome to the latest issue of the Addisons Direct Selling Legal Update. There have been a number of significant issues affecting the direct selling sector which have occurred since our last newsletter. Some of the issues are addressed in this edition. Australian Consumer Law Review Final Report Released- What next for those in the direct selling industry? Consumer Affairs Australia and New Zealand released its long awaited Final Report on the Australian Consumer Law Review in April The Report makes a number of recommendations and proposals, which are of particular relevance to the direct selling industry. We outline some of those recommendations and proposals in our Focus Paper, including those relating to unsolicited consumer agreements and a general prohibition in respect of unfair trading. Federal Court orders Acquire to pay a $4.5 million penalty - A lesson in how not to conduct telemarketing activities - Unconscionable conduct, misleading and false representations and breaches of the unsolicited selling provisions of the Australian Consumer Law On 30 May 2017, the Federal Court ordered Acquire Learning and Careers Pty Ltd to pay penalties of $4.5 million for engaging in unconscionable conduct, making false or misleading representations and breaching the unsolicited consumer agreement provisions contained in the Australian Consumer Law (ACL). This decision is a timely reminder of the importance of providing your salesforce with regular compliance training, especially in respect of the specific requirements for unsolicited selling which are prescribed in the ACL. Mandatory Data Breach Notification Requirements - Is your direct selling business ready for 2018? From 22 February 2018, it will be mandatory for businesses to notify the Office of the Australian Information Commissioner and any affected individuals in certain circumstances if the business suffers a data breach. In this Focus Paper, we consider these requirements and summarise what your business will need to do to comply. The Devi is in the detail - GST threshold for low value goods to be removed with effect from 1 July What does this mean for the direct selling industry? From 1 July 2017, Australia s goods and services tax (GST) laws will be significantly overhauled. The amendments to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) will result in the removal of the exemption from the requirement to pay goods and service tax (GST) for imports of goods which have a value of less than AUD $1,000 (the GST Threshold). The amendments to the GST Act were made to take effect from 1 July However, an amendment made by the Senate overnight has changed the start date to 1 July That amendment must also be passed by the House of Representatives, but indications are that it will be accepted. 2 JUne 2017

3 Retail leasing law in NSW what you need to know The purpose of this Focus Paper is to help you determine if you are a tenant of a retail shop and to provide an update on recent changes to retail leasing law that could affect you. There may be particular benefits of which you are not aware. Unfair contract terms protecting consumers extended to protect small businesses - Do your agreements with your salesforce comply with the new requirements? In November 2016, the ACL was amended so that the unfair contract term provisions which protect consumers now also protect small businesses. The amendments apply to any new small business contract entered into or renewed after that date. If an existing contract is varied after this date, the new laws will also apply to the varied terms. Have you checked your contracts to ensure that they comply with the new laws? If you have not already done so, your standard form agreements with your independent salespeople should be reviewed as soon as possible to minimise the risk of important contractual terms not being enforceable and/or in contravention of key ACL provisions. We trust that you enjoy this edition of our Addisons Direct Selling Legal Update. If you have any queries or wish to discuss, please do not hesitate to contact any of Addisons Direct Selling team. Cate Sendall Editor 3 JUne 2017

4 Contact Us If you have any queries or comments relating to this newsletter, please feel free to contact one of Addisons Direct Selling Team: Jamie Nettleon Partner Telephone Facsimile jamie.nettleton@addisoslawyers.com.au Arthur Davis Partner Telephone Facsimile arthur.davis@addisonslawyers.com.au Martin O Connor Partner Telephone Facsimile martin.o connor@addisonslawyers.com.au Cate Sendall Senior Associate Telephone Facsimile cate.sendall@addisoslawyers.com.au ADDISONS. No part of this document may in any form or by any means be reproduced, stored in a retrieval system or transmitted without prior written consent. This document is for general information only and cannot be relied upon as legal advice. 4 JUne 2017

5 Contents AUSTRALIAN CONSUMER LAW REVIEW FINAL REPORT RELEASED WHAT NEXT FOR THOSE IN THE DIRECT SELLING INDUSTRY? 6 FEDERAL COURT ORDERS ACQUIRE TO PAY A $4.5 MILLION PENALTY A LESSON IN HOW NOT TO CONDUCT TELEMARKETING ACTIVITIES UNCONSCIONABLE CONDUCT, MISLEADING AND FALSE REPRESENTATIONS AND BREACHES OF THE UNSOLICITED SELLING PROVISIONS OF THE AUSTRALIAN CONSUMER LAW 9 MANDATORY DATA BREACH NOTIFICATION REQUIREMENTS IS YOUR DIRECT SELLING BUSINESS READY FOR 2018? 12 THE DEVIL IS IN THE DETAIL GST THRESHOLD FOR LOW VALUE GOODS TO BE REMOVED WITH EFFECT FROM 1 JULY 2018 WHAT DOES THIS MEAN FOR THE DIRECT SELLING INDUSTRY? 15 RETAIL LEASING LAW IN NSW WHAT YOU NEED TO KNOW 18 UNFAIR CONTRACT TERMS PROTECTING CONSUMERS EXTENDED TO PROTECT SMALL BUSINESSES DO YOUR AGREEMENTS WITH YOUR SALESFORCE COMPLY WITH THE NEW REQUIREMENTS? 20 5 JUne 2017

