Do you need to register a security interest?

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1 Collins XPRESS ISSUE FAST TRACKING YOUR BUSINESS SUCCESS PARTNERS Personal Property Securities law kicks off Ivan Anzanello he new Personal Property Securities Register commenced on the 29th of January Businesses are being advised to become as familiar as possible with the changes to avoid missing out on having their interests in securities properly registered. Steve White T The Personal Property Security (PPS) reform introduces the Personal Property Securities Act 2009 and a single online PPS register, replacing all other state based registers regarding security interests in personal property. The model is based on the same models currently being used in Canada and New Zealand. A personal property security is when a secured party takes an interest in personal property as a security for a loan or other obligation, or enters into a transaction that involves the supply of secured finance. Examples include: A person borrowing money from a bank and offering the bank collateral or security for the loan the bank s interest over the collateral is personal property security; and Retention of title clauses for the sale of goods ( Romalpa clause). Personal property is any form of property, other than land, buildings or fixtures, which form part of the land. It can include tangible assets such as cars, art, machinery and boats, as well as intangible assets such as intellectual property and contingent rights and financial assets such as shares. Those that register will be treated as a secured creditor, as opposed to an unsecured creditor, if a debtor falls into insolvency. The PPS register will allow lenders and businesses to register their security interest. Secured parties, buyers and other interested parties can search the PPS register to find out if a security interest is registered over the personal property. Existing transactions involving mortgages and charges which have been registered with the Australian Securities and Investment Commission (ASIC) will be migrated to the new Personal Property Securities Register as well as existing security interests that are currently registered. Do you need to register a security interest? It is important to note that under the PPSA, an owner of a personal property who allows a third party to use that property will need to register the fact they are the owner of such property on the PPS register. If they do not register and the entity that has possession of the property goes into liquidation, the liquidator will effectively be able to claim ownership of the property in priority to the actual owner. The registration process is not entirely straightforward and, if it is not done properly, the owner will be at risk of losing ownership of the goods. Continued on page 2 Fabio Cammarano Michael Hollowood Paul Kelly Darryl West SERVICES Tax Advice Superannuation Business Advisory Audit Succession Planning Business Valuations Estate Planning Wealth Creation CONTENTS Personal property securities law kicks off 1 Small business scammers 2 What benefits can an external audit provide you & your business? 3 Updates to small business benchmarks 4 Default assessments for non-lodgers 4 Changes to Stamp Duty Legislation 4 Directors beware 5 Lunch with an Olympic hero 6 Barry Hall faces the WRBC 6 ATO targeting contractors 6

2 Collins XPRESS Personal Property Securities law kicks off (continued from page 1) In the past, a popular asset protection strategy was to hold plant and equipment, trademarks, vehicles etc in an investment trust, and lease, hire, rent or licence these assets to another entity i.e. the operating entity. Unless the interest of the investment trust in these assets are registered under the PPSA, they face severe consequences if the operating entity goes insolvent and these assets are not protected from creditors as was the original intention. It is recommended you make sure all lease or licence arrangements in respect of personal property assets are documented and that the interest created by the documents are registered under the PPSA. The registration period for each asset is seven years. For more information on how to protect your personal property assets, please contact your Partner at Collins & Co on or partner@collinsco.com.au. Caution small business scammers The number of scams targeting small businesses has grown in recent years and the importance of owners preparing for possible threats is something to be considered. Without taking the necessary precautions and being in the know about the most common signs to look for, businesses are left exposed and vulnerable to a variety of scams. Scams targeting small businesses come in many different forms and often, scammers will go to great lengths to convince businesses that their offers or requests are legitimate. Since a lot of these scams look like the real thing, many are able to take advantage of busy office environments and succeed in stealing company money. Some of the most common scams getting around at present include the following: Refund scams These will usually request a confirmation of personal details or an upfront payment in order to reclaim overpaid fees or tax. The scammer will usually pretend to be from a government agency, bank or private law firm. To protect a business from such scams, personal information should only be given to out to those that are known and trusted or to those that were in fact contacted by the business owner or employee themselves. Searches at abr.business.gov.au can provide ABN numbers and Deductible Gift Recipient (DGR) details to confirm that the organisation is legitimate. Overpayment scams A scammer will purchase goods and services from a company and send a cheque, money order or credit card payment for more than the agreed price. The scammer will then request a refund for the overpaid amount in hope that the owner will do so before realising that the cheque in fact bounced or that their