Taxation and Client Risk Management What Accountants Need to Know - - PowerPoint PPT Presentation

Taxation and Client Risk Management

• What Accountants Need to Know

Taxation and client risk management

Two separate and distinct areas of dispute with the ATO:

• 1. Objections and appeals (under Part IVC of the TAA)
• 2. Debt collection

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Taxation objections – Part IVC of TAA

• Process starts once Commissioner makes a taxation decision

(includes assessment, determination, notice or decision, or private ruling)

• Time limits exist – 4 years, 2 years or 60 days depending on

the type of taxation decision (section 14ZW)

• Commissioner says 56 days (hah!); statutory time frames much

longer

• “The Commissioner must decide [the objection]” (section 14ZY)

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Taxation objections – traps for young tax practitioners

• Use the right form
• Content must show basis(Lancey Shipping cf Szajntop)
• Object to everything (Lighthouse Philatetics)
• Penalties are a separate assessment – object separately
• False representations can lead to prosecution (R v Saxby)
• Taxpayer always bears the onus of proof (many, many

cases, but most recently see Rigoli and Gashi)

• Debt collection continues, notwithstanding the objection
• 50/50 arrangements may be necessary
• What is your appeal strategy?

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Appeals

• Choice of AAT or Federal Court
• 60 days to appeal
• AAT – review of the decision, including re-exercise of

discretion

• Federal Court – appeal of the decision, not a re-exercise of

discretion (absent an error of law)

• Taxpayer can only appeal on different grounds with leave and

has the burden of proof (s14ZZO)

• Commissioner can change grounds (Wade)
• But, Courts can get cranky (see eg Pacific Exchange Corp)

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SMSF litigation trends

• Excess contribution tax reviews to AAT are, thankfully, coming

to an end.

• Non-complying fund cases under s42A(5) of the SIS Act
• New weapon of choice: enforceable undertakings s262A
• Pabian Park – example of a successful s42A(5) case
• Interhealth Energies – spectacular example of an unsuccessful

s262A case.

• Good reminder on importance of corporate trustees – Shail

Superannuation Fund

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Taxation and Client Risk Management

My component of today’s discussion will focus on the following points of interest:

• Traditional court processes used by the ATO
• Director Penalty Notices – Past and Present
• Risk Management

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Traditional Court Recoveries

Claims against Corporations Some options available to ATO:

• Claim and Statement of Claim – allows a 28 day period to

lodge a defence

• Judgment
• Statutory Demand – allows a 21 day period of response –

company deemed to be insolvent on expiry of same

• Winding up Application
• Garnishee Notices – sweep 30% of account balance

Tips – check compliance, consider payment plan, seek expert assistance

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Traditional Court Recoveries

Claims against Individuals Some options available to ATO:

• Claim and Statement of Claim – allows a 28 day period to

lodge a defence

• Judgment
• Bankruptcy Notice – allows a 21 day period to respond – failure

to respond is an Act of Bankruptcy

• Creditors Petition – Sequestration Order – Bankruptcy
• Garnishee Notices – sweep 30% of account balance

Tips – check compliance, consider payment plan, seek expert assistance

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Specific Powers of ATO

Claims against Directors

• Director Penalty Notices – Pre 30 June 2012
• Director Penalty Notices - Post 30 June 2012
• Insolvent Trading

The Director penalty notice provisions have the effect of lifting the Corporate Veil and making Directors personally liable for certain company taxation debts (PAYG and Superannuation) Compliance firstly to lodgement obligations, and secondly to any DPN received, is the only practical defence. The ATO does not have discretion / capacity to extend the 21 day period A Director becomes personally liable if the company fails to lodge BAS and/or Superannuation Guarantee Charge Statement within nominated periods

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Specific Powers of ATO

Director Penalty Notices – pre 30 June 2012 and ongoing Basic Facts

• Issued by the Australian Taxation Office (ATO) pursuant to Section 222AOE of the Income Tax

Assessment Act (1936)

• Non compliance allow the ATO to personally pursue the Company Director(s) for the amount

sought in the notice. (Note however that the ATO cannot issue a notice which includes GST)

• On receipt of a Notice, the Director(s) has 21 days to complete one of four options:

Discharge the liability in full Enter into a repayment program agreed within the 21 days pursuant to Section 222ALA

• f the Income Tax Assessment Act (1936)

Place the company into Voluntary Administration Wind up the company via the court or by creditors resolution By completing one of these four options within the 21 days the Director(s) cannot be personally pursued by the ATO

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Specific Powers of ATO

Facts to be Aware Of

• Care must be taken to ensure when paying out the Notice that the funds paid are applied against it (being the

debt disclosed in the Notice) and not other tax debt

• An agreement pursuant to Section 222ALA must be in writing, describe the liability being discharged, set out

the instalment scheme, include special conditions (if appropriate) and be signed by both parties. Verbal agreements are not enforceable.