6 Australian Consumer Law Review Final Report Released What next for those in the direct selling industry? Author : Cate Sendall Consumer Affairs Australia and New Zealand (CAANZ) released its long awaited Final Report on the Australian Consumer Law Review (Report) in April The Report makes a number of recommendations and proposals, which are of particular relevance to the direct selling industry. We outline some of those recommendations and proposals below, including those relating to unsolicited consumer agreements and a general prohibition in respect of unfair trading. Background The introduction of the Australian Consumer Law (ACL) in 2010 was underpinned by the Intergovernmental Agreement for the Australian Consumer Law signed by the Council of Australian Governments (Intergovernmental Agreement). Among other provisions, the Intergovernmental Agreement required the enforcement and administration of the ACL to be reviewed within seven years of its commencement. This review was recently completed by CAANZ with the release of its Report. Unsolicited Consumer Agreements The ACL contains very prescriptive requirements for unsolicited consumer sales including disclosure obligations, mandatory requirements as to agreement form and content and cooling-off rights. However, despite these requirements, CAANZ considers that pressure selling and consumer detriment continues to occur in some sectors where sales are unsolicited. CAANZ has concluded that: the core protections in respect of unsolicited consumer agreements (UCAs) should not be diluted; a degree of additional intervention may be required; and while there is evidence of harm in some sectors, there is little information about the extent to which other sectors use unsolicited selling techniques. Therefore, CAANZ is unsure as to whether other sectors experience similar problems. As a result, CAANZ considers that it is difficult to assess the impact of any economy-wide reforms on traders who comply fully with the law when making unsolicited sales. Recommendation CAANZ has indicated in its Report that its preferred approach is to: a) maintain the current balance of protections; and b) conduct an economy-wide study of unsolicited selling, the results of which would be used to inform future policy development. In the meantime, CAANZ has proposed that the threshold requirements for UCAs be clarified so that it is clear that the UCA provisions in the ACL: can apply to public places; and capture suppliers in their negotiations with consumers where the suppliers obtain from a third party (sometimes referred to as a lead generator ) a consumer s contact details or permission to be contacted. 1 The Australian Consumer Law Review: Final Report (Report) is available online: 6 JUne 2017

7 CAANZ s Interim Report 2 noted that a number of stakeholders had suggested a ban on all or some forms of unsolicited selling. CAANZ concluded that any ban would be an extreme form of intervention that is generally reserved for significant and widespread misconduct where all other forms of regulation have failed. 3 Noting that the broader effects on the Australian economy would need to be better understood, CAANZ concluded there is little current information about the extent to which a broad prohibition would affect legitimate traders and their livelihoods. An opt-in approach (instead of a cooling-off period) was suggested by some stakeholders and referred to in the Interim Report. Consumers would be required to opt in to confirm the sale within a limited time before an unsolicited sale agreement is valid. In its Report, CAANZ has stated that it believes that such a proposal would be best considered in light of the proposed economy-wide study (referred to above). Therefore, any ban or opt-in approach appears to be off the table until the economy-wide study is completed. CAANZ also did not accept submissions which suggested that additional rights were required in respect of higher risk UCA transactions (for example, enduring (or ongoing) service UCAs or UCAs with a higher purchase price (eg over $500)) on the basis that, for example, there would be difficulties in defining an enduring service contract and that the extent of any risk depends more on the particular conduct and consumer, rather than the type of product. 4 General Prohibition on Unfair Trading The Issues Paper, which was released at the commencement of the ACL review in March 2016, canvassed whether a general prohibition against unfair commercial practices was warranted. 5 In its Report, CAANZ considers that there is no real clarity as to the extent to which the exploitation and/or taking advantage of vulnerable consumers is captured by existing protections contained in the ACL, including misleading or deceptive conduct, unconscionable conduct, unfair contract terms, pyramid selling and unsolicited selling. Given this, CAANZ considers that the merit of an additional general unfair trading prohibition is uncertain at this point in time. CAANZ has committed to prioritising the investigation of whether a general prohibition on unfair trading would provide additional protections beyond those currently contained in the ACL and how the prohibition could be implemented. Penalties CAANZ has proposed that the maximum financial penalties for breaches of the ACL be increased significantly to align the penalties with the penalty regime under the competition provisions of the Competition and Consumer Act 2010, namely: for companies, the greater of: o o o the maximum penalty (of $10 million), or three times the value of the benefit the company received from the act or omission, or if the benefit cannot be determined, 10 per cent of annual turnover in the preceding 12 months; for individuals, $500, The Australian Consumer Law Review: Interim Report is available here: 3 Report at Report at The Issues Paper is available here: 7 JUne 2017

