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New measures to combat illegal phoenixing

Many of you have heard of illegal phoenixing but are not sure of what exactly it encompasses. While there is no legislative definition of illegal phoenixing or phoenixing activity, at its core, it is the use of serial deliberate insolvency as a business model to avoid paying company debts. In a report in 2018, it is estimated that potential illegal phoenixing has an annual direct cost to businesses, employees and governments of between $2.85bn and $5.13bn.

It is no wonder then the government has been on the war path to stamp out the practice. Specific measures targeting illegal phoenixing has recently been passed including:

  • new criminal offences and civil penalty provisions for company officers that fail to prevent the company from making "creditor-defeating dispositions" and other persons (including pre-insolvency advisers, accountants, lawyers, other business advisers etc) that facilitate a company making a "creditor-defeating disposition".
  • liquidators and ASIC can seek to recover the assets for the company's creditors, and in some cases, creditors can recover compensation from a company's officers and other persons responsible for making a "creditor-defeating disposition".
  • preventing abandonment of companies by a resigning director or directors, leaving the company without a natural person's oversight. Practically, under the new laws, a director cannot resign or be removed by a resolution of company members if doing so would leave the company without a director (unless the company is being wound up).
  • if the resignation of a director is reported to ASIC more than 28 days after the purported resignation, the resignation is deemed to take effect from the day it is reported to ASIC. However, a company or director may apply to ASIC or the Court to give effect to the resignation notwithstanding the delay in reporting the change to ASIC.
  • the Commissioner of Taxation can now collect estimates of anticipated GST liabilities (including LCT and WET liabilities). The Commissioner can also recover director penalties from company directors to collect outstanding GST liabilities (including LCT and WET) and estimates of those liabilities.
  • Commissioner of Taxation can also to retain a refund to a taxpayer that has other outstanding lodgements or information that needs to be provided.

Legitimate businesses need not fret, safe habour provisions for genuine business restructures and 

Changes to student loans

With the average annual cost of an undergraduate degree for Australian students hovering around the $10,000 mark, a 3-year degree could easily cost upwards of $30,000 depending on what you're studying and where you're studying. In the current employment market, rife with short-term employment and contracting whilst at the same time maintaining the requirement for higher qualifications, an average university student could easily end up with a much larger than average debt due to changing courses, units of study, or degrees. To help these students, the new year ushers in a welcome student loan change in the form of a new combined, renewable HELP loan limit. The combined HELP loan limit replaces the current FEE-HELP limit and is a cap on what university students can borrow to cover the cost of tuition. If you're a university student with an existing FEE-HELP, VET FEE HELP and/or VET Student Loan, the debt will be carried over and count towards your new HELP loan limit. Any previous HECS-HELP debt will not be included in the HELP loan limit, but new HECS-HELP loans commencing from 1 January 2020 will be included. The new combined HELP loan limit is an increase on previous cap, which means that most students will have access to additional funds up to a limit of $106,319 for 2020. While medicine, dentistry, and veterinary science students may have access to additional funds for their study up to a maximum of $152,700 for 2020. Remember, the limit is indexed to increase on 1 January (with CPI) every year so if you're close to the limit, it may be good practice to check to see if you're entitled to borrow extra at the beginning of each year of study. Another thing to note is that the new combined HELP loan limit is renewable. That is, any repayments you make on your HELP debt will increase your available balance, up to the limit. Both voluntary and compulsory repayments will credit your HELP balance. However, any PAYG repayments will not credit your HELP balance until you complete your tax return for the year, and it is processed by the ATO. This change is in addition to other changes introduced in 2019 relating to the minimum HELP repayment threshold. Both the repayment threshold and the repayment rate were lowered so that only those earning below $45,881 escaped any form of repayment. Based on the median starting salary for female undergraduates (ie those with Bachelor degrees) of $60,000, the repayment rate would be 3% which would equate to a yearly payment of $3,189.57 if the full HELP loan limit of $106,319 was used.