• By entering into a repayment program the Director(s) is jointly liable with the company and therefore is

deemed liable if the company defaults. Further, if the company is later wound up (Liquidated) and the payments made by the company to the ATO under the repayment program are found to be preferential and therefore voidable (and recovered by the Liquidator), the Director(s) can be held personally liable by the court, at the request of the ATO, for the amount recovered from the ATO by the Liquidator pursuant to Section 588FGB of the Corporations Act 2001.

• The ATO has no discretion to extend the 21 day period.
• ATO personnel are not always up to speed with the legislation and therefore may provide inaccurate

information e.g. advise that they can extend the 21 day period etc.

• The ATO may seek security over personal assets before accepting any repayment proposals.
• Winding up the company via the court takes longer than 21 days and therefore unless the process is already
• n foot is not a viable option.
• Winding up by Creditors Resolution can be achieved within 21 days as long as there is no friction between the

members (as a members meeting is required).

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Specific Powers of ATO

Director Penalty Notices – post 30 June 2012 and ongoing

Basic Facts

• From 30 June 2012 a new regime was added to make Directors personally

liable if a company fails to report its PAYG and superannuation obligations to the ATO

• The regime is retrospective for PAYG i.e. applies pre 30 June 2012
• This regime works simultaneously with Director Penalty Notices
• ATO is co applying both regimes and currently issuing Notification letters of

personal liability, and Director Penalty Notices (in an attempt to capture further personal liability)

• Numerous articles have appeared in the Australian Financial Review,

Australian Institute of Company Directors and other industry magazines. It appears the honeymoon is over and ATO is enforcing against Directors.

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Specific Powers of ATO

Timelines to be aware of: PAYG reported on a Monthly Basis Quarter ending 31 March 2013 (already liable for earlier months if not lodged) Due for lodgement 21 April 2013 If not lodged by 21 July 2013 then personally liable PAYG reported on a Quarterly Basis Quarter ending 31 March 2013 (already liable for earlier quarters if not lodged) Due for lodgement 28 April 2013 If not lodged by 28 July 2013 then personally liable

14

Specific Powers of ATO

Timelines to be aware of: Superannuation

Quarter ending 31 March 2013 (already liable for prior quarters if not lodged) Due for payment to funds 28 April 2013 Due for Super Guarantee Charge Statement 28 May 2013 If not lodged by 28 August 2013 then personally liable

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Risk Management

Checklist

• Prevention is best cure – so ensure clients lodge on time - provide

checklists to clients to ensure they are complying with lodgement deadlines

• Motivate clients to be proactive with ATO and call to make payment plans

before DPN issues – otherwise personal liability – hang up and start again if necessary

• Set up provision bank accounts for PAYG and Superannuation
• Don’t be Trustee in Personal Capacity, Don’t be Trustee of Multiple Trusts
• Grant Security Interest for Director Loans
• Grant Second Mortgage over Real Property to Discretionary Family Trust
• Ensure transactions are recorded to Accounting Standards – to enable

accurate financial reporting

• Use Cash flows and Budgets

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“Using our skills and experience, we work with people and businesses who want to lift themselves out of financial difficulty”

We specialise in turnaround and recovery strategies

►

Rodgers Reidy is a growing national Chartered Accounting firm with a clear focus and reputation for personalised service.

►

Established in Sydney in 1999, the firm has grown into one of the larger boutique national insolvency firms in Australia and New Zealand with 16 directors and over 80 staff devoted to the specialist practice of insolvency, business turnaround and reconstruction.

►

The directors have extensive experience in industries as diverse as building and construction, entertainment, agribusiness, manufacturing, retail and hospitality.

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Corporate Insolvency

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We offer services to help people and companies

►

Bankruptcy

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Part X Agreements

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Debt Agreements

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Informal Arrangements

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Voluntary Administration

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Deed of Company Arrangement

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Receivership

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Creditors Voluntary Liquidation

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Official Liquidation

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Provisional Liquidation

Personal Insolvency

David Hambleton

David began his Insolvency and Reconstruction career in 1996, which includes 2 years experience working

• verseas. In 2006 he became a

director of the Rodgers Reidy Brisbane

• ffice predecessor firm.