8 Consumer Guarantees CAANZ has made a number of recommendations in respect of the consumer guarantee provisions contained in the ACL including the clarification of the following matters, which have caused confusion: the mandatory text requirements for warranties against defects; when a major failure has occurred; and the scope of exemptions for goods lost or damaged in transit. CAANZ has also recommended that there be enhanced disclosures in respect of extended warranties. Future Action what next? CAANZ has identified the following priority projects which are relevant to the direct selling industry: Timeline Commencing in Action to Be Undertaken An economy-wide study to examine the role, nature and impact of unsolicited selling in the Australian economy, which will inform future policy development., which CAANZ considers This will allow it CAANZ to: explore more fully the diverse stakeholders views on the manner in which unsolicited selling is regulated; understand the nature of unsolicited sales business models (including possible incentives for poor conduct); identify the benefits of unsolicited selling for both consumers and businesses; document the use of unsolicited sales practices across the economy and the relative incidence of consumer harm, including identifying high and low-risk sectors; determine how any changes to the balance of current provisions, which apply across all sectors, could be structured to address ongoing problematic practices without placing unreasonable burdens on legitimate traders; and further assess the effectiveness of the current cooling-off provisions and, if necessary, consider alternative approaches raised in the ACL Review, such as an opt-in mechanism. Commencing in Exploring how an unfair trading prohibition could be adopted within the Australian context to address potentially unfair business practices bearing in mind that CAANZ does not wish to duplicate existing provisions. We consider that this exploration could result in further focus on UCAs and the pyramid scheme prohibitions contained in the ACL Given the above, we expect further attention to be focused on unsolicited selling and it may be that, in due course, further changes are made to the UCA regime contained in the ACL. 8 JUne 2017

9 Federal Court orders Acquire to pay a $4.5 million penalty A lesson in how not to conduct telemarketing activities Unconscionable conduct, misleading and false representations and breaches of the unsolicited selling provisions of the Australian Consumer Law Author: Cate Sendall On 30 May 2017, the Federal Court ordered Acquire Learning and Careers Pty Ltd (Acquire) to pay penalties of $4.5 million for engaging in unconscionable conduct, making false or misleading representations and breaching the unsolicited consumer agreement provisions contained in the Australian Consumer Law (ACL). 1 In awarding such a large penalty, the Federal Court considered the deliberateness of Acquire s conduct, including its targeting of vulnerable consumers, the losses suffered by the Commonwealth and that Acquire was a market leader in the relevant sector. Given these matters, the Court considered that there was a strong requirement that the penalty act as both a general and a specific deterrent. This decision is a timely reminder of the importance of providing your salesforce with regular compliance training, especially in respect of the specific requirements for unsolicited selling which are prescribed in the ACL. Background Acquire held the personal information of job seekers, which was either purchased from online job advertisers, or collected in the course of operating its own recruitment businesses. Acquire entered into agreements with vocational education course providers whereby Acquire would market and promote the courses to potential enrolees. Acquire received a fee from the course providers for each student who enrolled in a vocational education course as well as, from time to time, a percentage of the course fee. Acquire employed or contracted individuals to market and promote the courses by making telemarketing calls to job seekers. Each telemarketer was paid an hourly rate plus commission and offered incentives for enrolling the job seekers into a vocational education course. Telemarketers were also provided with a script which included a list of frequently raised objections of job seekers and suggested responses. During the unsolicited telemarketing calls, job seekers were also encouraged to seek a Commonwealth Government education loan to pay for the course (VET FEE-HELP scheme). In obtaining a loan, a job seeker incurred a debt to the Commonwealth upon which interest accrued. The loan was repayable once the job seeker reached a minimum repayment income level of $53,345. Contravening Conduct The proceedings concerned recorded telemarketing calls made by Acquire to eight job seekers who enrolled in the VET FEE-HELP vocational education courses and incurred debts to the Commonwealth which ranged between $9,900 and $21,000. In making the unsolicited telemarketing calls, Acquire admitted that: undue pressure and unfair sales tactics had been used by the telemarketers; 1 Australian Competition and Consumer Commission v Acquire Learning & Careers Pty Ltd [2017] FCA 602 (30 May 2017) (Acquire Case) 9 JUne 2017