money order or credit cards were phony. Office supply scams These will involve the receipt and billing of non-ordered goods that are usually and regularly purchased by the business. Such items may include paper, printing or maintenance supplies and advertising. The caller will claim to be the company s regular supplier and offer limited time only offers that are in fact overpriced and of bad quality. Requesting an order number, inspecting the quality of goods and checking that they were actually ordered before paying any invoice is good idea. Direct entry/ unauthorised advertising A scammer sends a subscription proposal, disguised as an invoice or renewal notice, for listings and advertisements in magazines or on questionable websites and business registers that were not authorised or requested. These are often overseas requests and, although sometimes appearing to be free, will demand payment after the subscription is signed off on. The scammer may even call to confirm details of a pre-booked advertisement or offer a free trial for which they will in fact charge you for later. Company records should always be checked to ensure that these orders were actually placed and any free trial offer should be checked for hidden terms. Domain name scams A business will be sent an unsolicited invoice for an internet domain name registration or renewal. The notice could be from a domain name supplier attempting to trick them into signing up to their service, or from a scammer trying to steal money. Businesses should always match renewal notices with their current domain name and look for differences such as.com.au instead of.net.au. To ensure that a business is protected, business owners should also: Keep their filing and accounting systems well organised so that they can easily detect bogus accounts; Limit the number of people authorised to place orders and make payments for the business; Ensure that computer firewalls and protection software is up to date; Report any known scams to the appropriate government agency by visiting the SCAMwatch website. If you are unsure if something you have received is spam, please contact Milena Lowe, IT Manager on or ml@collinsco.com.au. 2

3 What benefits can an external audit provide you and your business? Management often asks the question: What value will an audit of the financial report add to a typical SME? Many businesses consider an audit as part of a mandatory requirement that they must satisfy, however, this mindset underestimates the real value that the external audit process can provide to their business as a whole. In Australia, the regulatory requirements for an audit under the Corporations Act 2001 are as follows: All Proprietary Limited (Pty Ltd) companies are categorised as either large or small. A proprietary company is classified as large if it meets at least two of the following criteria: Gross consolidated operating revenue of more than $25 million for the financial year; Gross consolidated assets of more than $12.5 million at the end of the financial year; or Total employees are 50 or more at the end of the financial year. A large proprietary company is required to prepare annual financial and directors reports, with most required to lodge audited accounts with the Australian Securities and Investments Commission (ASIC). Small proprietary companies however, only have to prepare audited financial statements if: Ordered to do so by ASIC; Members holding five percent of voting shares request it; or Normally if controlled by a foreign company. The SME s management is responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards, including: Establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; Selecting and applying appropriate accounting policies; and Making accounting estimates that are reasonable in the circumstances. The Benefits of an External Audit Whether you are a director (executive or non-executive), part of the SME s management, a third party (bank, lender, supplier) or even a prospective purchaser, an external audit can provide you with a variety of benefits that can equip you with a level of comfort or security in making key business decisions. Confirming the integrity of the relied upon internally prepared financial information. An audit provides an outsiders perspective of the business, independent of the day-to-day financial management. Things that may have been overlooked for a number of reasons will be adequately assessed and reported back to you. This in turn provides the SME s directors and high-level management with the confidence to make informed decisions, including dealing with financial risks faced by the business. Enhancing corporate governance and highlighting potential issues. Audits highlight financial risk management issues, including adequacy of internal controls, solvency, etc. Encourages stronger internal financial discipline from the top down. A good audit team should complement the internal finance team s skill set, if available. There may be a new best practice for your financial team to take on board, assuring stronger internal control systems. Potentially increases the value of the business. An external assessment of the business s accounting policies can make the entity more credit worthy, as well as potentially increasing business valuations as the financial information available to assess the business is far more credible. An audit can also reduce the risk of acquisition due to more reliable information for the due diligence process. The auditors findings are presented to management in the form of a report about potential structural, operational and control weaknesses, with recommendations for improvements to address these weaknesses. At Collins & Co, we provide audit services to our clients at an affordable fixed price. It is our experience that the better the client is prepared, the more cost efficient the audit. For more information on an external audit please contact Ryk Eksteen, Audit Manager on or re@collinsco.com.au. These benefits include: Ensuring the entity s adherence to Corporations Law obligations. In today s corporate environment, directors need assurance that they are conducting business within Australian legislative requirements. Providing a level of transparency in employee s work. An audit also acts a preventative measure or deterrent to inappropriate employee conduct such as misappropriation or fraud. Employees are much less likely to conduct inappropriate behaviour when they know that a third party will review their work. 3