Contact details

Tel: 07 3136 5702 Email: dhambleton@rodgersreidy-qld.com.au

Career highlights and key expertise

David has been involved in the successful trade on and sale of businesses, the restructuring of corporate groups, the sale of commercial and residential property, the recovery of voidable and uncommercial transactions and the successful prosecution of Directors for insolvency trading. In addition to Court ordered and voluntary corporate and personal insolvency appointments, David has been engaged by numerous businesses to assist with turnaround and restructuring assignments with successful outcomes resulting in formal insolvency appointments being avoided.

Professional qualifications

Bachelor of Business (Accounting) Graduate Certificate in Insolvency Practice Fellow, The Institute of Chartered Accountants in Australia Registered and Official Liquidator Registered Trustee in Bankruptcy

Memberships & Associations

Insolvency Practitioners Association of Australia Institute of Chartered Accountants in Australia Turnaround Management Association AICD, AICM and AIM

Industry expertise

Building & Construction, including Electrical Machinery and Equipment Hiring and Leasing Supermarket and Grocery Stores, Cafes and Restaurants Property Development Motor Vehicle Secondhand Retailing Real Estate Agents

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Team introduction – Director (QLD)

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James Imray

Having worked in Insolvency and Reconstruction since 1993 on the Gold Coast, James moved to Brisbane in

• 1998. He joined the Rodgers Reidy

Brisbane predecessor firm in 2007 and became a Director during 2010.

Contact details

Tel: 07 3136 5704 Email: jimray@rodgersreidy-qld.com.au

Career highlights and key expertise

James has conducted the successful trade on and sale

• f a wide range of businesses over the years, as well

as dealing with the employee and creditor issues that arise on such appointments. James applies the experience gained from these appointments to ensure trading appointments run smoothly and efficiently.

Professional qualifications

Bachelor of Commerce (Accounting) Fellow, The Institute of Chartered Accountants in Australia Registered and Official Liquidator Justice of the Peace (Qualified) - Queensland

Memberships & Associations

Insolvency Practitioners Association of Australia Institute of Chartered Accountants in Australia Australian Institute of Credit Management The Executive Connection (TEC)

Industry expertise

Printing Food Distribution Not for Profit Job Training Plant Nurseries Retail Trade Furniture Manufacturing

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Team introduction – Director (QLD)

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Rodgers Reidy (QLD) Pty Ltd ACN 117 655 973 is a member of an affiliation of independent companies

• perating in Australia and New Zealand under the

common name Rodgers Reidy. This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied on as

• such. Professional advice should be sought prior to

any action being taken in reliance on any of the information. Rodgers Reidy (QLD) Pty Ltd disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the

• information. Any party that relies on the information

does so at its own risk. Liability limited by a scheme approved under Professional Standards Legislation.

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New South Wales Queensland Level 8 Level 9, River Quarter 333 George Street 46 Edward Street Sydney NSW 2000 Brisbane QLD 4000 PO Box Q399 GPO Box 471 QVB Post Office NSW 1230 Brisbane QLD 4001 T: +61 2 9262 1944 T: +61 7 3136 5700 F: +61 2 9262 1933 F: +61 7 3136 5777 E: RR@rodgersreidy.com.au E: RR@rodgersreidy-qld.com.au Chatswood Gold Coast Level 20, Tower A Level 15 Zenith Centre Corporate Centre One 821 Pacific Highway 2 Corporate Court Chatswood NSW 2067 Bundall QLD 4217 T: +61 2 8448 8172 T:+61 7 5641 1414 F: +61 2 9262 1933 F:+61 1300 952 155 E: RR@rodgersreidy.com.au E: RRGC@rodgersreidy-qld.com.au Victoria Level 3 326 William Street Melbourne VIC 3000 PO Box 13044 Law Courts VIC 8010 T: +61 3 9670 8700 F: +61 3 9642 0525 E: RR@rodgersreidy.com New Zealand Level 1 547 Te Atatu Road Te Atatu Peninsula Auckland 0610 PO Box 45220 Te Atatu Peninsula 0651 T: +64 9 834 2631 F: +64 9 834 2651 E: RR@rodgersreidy.co.nz