10 false and misleading representations were made to the job seekers. Telemarketers, for example, told job seekers that: o o the only purpose of their call was to find them employment and that Acquire had an employment opportunity for them; and by enrolling in the course, the job seeker would be employed in a job, when there were no reasonable grounds for making such representations; job seekers were not provided with an opportunity to consider whether the courses being offered were suitable; it failed to disclose that job seekers would incur a significant debt to the Commonwealth in certain circumstances. The debt comprised the course fee and a 20% loan fee (in most instances), with each debt being indexed annually and increased in line with the Consumer Price Index; and it did not provide the information which is prescribed under the unsolicited consumer agreements (UCA) provisions of the ACL, to the job seekers at the time of negotiating and entering into the unsolicited sale agreements including: o o no information was provided (either during the calls or in writing after the agreements had been entered): about the job seekers rights to terminate the agreement during the cooling-off period; about the way in which the job seekers could terminate the agreement; and the job seekers were not informed that the education services could not be supplied for the duration of the 10 business day cooling-off period. The Federal Court noted that the failure to provide the information required under the UCA provisions was serious given the size of the debts the job seekers incurred. During the telemarketing calls the subject of the proceedings, some of the job seekers disclosed various matters to the telemarketers, which indicated that enrolment in the vocational education courses would not have been suitable for them. Matters disclosed included learning disabilities; a mental illness; the completion of limited schooling; difficulty understanding and speaking English; no access to a computer; and/or a previous inability to complete other education courses. Despite being informed of these matters, which the Federal Court noted were vulnerabilities, Acquire s telemarketers continued to market aggressively the courses and the VET FEE-HELP scheme to induce the job seekers to enrol in courses which were unlikely to assist them to obtain employment and which they were unlikely to complete. In most instances, the job seekers incurred a significant debt to the Commonwealth for no real benefit. Accordingly, the Court determined that Acquire had engaged in unconscionable conduct, made false and misleading representations and breached the UCA provisions of the ACL. In reaching its decision, the Federal Court noted that Acquire s activities resembled those of an unscrupulous fly by night operation rather than those of a prominent and market leading provider of student recruitment services, as it describes itself. 2 Rather than helping job seekers, as it pretended, the Federal Court noted that Acquire s motive was to maximise its profits through fees it received from course providers. 3 Size of the Penalty Under section 224(3) of the ACL, the maximum penalty for contravening the unconscionable conduct and false and misleading representations provisions of the ACL is 2 Acquire Case at para 6. 3 Acquire Case at para JUne 2017

11 $1.1 million per contravention. The maximum penalty for a contravention of the prescribed information requirements for UCAs is $50,000. The Federal Court was in no doubt that Acquire s conduct was serious. Acquire s conduct was systematic and its sales system increased the risk of breaches of this nature. In setting the amount of the pecuniary penalty, the Federal Court noted that any amount should be set sufficiently high that a business, acting rationally and in its own best interests, will not be prepared to treat the risk of such a penalty as a business cost. 4 Relevant matters to consider when setting a penalty amount include the nature and extent of the conduct and whether any damage or loss has been suffered, the circumstances surrounding the conduct and whether those involved have been found previously by a court to have engaged in similar conduct. 5 The Court considered that other matters, which are relevant considerations in setting a penalty amount, include: the size of the company and its financial position. Acquire s financial position was perilous, with its most recent financial statements showing an after tax loss of almost $13 million; the extent to which the contraventions were deliberate, systematic and/or covert; the duration of the contraventions; whether there was a corporate culture which was conducive to compliance, for example, was there a compliance program and were disciplinary measures taken when there was an acknowledged contravention. For most of the relevant period, Acquire had no compliance program in place. When it subsequently implemented a compliance program, it did not prevent the continuation of the conduct. Acquire conceded that its compliance program was inadequate; and whether the company is in a position of influence and its importance within the relevant sector. 6 The various telemarketing calls to the eight job seekers were not isolated examples of conduct by rogue employees. The contraventions were systematic and took advantage of vulnerable unemployed job seekers by using unfair tactics and undue pressure, as well as false and misleading representations to induce them to enrol in unsuitable vocational educational courses. In entering into the agreements, the job seekers incurred significant debts of between $9,900 and $21,000 and Acquire s telemarketers failed to provide the job seekers with the information about their termination rights as required under section 76 of the ACL. The failure to do this was serious given the significant size of the debts they incurred. Taking the above into consideration, a penalty of $4.5 million was considered appropriate to deter Acquire from engaging in future conduct of this nature and to deter others from engaging in similar conduct. Had Acquire s financial position not been so dire, the penalty amount would likely have been higher. Take Home Points The judgment is a timely reminder for direct selling companies that it is important to have an adequate ACL compliance program in place and that compliance training be conducted regularly. High pressure sales techniques should be prohibited. Independent distributors engaged by direct selling companies must be aware of the disclosure requirements in respect of UCAs and only use sales agreements which comply with the UCA requirements contained in the ACL, where required. 4 Acquire Case at para Acquire Case at para Acquire Case at para JUne 2017