4 Collins XPRESS Updates to small business benchmarks The Australian Taxation Office has released information regarding their annual updates to small business benchmarking, with data from recent financial years. Small business benchmarks are key financial ratios developed to help business owners compare their performance against similar businesses in their industry and to help the ATO identify those that may not be reporting all of their income. The following types of benchmarks are made for the small business sector: Financial ratios for different industries; and Input benchmarks, showing an expected range of income for tradespeople based on the labour and materials they use. A number of updates have been made to small business benchmarks and these include the following: The addition of new industries to small business benchmarking including landscape construction, motor vehicle retail, panel beating and smash repairers, lawn mowing and garden services, tattooing services and pharmacy; The addition of total expenses to turnover benchmark ratio allowing businesses that don t consistently report expenses for either cost of sales or labour, to measure their performance against others in their industry; Merging previously divided industries that no longer require separate benchmarks; and Revising annual turnover ranges (ie. low, medium and high turnovers) for different industries so that businesses with similar characteristics in the recent data are grouped together. It is recommended that businesses review their small business benchmarks regularly. This information is available from the ATO website. For more information, please contact your Partner at Collins & Co on or partner@collinsco.com.au. Default assessments for non-lodgers In December 2011, the ATO sent default assessment warning letters to taxpayers who have overdue income tax returns where there was evidence they received taxable income in the relevant financial years. These letters were titled default assessment warnings and are part of their ongoing work to address non-lodgement. If the overdue returns are not lodged immediately, the ATO will issue default assessments for these clients based on the estimated taxable income included in the letter. Taxpayers that have received an ATO default assessment may incur failure to lodge on time penalties and administrative penalties of 75% of the tax related liability from the default assessment. This will be calculated after taking into account any pay as you go (PAYG) credits and any other tax credits available. Please note that administrative penalties may increase by 20% if a taxpayer has had a penalty previously applied for a default assessment. For more information, please contact your Partner at Collins & Co on or partner@collinsco.com.au. Changes to Stamp Duty Legislation A bill was passed on 29 November 2011, introducing changes to the Duties Act 2000 to reduce the period for the payment of duty. The time period for paying duty and lodging documents will be reduced from 3 months to 30 days. The change comes into effect for dutiable transactions (i.e. generally the date of settlement) and relevant acquisitions (i.e. land rich duty), which occur on or after 1 April Transitional period In recognition of the change in the period for payment of duty from 3 months to 30 days, the State Revenue Office is instituting a transitional period from 1 April 2012 to 30 June 2012 which will include the following elements: 1. No penalty tax will be imposed for late payments of duty during the transitional period; 2. No premium interest will be imposed for late payments of duty during the transitional period; and 3. Market interest will be imposed on late payments of duty unless the customer (or his or her representative) is able to demonstrate that there were circumstances beyond his or her control that led to the late payment. These situations will be considered on a case-by-case basis. Please make sure you are both paying and lodging these documents on time. For more information, please contact your Partner at Collins & Co on or partner@collinsco.com.au. 4

5 Collins XPRESS Directors beware: ATO changes legislation making you personally liable In the May 2011 Federal Budget, the Australian Federal Government made its intentions clear in proposing amendments to the tax legislation surrounding Director Penalty Notice (DPN) provisions in an attempt to deal with phoenix activities by Directors. Phoenix activities are arrangements whereby a company incurs, but does not pay, various liabilities whilst carrying out business activities. These proposed amendments formed the basis of the new Bill, passed on 29 November 2011, which aims to: 1. Deter fraudulent phoenix company activity; and 2. Protect employee superannuation entitlements. The Government aims to achieve these objectives by: Extending the director penalty regime to make directors personally liable for their company s unpaid Superannuation Guarantee Charges (SGC) (in addition to the existing liability for PAYG withholding); Allowing the Commissioner of Taxation to commence proceedings against the directors without the need to first issue DPN s if the company s liabilities to the ATO are not paid by the company for 3 months or more; and In some circumstances, make directors, family members and associates liable for PAYG withholding tax where the company has failed to pay amounts withholding to the ATO. How does this differ from previous legislation? Under