Super guarantee loophole closed

The concept of super guarantee should be a very familiar to everyone, particularly anyone who is an employee, as it makes up the bulk of future retirement income. You may not know the particular name, but you would know about the requirement for employers to contribute 9.5% of your salary or wages into a nominated super account. You could also be salary sacrificing an amount of your salary and wages to put extra into your super. Did you know that, previously, salary sacrificed amounts counted towards employer contributions which meant a potential reduction in an employer's mandated super guarantee contributions. In addition, employers were also able calculate super guarantee obligations on a lower post salary sacrificed earnings base. Depending on the type of employment agreement you have with your employer, if you salary sacrificed an amount equal to or exceeding the super guarantee that the employer was required to pay, your employer could've potentially not made any additional contributions under the super guarantee. Therefore, employees who salary sacrificed could've unknowingly been short-changed and end up with lower super contributions as well as a lower salary to the tune of thousands. However, this all changed from 1 January 2020, from that date, amounts that an employee salary sacrifices to superannuation cannot reduce an employer's super guarantee charge, and do not form part of any late contributions an employer makes that are eligible to be offset against the super guarantee charge. From that date, to avoid a shortfall in super guarantee charge, employers must contribute at least 9.5% of an employee's ordinary time earnings (OTE) base to a complying super fund. OTE base consists of their OTE and any amounts sacrificed into superannuation that would've been OTE, but for the salary sacrifice arrangement. If the employer does not contribute the full amount of the super guarantee, they will have a super guarantee shortfall which is subject to a non-deductible penalty (super guarantee charge). The amount of shortfall is calculated by reference to their employee's total salary or wages base, which includes any amounts sacrificed into superannuation. There's been many prominent cases in the media of employees being paid the incorrect amount of wages and super by a range of employers. If you're unsure whether you've been short-changed in terms of super contributions from your employer, we can help you work that out.

With the transition to Single Touch Payroll almost complete for all employers within Australia, the ATO now has considerably more information to identify superannuation guarantee non-compliance in real time. Employers that do not make sufficient quarterly superannuation contributions for each employee by the due date will be liable to the superannuation guarantee charge (SGC), a penalty which is not deductible to the employer.

Generally, SGC equals the superannuation guarantee shortfall, which is made up of the total of the individual super guarantee shortfalls for all employees for the quarter, an interest component of 10% per annum and an administration component of $20 per employee per quarter. If an employer has a shortfall, they are required to lodge a superannuation guarantee (SG) statement by the 28th day of the second month following the end of the quarter.

Where the employer lodges their SG statement late or fails to provide information relevant to assessing liability to SGC for the quarter, they may be subject to an additional penalty of 200% of the amount of SGC. This additional penalty is automatically imposed on the employer by superannuation law.

While the ATO does not have discretion to remit or waive the interest and administration components of the SGC, it does have discretion to remit some of the additional 200% penalty provided the employer satisfy certain conditions. According to information released by the ATO, penalty relief will only be applied on limited circumstances where it is considered that education is a more effective option to positively influence behaviour (ie an employer with SG knowledge gaps that has led to non-compliance).

In addition to the above, an employer is only eligible for penalty relief where they have a turnover of less than $10m and they:

  • do not have a history of lodging SG statements late;
  • have lodged no more than 4 SG statements after the lodgement due date in the present case;
  • have no previous SG audits where they were found to have not met their SG obligations; and
  • have not previously been provided with penalty relief.

The percentage of penalty remission depends entirely on an employer's degree of compliance. For example, where there is severe/repeated disengagement or where the ATO is of an opinion that the employer has engaged in a phoenix arrangement, there will be no remission of additional penalty. On the other side of the spectrum, where an employer lodges an SG statement after the due date but before any ATO contact, the additional penalty may be reduced to 20% of SGC.

The ATO may also consider other relevant facts of circumstances to further increase penalty remission, including natural disasters, incorrect advice by the ATO, key system outage, ill health of key employees or the lack of business experience of principals.