12 Mandatory Data Breach Notification Requirements Is your direct selling business ready for 2018? Authors: Cate Sendall and Joseph Abi-Hanna From 22 February 2018, it will be mandatory for businesses to notify the Office of the Australian Information Commissioner (OAIC) and any affected individuals in certain circumstances if the business suffers a data breach. In this Focus Paper, we consider these requirements and summarise what your business will need to do to comply. The rationale underpinning the mandatory data breach notification requirements is to enhance the protection of personal information held by businesses and to enable individuals to mitigate any harm caused by a data breach. Data breaches (including data which is lost or stolen) are a fact of modern life. It has been estimated that more than 9 billion data records have been lost or stolen worldwide since Direct selling businesses retain large amounts of personal information relating to their customers and distributors and should recognise that data breaches will occur. Therefore, businesses are encouraged to develop a robust cyber security framework, a data breach policy and a data breach response plan to ensure compliance with the law. Under Australia s federal privacy regime, the penalties that can be imposed on businesses for breaches of privacy can be as high as $1.8 million, and the damage caused by data breaches to a business s reputation and brand can be irreparable. Overview To comply with the requirements of the Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) (Privacy Amendment Act) 2, relevant businesses must give formal notice if: there are reasonable grounds to believe an eligible data breach has occurred; or the Australian Information Commissioner (the Commissioner) believes on reasonable grounds that an eligible data breach has occurred and directs that business to give notice. Businesses with an annual turnover of less than $3 million are not required to comply with the Privacy Act, unless an exception applies to the business, such as where it collects health information, which is sensitive information. Accordingly, while a direct selling business distributors will not ordinarily be required to comply with the Privacy Act, if they collect health information from customers and distributors in their downlines, they must comply. Health information can include, for example, a person s opinion about their level of fitness. What is an eligible data breach? There will be an eligible data breach where: there is unauthorised access to, or unauthorised disclosure of, personal information; or information is lost in circumstances where unauthorised access to, or unauthorised disclosure of, personal information is likely to occur; and a reasonable person would determine that access or disclosure would likely result in serious harm to any individuals to whom the information relates The Privacy Amendment Act 2017 amends the Privacy Act 1988 (Cth) by inserting a new Part IIIC- Notification of eligible date breaches. 12 JUne 2017

13 What is serious harm? Serious harm is assessed from the standard of the reasonable person. It could include harm which is physical, psychological, emotional, economic, financial or reputational. However, individual upset or distress on its own is unlikely to constitute serious harm. In assessing whether a reasonable person would conclude that disclosure or access would be likely to result in serious harm, relevant considerations include: the kind of information and its sensitivity, for example, health information or credit card details; whether the information is protected by one or more security measures; the likelihood that any of those security measures could be overcome; whether a security technology was used to make the information unintelligible or meaningless to unauthorised persons; and the likelihood that a person has obtained or could obtain information or knowledge to circumvent the security technology. Which form of notice is required? If a business has reasonable grounds to believe an eligible data breach has occurred, or the business is directed to provide a notification by the Commissioner, the business must prepare a statement. The statement must include: the identity and contact details of the business; a description of the data breach; the kinds of information concerned; and recommendations about the steps that individuals should take in response to the data breach. A copy of the statement must be given to the Commissioner. The business should then notify each individual: to whom the relevant information relates; or who is at risk from the eligible data breach, of the contents of the statement as soon as practicable after the business is aware that there are reasonable grounds that an eligible data breach has occurred. Direct selling businesses may use their usual method of communication when notifying an individual, for example, SMS, a phone call, or a social media post. If it is not practicable to notify each individual, the business must publish a copy of the statement on its website and take reasonable steps to publicise the statement s contents. Are there any exceptions? Unless an exception applies, notification of an eligible data breach is mandatory. The Privacy Amendment Act introduces a number of exceptions, including: Remedial action: if the business takes remedial action in response to an eligible data breach and a reasonable person would conclude that, as a result of the action, the breach would not be likely to result in serious harm to any individuals. Inconsistency with secrecy provisions: if notification would be inconsistent with Commonwealth secrecy provisions. Commissioner s declaration: if the Commissioner declares that the business is exempt from complying with notification requirements for a certain period of time. The Commissioner may make the declaration on the Commissioner s own volition or upon application by the business. 13 JUne 2017