the previous legislation, directors liability did not extend beyond PAYG withholding amounts. In circumstances where superannuation guarantee amounts formed part of the employee rights, if such amounts were not recovered from the employer, their benefit to the employee was lost completely. In addition, prior to the ATO taking any action, it issued a DPN and allowed directors 21 days to do one of three things: 1. Pay the full amount of PAYG; 2. Appoint an Administrator to the company; or 3. Wind up the company. This will no longer be the case. What changes do you need to be aware of? The new legislation makes directors personally liable for not only unpaid PAYG withholding, but also unpaid SGC. Under the new legislation, if the company has an unreported and unpaid debt that is three (3) months or older, the Commissioner can and will commence recovery proceedings without issuing a DPN. Any inadvertent administrative errors could result in immediate recovery proceedings being commenced by the ATO. Liability of Family Members The new law also exposes associates namely family members and other associates of the company to personal liability. This will be done by imposing a new PAYG withholding non-compliance tax equal to the amount of any PAYG credits to which the family member is entitled in respect of payment received from the company. It is important to note that family members do not need to have any knowledge of the fraud committed. If he or she: (a) knew, or ought to have reasonably known of non-compliance; and/or (b) was treated more favourably than other employees (regardless of the knowledge); the tax can and most likely will be applied. Liability for New Directors New directors also have to be alert and keep in mind these new changes as they can become personally liable for outstanding PAYG and SGC after 14 days from their appointment. What should you do? We recommend that directors should follow this 5 step plan: 1. Immediately review your business PAYG and SGC lodgement histories and assess the extent of any unpaid and/or unfunded liabilities. 2. Immediately get your company s BAS and IAS returns up to date. Always lodge these returns within three months of their due date. 3. Lodge your BAS and IAS returns even if your company can t pay them. By not lodging the return, it is highly likely you will find yourself personally liable. 4. Contact Collins & Co immediately upon receipt of any DPN s or other related correspondence from the ATO. Timing of remedial actions is critical. Understand whether you, your co-directors, and even family members are potentially exposed. Ignorance is never an acceptable defence. Seek professional advice if you are unsure or concerned about your potential personal liability. For more information about this important issue, please contact your Partner at Collins & Co on or partner@collinsco.com.au. 5

6 Collins XPRESS Lunch with an Olympic hero In November 2011, Collins & Co held a luncheon at the Yarraville Club with more than 50 clients and contacts attending. James Tomkins, Australia s greatest living rower, was the guest speaker of the event talking about the success and challenges he faced throughout his career, with a focus on his experience at the 2008 Beijing Olympics. The Awesome Foursome Member told the crowd how he overcame severe back pain in his quest for success, to tales of the athlete s late night escapades around the Olympic Village. Collins & Co Partner Paul Kelly with Olympian James Tomkins. Courtesy of the Star News Group Barry Hall faces the WRBC In December 2011, Collins & Co hosted another Western Region Business Club networking event for business owners from the Western Suburbs. Barry Hall, former AFL player, was the guest speaker for the evening, talking about his successes and controversies throughout his AFL career to a crowd of 120 business people at his former second home, Whitten Oval. Gourmet on Gamon s Alison Herbst, AFL star Barry Hall and Collins & Co Partner, Steve White. Courtesy of the Star News Group ATO targeting contractors T he ATO is under pressure to recover lost ground after relaxing its position during the global financial crisis. One of the areas it intends to improve revenue is by targeting contractors. The ATO has warned that it plans to use information from labour hire firms and increased auditing in attempt to improve compliance for contactors through the financial year. During January, the ATO contacted those contractors that it believes may have wrongly assessed themselves as conducting a personal services business. Personal Services Income (PSI) laws apply to prevent individuals from reducing their tax liability by alienating or assigning PSI to an associated entity or individual or by claiming inappropriate business deductions. It is clear that the ATO is lifting its game with contractor compliance. Last year s compliance report stated that the ATO would provide further information to contractors and tax practitioners to help them get the tax treatment right. This year it has said that it will use information received from labour hire firms to identify contractors, particularly in engineering and computer technology industries. Other groups to come under scrutiny will include wealthy Australians, small businesses suspected of under-reporting their cash incomes, executives, directors and employers. The ATO has also warned that it will be closely monitoring work-related expenses, the cash economy, business activity statements, GST evasion, superannuation and sham contracting. For more information please contact your Partner at Collins & Co on or partner@collinsco.com.au. If you do not wish to receive these newsletters anymore, or want to add someone else to the list please partner@collinsco.com.au The material contained in this publication is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Collins & Co 127 Paisley Street, Footscray VIC 3011 T F Liability limited by a scheme approved under Professional Standards Legislation.