More help for first home buyers

With the advent of the new year, a new measure is now in effect to give first home buyers a leg up on the property market. Starting 1 January 2020, couples that earn less than $200,000 combined, and singles that earn less than $125,000, who have never owned a property and are Australian citizens may apply for the First Home Loan Deposit Scheme (FHLDS).

The FHLDS provides a guarantee that will allow 7,000 lucky eligible first home buyers on low and middle incomes to purchase a residential property with a deposit of as little as 5%. Under the scheme, Australian permanent residents will not be eligible, and if you're applying as a couple, both will need to be Australian citizens.

To be eligible, you must meet the income criteria above, be over 18, and move into the property within 6 months from the date of settlement, or if later, the date an occupancy certificate is issued and continue to live in that property for so long as your home loan has a guarantee under the scheme. In other words, investment properties are not supported under the scheme and if you don't live in the purchased property, or if you move out of the property at a later time, your home loan will cease to be guaranteed by the scheme. At which time, you may be required to pay bank fees/charges/insurance that would've otherwise applied had you not been a part of the FHLDS.

The scheme also caps the maximum property purchase price to ensure that only modest homes are covered. For example, in an NSW capital city or a regional centre, the maximum value of property that is covered under the FHLDS is $700,000. For a Victorian capital city or regional centre the maximum is $600,000. That figure falls to $400,000 for WA, SA and Tasmanian capital cities. Queensland capital city and regional centre has a cap of $475,000.

Under the FHLDS, eligible singles or couples are able to purchase existing dwellings, house and land packages, land and separate contract to build a home, "off-the-plan" purchases, and eligible building contracts. However, each category has its own criteria which must be satisfied, for example, for "off-the-plan" purchases, the settlement date of your home loan must occur within 90 days of your home loan becoming guaranteed under the scheme.

Initially 10,000 places were released on 1 January, but 3,000 potential first home buyers have already been registered under the FHLDS by participating banks. If you miss out on the 7,000 that is currently available due to the need to gather the necessary financial information to support your application, don't fret, another 10,000 will be released from July 2020. 

The ATO has recently withdrawn Draft Miscellaneous Taxation Ruling MT 2018/D1 on the time limit for claiming input tax credits and fuel tax credits. Generally, under s 93-5 of the GST Act, the right to claim an input tax credit expires after 4 years and commences on the day on which the entity was required to lodge a return for the tax period to which the input tax credit would be attributable. Section 47-5 of the Fuel Tax Act has a similar provision which limits claims to 4 years after the date which taxpayers were required to give the Commissioner a return. 

The withdrawn draft ruling created much controversy for its strict stance on the four-year time limit rules for claiming the credits. The effect of the draft ruling was that if the Commissioner's decision on an objection or amendment request is made outside the 4-year period (but the request by the taxpayer is lodged within the 4-year period), the taxpayer would not have been entitled to the tax credits even if the decision is favourable to the taxpayer.

After the draft was issued however, the Federal Court in Coles Supermarkets Australia Pty Ltd v FCT [2019] FCA 1582 did not quite agree with the ATO stance. It accepted Coles' submissions that s 47-5 is only intended to prevent an ongoing entitlement to claim credits in a later return where a return has not been lodged or credits not claimed. The Court noted that once a return has been lodged and objected to, there is no scope for the operation of s 47-5 to disentitle a taxpayer to fuel tax credits as the right of the Commissioner and taxpayer are protected by various sections of the TAA. 

In a decision impact statement following the judgement, the ATO acknowledged that the Court's observations were contrary to its views and conceded that MT 2018/D1 was no longer current and was withdrawn. While the Coles decision only refers to fuel tax credits, given the similarity of the provisions between fuel tax credits and the GST Act, and the Court's observations regarding the right of the Commissioner and taxpayer being protected by TAA, it would stand to reason it would also apply to input tax credits. Thus, the ATO is planning to issue a new ruling that takes into account the Federal Court's observations in early 2020.