14 What are the consequences for contravening the Privacy Act? Failure to comply with the Privacy Act may be considered as interferences with the privacy of the individual. For a corporation, the maximum civil penalty that can be imposed for a serious breach, or for multiple breaches, of the Privacy Act is $1.8 million. In addition, a corporation may be ordered to compensate an individual for loss or damage caused. Data breaches by a direct selling organisation can also cause significant damage to the organisation s reputation and erode the trust that both customers and other participants in the direct selling industry may have in a direct selling business, as well as cause significant business interruption and loss. As we have previously reported, company directors are responsible for cyber security issues and, in the event of a data breach, could be found to be personally liable. 3 Is your direct selling business prepared to handle a data breach? Does your business (and/or your independent distributors) collect sensitive information, such as health information? Do your independent distributor agreements and/or Policies and Procedures contain privacy obligations? Are your independent distributors required to notify you of any suspected data breaches? These are all matters which you should consider when determining whether your business and your independent distributors are taking reasonable steps to ensure privacy compliance. As discussed above, the security measures and technology used by a business are important factors in determining whether a data breach has caused or is likely to cause serious harm in the eyes of a reasonable person. This demonstrates the need for direct selling businesses to be better protected and insulated from cyber risks. In partnership with leading technology and risk management experts, Addisons has developed a simple Cyber Health Check to enable you to assess your resilience level. Please do not hesitate to contact us to explore strategies to enable your business to develop a robust cyber security framework. Not only will this protect your commercial interests, but it will also ensure that you are prepared to comply with the Privacy Act by We encourage you to create a data breach policy and a response plan. The OAIC s guide to developing a data breach response plan was published in April The guide is being updated to reflect the changes introduced by the amendments to the Privacy Act. Addisons can assist your business to develop a data breach policy and response plan which will align you with best practice. 22 February 2018 is fast approaching; make sure your business is prepared! 3 Directors_have_a_crucial_role_to_play948.asp x?kb_pnumber= JUne 2017

15 The Devil is in the detail GST threshold for low value goods to be removed with effect from 1 July 2018 What does this mean for the direct selling industry? Authors: Jamie Nettleton, Arthur Davis, Cate Sendall and Karina Chong From 1 July 2017, Australia s goods and services tax (GST) laws will be significantly overhauled. The amendments to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) will result in the removal of the exemption from the requirement to pay goods and service tax (GST) for imports of goods which have a value of less than AUD $1,000 (the GST Threshold). The amendments to the GST Act were made to take effect from 1 July However, an amendment made by the Senate overnight has changed the start date to 1 July That amendment must also be passed by the House of Representatives, but indications are that it will be accepted. The Australian Government's intention in amending the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) is to "ensure that goods and services tax (GST) is payable on certain supplies of low value goods that are purchased by consumers and are imported into Australia". 1 For further information about the background to these GST amendments, please see our Direct Selling Newsletter December 2015 What are the changes? Removal of the GST Threshold Under the current Australian GST laws, Australian consumers can purchase goods under a GST Threshold value of AUD $1,000 from overseas suppliers without being subject to paying GST and; conversely, overseas retailers are generally able to sell and supply their goods to Australian residents without imposing a GST charge, where the value of the goods is less than the GST Threshold. The primary aim of the amendments to the GST Act is to effectively remove the GST Threshold and impose GST on the sale of all imported goods, including those valued at $1000 or less at the time of sale (namely, low value goods) to ensure that these imported low value goods are treated in the same manner as goods sourced from Australian suppliers. Overseas-based retailers, including offshore direct selling companies selling directly to Australian-based consumers, will be required to register for GST, comply with GST reporting requirements and remit GST to the Australian Taxation Office (ATO) if they meet the registration turnover threshold. Suppliers will meet the registration turnover threshold if they: record AUD$75,000 or more from sales to Australian consumers over a 12 month period (ie current GST turnover); or are projected to record AUD$75,000 over the next 12 months (ie projected GST turnover). GST turnover is the gross sales revenue of a business excluding, for example, sales not connected with Australia and sales not connected to an enterprise that is run by the business. 1 Australian Government Treasury, Draft Explanatory Memorandum to Exposure Draft of Treasury Laws Amendment (2017 Measures No. 1) Bill GST%20to%20low%20value%20goods%20imported%20by%20consumers/Key%20Documents/PDF/ED_Applyi ng_gst_to_low_value_goods.ashx 15 JUne 2017

16 When will GST registration be required? Supplies of low value goods to Australian recipients by offshore suppliers will only be taxable if the supply is to an Australian consumer and the $75,000 threshold is exceeded (or is likely to be exceeded) in a year. Whether the value is likely to be exceeded will be influenced by historical sales. An Australian consumer is an Australian resident that is not registered for GST. As stated above, where such supplies are made, the offshore supplier will be required to register for GST and comply with the GST reporting requirements. When will GST registration not be required? An offshore supplier which supplies low value goods to Australian consumers (or other supplies which are subject to GST) where the gross sales revenue in respect of these supplies is less than the AUD$75,000 threshold per year, will not be required to register for GST. An offshore supplier will also not be liable for GST on supplies to Australian consumers if: it takes reasonable steps to obtain information as to whether the recipient is an Australian consumer; and after taking those steps, it reasonably believes the recipient is not an Australian consumer. A draft Australian Taxation Office (ATO) ruling 2 (Draft Ruling) on this issue states that reasonable belief can be formed that a recipient is not an Australian consumer when: the recipient does not satisfy the residency element; or the recipient does not satisfy the consumer element. If an offshore supplier believes that a recipient is not an Australian consumer because the recipient holds an Australian Business Number (ABN), this belief will only be reasonable if the recipient s ABN has been disclosed to the supplier and the recipient has provided a declaration or other information which indicates they are registered for GST. 3 If offshore direct selling companies: are solely selling products to their Australian-based distributors for resale; and their distributors hold ABNs, then the companies should not be required to register for GST and comply with GST reporting requirements. However, as stated above, if the company is also making sales directly to Australian-based consumers, they will need to consider whether they are a GST entity and required to register for GST. What does this mean for e-commerce and online businesses engaged in direct selling? The amendments to the GST Act will primarily impact overseas companies which conduct their businesses online, including but not limited to, direct selling organisations and any retailers with an e-commerce website through which overseas sales are made to Australian consumers. Where do we go from here? Offshore suppliers of low value goods to Australian consumers should consider promptly whether registration for GST is required and, if so, whether they wish to, for example: register for GST; or continue to make supplies to Australian consumers without registering for GST (and risk enforcement action); or 2 Draft Goods and Services Tax Ruling: GSTR 2016/D1 (Draft Ruling) available here: 3 Draft Ruling at JUne 2017

17 discontinue supplies to Australian consumers. The ATO is developing simplified registration and administration procedures for foreign suppliers who would not have had to register for GST in Australia, but for these amendments. The ATO has announced that it will use a phased approach for registration in the simplified GST system: Phase 1 commencing 26 June 2017 Foreign suppliers will be able to register for simplified GST by accessing an online platform called the simplified GST system via a portal on the ATO s website. 4 Once registered, foreign suppliers will be issued with an ATO Reference Number (ARN), which is used to identify foreign suppliers in the ATO s systems and can be used as an identifier on invoices. Although registration cannot take place before 26 June, offshore providers may apply for an ARN to assist with registration on or after 26 June. Phase 2 commencing 30 September 2017 From 1 October 2017, foreign suppliers will be able to lodge and pay GST using the platform. However, the amendments passed by the Senate also require that the Productivity Commission review the new provisions and report by 31 October. Consequently, the phased approach proposed by the ATO will also change. We will continue to monitor developments. At this stage it is not clear how the ATO will enforce compliance with the new laws. The ATO has indicated that it will be monitoring and working with international agencies, as well as auditing taxpayers and prosecuting, where appropriate. However, we are unsure as to how enforcement will occur in practice. 4 This platform can be used to register, lodge and pay GST. 17 JUne 2017

18 Retail leasing law in NSW what you need to know Authors: David Blackburn and Portia Malinowski The purpose of this article is to help you determine if you are a tenant of a retail shop and to provide an update on recent changes to retail leasing law that could affect you. The Retail Leases Act 1994 (NSW) (Act) operates to regulate a number of areas of the relationship between a landlord and tenant in respect of a lease of a retail shop. What is a retail shop? Premises that: a) are used (or proposed to be used) to carry on wholly or predominantly one or more of the businesses prescribed by the Act; or b) used (or proposed to be used) for carrying on any business in a retail shopping centre. The prescribed businesses are listed in Schedule 1 of the Act. The businesses prescribed are extensive and list over 150 types of retail shop businesses including pharmacy, beauty, health food shops and amusement and entertainment services. Certain retail shops excluded Certain retail shops are excluded from the operation of the Act including shops that have a lettable area of 1,000 square metres or more. Benefits of being a tenant under the Act Some of the benefits afforded to a tenant of a retail shop include: A landlord must provide a disclosure statement prior to signing the lease; A landlord cannot pass on the cost of land tax to a tenant; A landlord cannot pass on their legal costs to the tenant (save in certain situations); and A landlord cannot prevent the rent from going down at a market rent review. Recent changes to the Act A number of changes have been made recently to the Act by the Retail Leases Amendment (Review) Act 2017 No. 2 (Amending Legislation) which takes effect on 1 July Some of the more material changes include: 1. removal of a five year minimum term (this means that, for a lease that comes into force after 1 July 2017, there is no requirement for a mandatory five year term (which is the initial term together with any further term or extended term). 2. increased obligations on the landlord to make disclosure a tenant is not required to pay any undisclosed liabilities. 3. requirement for the landlord to return the tenant s bank guarantee within two months after the tenant has met all obligations under the Lease. There are a number of other changes that impact on the rights and obligations of both tenants and landlords which need to be understood by landlords and tenants alike before a retail lease is entered into. The changes for the most part operate retrospectively, meaning that they will operate in respect of retail shop leases entered into prior to 1 July 2017, there are some exceptions to this position. 18 JUne 2017