In the meantime, taxpayers will no longer be automatically denied input tax credits and/or fuel tax credits where the Commissioner makes a decision on an objection or requests for amendment outside the 4-year period. Any taxpayer that the draft ruling has affected may contact the ATO for further advice.

No cost strategies to increase your super

Now that we have finished another year our thoughts may turn to goals and resolutions achieved during the year. Career successes, reaching fitness goals and life milestones are all causes for celebration. While most of us wouldn't even think twice about our superannuation, now is the perfect time to put some resolutions in place to increase your super for the new year. Afterall, it is what we'll be relying on in retirement, and even small improvements now could mean extra luxuries later.

Building up super doesn't always have to mean making monetary sacrifices now, there are some simple solutions to making sure you're getting the most out of super at no cost. Strategies include finding your lost super, consolidating your super accounts, and making sure you're in a quality fund in terms of performance.

Currently, there are 5.8m individuals (36% of the population) with 2 or more super accounts. Every year, the ATO launches its postcode "lost super" campaign to help raise community awareness of lost super. As a consequence of the 2018 campaign, more than 66,000 people to find and consolidate over 105,000 accounts worth over $860m. If you think you've got lost super, you can then log into myGov to claim the lost super and have it consolidated with your active account.

Finding and consolidating your lost super with your active account means you'll pay less management fees and other costs, saving you in the long term. Between 1 July 2014 and 30 June 2019, 2.6 million accounts to the value of $15bn have been consolidated by fund members using ATO online services.

Another easy way to grow your super is to make sure the super fund that you're putting your money into is performing well. Recently, the regulator of super funds, APRA, released "heatmaps" that provide like-for-like comparisons of MySuper products across 3 key areas: investment performance, fees and costs, and sustainability of member outcomes. The heatmap uses a graduating colour scheme to provide clear and simple insights that unlike a sea of numbers on a spreadsheet, will send a clear and strong message to users.

For example, MySuper products delivering outcomes below the relevant benchmarks in relation to investment performance and fees and costs will be depicted from pale yellow to dark red. The sustainability measures provide an indication of a trustee's ability to provide quality member outcomes and address areas of underperformance. While the ultimate purpose of the heatmap is to have trustees with areas of underperformance take action to address it, they can also be an invaluable resource in choosing the right super fund.

While the Banking and Financial Services Royal Commission seems long ago in the minds of many, the people that have been financially affected by dubious practitioners will no doubt carry the scar of mistrust for life. This then, is precisely why the government has introduced new laws which will give ASIC new enforcement and supervision powers in relation to the financial services sector to weed out the "bad apples" and restore consumer confidence.

The new measures seek to strengthen ASIC's licencing powers by replacing the AFS licence requirement that a person be of "good fame and character" with an ongoing requirement that they be a "fit and proper person" at both the time of application and subsequently. This applies to all officers, partners, trustees and controllers of the applicant applying for the AFS licence. The "fit and proper person" requirement will also apply to existing AFS licensees to ensure that ASIC is able to monitor the controllers of existing AFS licensees, request relevant information, and carry out enforcement action as required.

In working out whether a person is a "fit and proper person" ASIC will consider matters including whether the person has been convicted of an offence in the last 10 years, whether they've had an AFS licence or Australian credit licence suspended or cancelled, and whether a banning or disqualification order has previously been made.

ASIC's banning powers will also be expanded to situations where they have reason to believe that a person is "not a fit and proper person" or is "not adequately trained or is not competent" to:

  • provide financial services;
  • perform functions as an officer of an entity that carries on a financial services business; or
  • control an entity that carries on a financial services business.

In addition, under these new powers, ASIC may also make a banning order against a person that is insolvent under administration, has, at least twice, been an officer of a corporation that was unable to pay its debts, or has, at least twice, been linked to a refusal or failure to give effect to an AFCA determination.

To support these enforcement functions, ASIC's warrant and phone tap powers have been beefed up. It is no longer required to forewarn those under investigation that it may apply for a search warrant. It is also no longer required to specify the exact books or evidential material that can be searched and seized. Interception agencies (ie police, ASIO, and anti-corruption bodies) will be able to provide ASIC with lawfully intercepted telecommunications information in some instances. If these measures become law, ASIC's ability to launch and progress investigations to protect consumers from dodgy practitioners will be greatly enhanced.