19 What does this mean for you? If you are looking to enter into a commercial leasing arrangement, please consider whether you could be a tenant of a retail shop and entitled to the benefit of the Act. If you are, it could be prudent for you to ensure that any negotiations take place on this basis (so to ensure that the beneficial rights held by the tenant are taken into account). It is important to remember that it is the actual use of the premises that will determine whether it is a retail shop, This will depend on the business conducted at the premises on a day to day basis. 19 JUne 2017

20 Unfair contract terms protecting consumers extended to protect small businesses Do your agreements with your salesforce comply with the new requirements? Author: Cate Sendall You may not be aware but the Australian Consumer Law (ACL) has been amended so that the unfair contract term provisions which protect consumers now also protect small businesses. The amendments took effect in November 2016 and apply to any new small business contract entered into or renewed after that date. If an existing contract is varied after this date, the new laws will also apply to the varied terms. We wrote about this extension of the law in our Direct Selling Legal Update. In February, the ACCC signalled that the small business unfair contract provisions will be a key enforcement and compliance priority for A contract will be a small business contract (and must comply with the new laws) if it: is for the supply of goods or services (eg a Consultant or Distributor Agreement for the supply of services) or the sale or grant of an interest in land; at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis); and the upfront price payable under the contract is no more than $ , or $1 million if the contract is for more than 12 months. In November 2016, the ACCC released a report on its views on the application of the new laws to particular clauses in small business contracts, including independent contractor arrangements. 1 Our Focus Paper on this report is accessible here: ACCC Enforcement of B2SmallB Unfair Terms Law Commences Drafting Tips to Avoid Breach of the Law. Potentially Unfair Clauses In its report, the ACCC identified potential unfair terms, which appear in many small business contracts (including independent contractor arrangements). Particular clauses which may be considered unfair include: Exclusion for all losses: A term which broadly limits the larger business liability (eg the exclusion of any and all liability even when the larger business partly caused the loss or damage) may be unfair. The ACCC considers that the larger business should be liable for loss or damage to the extent that they caused or contributed to it. Misleading clauses: Clauses should not have the potential to mislead a contractor where they might have additional rights at law. Entire agreement clauses (ie the agreement signed by the parties represents all of the parties rights and obligations) may potentially be misleading where a contractor might have additional rights outside the agreement, such as those based on pre-contractual representations by the principal. Terms avoiding or limiting obligations: For example, a clause shifting all liability to the smaller business may be considered unfair as may a clause which appears to limit the liability of the larger business unreasonably. Unilateral rights to vary: A clause giving the larger business a unilateral right to vary a contract, which could cause the smaller business detriment. The ACCC considers that: 1 ACCC, Unfair terms in small business contracts: A review of selected industries, November 2016, %20Unfair%20terms%20in%20small%20business%20contracts%20%20A%20review%20of%20selected%20indu stries_0.pdf 20 JUne 2017

21 o o notice should be provided before any variations take effect; and the smaller business should be given an opportunity to end the agreement, without penalty, if they do not agree to the variations. Termination clauses: The ACCC considers that, where the small business breaches the contract, they should be given an opportunity to remedy the breach and the larger business must only be able to terminate on grounds that are reasonable. Automatic renewal: If the small business is not provided reasonable notice and cannot exit without penalty, a clause providing for automatic renewal may be unfair. In the context of a direct selling company s contracts with its independent salesforce, whether clauses of the above nature will be considered unfair will depend upon: the extent to which the clause creates an imbalance between the parties; whether the clause is reasonably necessary to protect the legitimate business interests of the direct selling company; and whether the term has caused detriment (which need not be financial) to the independent contractor. If a court or tribunal determines that a clause is unfair, the term will be void (ie not binding upon the parties). Have you checked your contracts to ensure that they comply with the new laws? If you have not already done so, your standard form agreements with your independent salespeople should be reviewed as soon as possible to minimise the risk of important contractual terms not being enforceable and/or in contravention of key ACL provisions. These agreements include but are not limited to your direct selling company s: Independent Contractor Agreement; Policies & Procedures, or similar document; Compensation Plan; Autoship Agreement; and the terms and conditions of supply of any replicated website or back office, which might be provided to an independent contractor. 21 JUne 2017