No cost strategies to increase your super

It's coming up to the end of another year, among all the chaotic festivities, our thoughts may turn to goals and resolutions achieved during the year. Career successes, reaching fitness goals and life milestones are all causes for celebration. While most of us wouldn't even think twice about our superannuation, now is the perfect time to put some resolutions in place to increase your super for the new year. Afterall, it is what we'll be relying on in retirement, and even small improvements now could mean extra luxuries later.

Building up super doesn't always have to mean making monetary sacrifices now, there are some simple solutions to making sure you're getting the most out of super at no cost. Strategies include finding your lost super, consolidating your super accounts, and making sure you're in a quality fund in terms of performance.

Currently, there are 5.8m individuals (36% of the population) with 2 or more super accounts. Every year, the ATO launches its postcode "lost super" campaign to help raise community awareness of lost super. As a consequence of the 2018 campaign, more than 66,000 people to find and consolidate over 105,000 accounts worth over $860m. If you think you've got lost super, you can then log into myGov to claim the lost super and have it consolidated with your active account.

Finding and consolidating your lost super with your active account means you'll pay less management fees and other costs, saving you in the long term. Between 1 July 2014 and 30 June 2019, 2.6 million accounts to the value of $15bn have been consolidated by fund members using ATO online services.

Another easy way to grow your super is to make sure the super fund that you're putting your money into is performing well. Recently, the regulator of super funds, APRA, released "heatmaps" that provide like-for-like comparisons of MySuper products across 3 key areas: investment performance, fees and costs, and sustainability of member outcomes. The heatmap uses a graduating colour scheme to provide clear and simple insights that unlike a sea of numbers on a spreadsheet, will send a clear and strong message to users.

For example, MySuper products delivering outcomes below the relevant benchmarks in relation to investment performance and fees and costs will be depicted from pale yellow to dark red. The sustainability measures provide an indication of a trustee's ability to provide quality member outcomes and address areas of underperformance. While the ultimate purpose of the heatmap is to have trustees with areas of underperformance take action to address it, they can also be an invaluable resource in choosing the right super fund.

ATO debts to affect your credit rating

The ATO now has another "stick" in its arsenal to get businesses to engage with it and manage outstanding tax debts. Laws have recently been passed that allow the Tax Office to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs). The aim of the laws, according to the government, is to encourage more informed decision making within the business community by making large overdue tax debts more visible, and reduce the unfair advantage obtained by businesses that do not pay their tax on time.

The disclosure of these debts have the potential to affect the credit ratings of businesses and their ability to refinance existing debt, so only those businesses that meet certain criteria will be subject to this new disclosure rule. These criteria include having an ABN, debts of at least $100,000 overdue for more than 90 days, not effectively engaged to manage the debt, and do not have an ongoing complaint with the Inspector-General of Taxation.

When a business meets the above criteria, the ATO is required to notify the business in writing and give them 28 days to engage and take action before any debt is disclosed. In addition, tax debt information will only be provided to CRBs where they are registered with the ATO and have entered into an agreement detailing the terms of reporting.

According to the ATO, an entity's tax debts for the purposes of the disclosure rule includes income tax debts, activity statement debts (eg GST, PAYGW), superannuation debts, FBT debts and penalties and interest charges. An entity is generally considered to be effectively engaged with the ATO in respect of a tax debt if it has a payment plan in place and is meeting the terms of the plan, or has an active review, objection or compliant lodged with the relevant authorities.

The practical approach to disclosure of tax debts were outlined by the ATO previously. It consists of a phased implementation approach, with the initial phase focusing on raising community awareness of the measure through newsletters, articles, forums and speeches. After the initial phase, it will begin firstly with companies that meet the disclosure requirements before moving onto other entities such as partnerships, trusts, and sole traders with ABNs.

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