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Hudson & Young Blog

Director Penalty Notice - are you being served?

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As the rules currently stand, a director is liable for the PAYG (pay as you go) obligations of the Company if they are not paid.

Worrells Solvency & Forensic Accountants explain:

"The Australian Taxation Office (ATO) does not need to issue any notices or take any action to create the penalty, however, the ATO is currently unable to commence proceedings to recover the penalty without issuing a Director Penalty Notice (DPN). The DPN essentially provides directors a final opportunity to extinguish the personal liability by either paying the debt or placing the company into voluntary administration or liquidation, within 21 days from the date of the notice. If they do so, they will be absolved of personal liability."

The government is proposing new laws which make three basic changes.

  1. Employee superannuation is to be included as a personal liability for directors
  2. The director becomes personally liable for the penalty if the company does not report its obligation within 3 months or more after the due date and there is no need for the ATO to issue a DPN. If the liability is reported, but is not paid, the director is still issued with a DPN and is able to extinguish their liability within 21 days.
  3. Allows the ATO to prevent directors (and associates) from claiming PAYG credits where the withheld credits have not been paid to the ATO.

These changes are effectively retrospective and will apply to debts more than 3 months overdue at the time the Bill receives Royal Assent. This means that where the company has unreported debts more than 3 months overdue when the law comes into effect, the directors will not receive a DPN.

More from Worrells:

"To make matters worse, the personal liability will not be rescinded by placing the company into voluntary administration or liquidation, meaning the only means of discharging the personal liability will be to:

- Pay the debt in full; or

- Place the company into voluntary administration or liquidation before such time that the Bill receives Royal Assent.

It is therefore important to ensure director penalties are extinguished before the commencement of the new legislation. The Bill is currently before the House of Representatives, and will therefore likely become operational in the short term."

Contact us urgently if you think this could apply to your company.

UPDATE:

The current status of the bill is reported as:

"Referred to Committee (03/11/2011): Senate Economics Legislation Committee; Report due 08/02/2012"

UPDATE 22/11/2011:

From The Age:

"Directors have been given a reprieve from personal responsibility to meet employees' superannuation obligations if their companies fail following the government's temporary removal of its proposal.

The government removed schedule 3 from the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 and the Pay As You Go Withholding Non-compliance Tax Bill 2011.

Its purpose was to strengthen directors' obligations to pay workers' entitlements to superannuation, strengthen the obligations of company directors and enhance deterrence of fraudulent activity.

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Assistant Treasurer Bill Shorten said the measure would be re-introduced in early 2012 following more consultation with stakeholders."

Death & Taxes

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So you have the honour of being appointed executor (or "personal representative") of an estate. There are arrangements to be made, lawyers to meet with and beneficiaries asking "are we there yet?"

Then there are taxes. We all know the ATO lets no one go, but what are your responsibilities? What happens if the deceased lodged an incorrect return a few years ago and the ATO re-assesses it now? Can the executor be personally liable for unpaid tax of the estate? Surely, if a tax bill comes up the beneficiaries are liable?

Michael Flynn wrote an excellent article published by the Law Institute Journal that clearly explains all:

"Despite the implication in the ATO Receivables Policy that the ATO may be able to recover outstanding tax from personal representatives who appropriately administer a deceased estate, High Court authority suggests that:

  • the ATO can only recover tax debts from estate assets; and
  • after the personal representative has distributed all the estate assets without notice of any tax debts, the ATO is unable to recover outstanding tax from either the personal representatives or the beneficiaries.

Therefore, provided a personal representative makes reasonable inquiries about the deceased's tax position, pays all tax liabilities that arise in the course of the administration, and publishes the usual advertisements notifying potential creditors of the winding-up of the estate, the ATO will not have any recourse against the personal representative in respect of tax liabilities that emerge after the estate's assets have been distributed to the beneficiaries."

Further, Flynn explains:

"the case of DCT (NSW) v Brown the High Court held that  the Commissioner is unable to pursue a beneficiary for a tax liability that arises as a result of assessments issued after the personal representative has completed the administration of the estate."

Business Licensing & Permits

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Hudson & Young has a new consultant on board who specialises in business licences and permits. The number of regulations involving permits and licences can be very surprising across all tiers of government – local, state and federal.

Does your business have all licences and permits required? Our new consultant comments:

"Failure to have required permits/licences can incur substantial fines and/or mandatory suspension of trade and in some cases, criminal conviction. Also, teams of licencing inspectors ie: liquor licence inspectors, health and safety inspectors, building inspectors etc etc are constantly maintaining surveillance for persons or businesses that fail to have the required permit/licence and to enforce compliance with that permit/licence."

As a special introduction, Hudson & Young can provide any business – new or existing, a Licence and Permit Report. The report details all licences and permits required for your business in your area at all levels of government. The Business License and Permit Report is a very comprehensive and for you… free.

To order one for your business – even just for peace of mind, contact us.

UPDATE:

Gina Rhinhart has said that red tape is burying her business. For one single project in the Pilbara, the Company has had to satisfy 3,100 permit applications to date - "but it could be more", she says. 

We all need to look into this and ensure our business is secure.

Short Term Finance

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H&Y has a new funder for short term finance. We are now able to arrange loans to settle fast... including same day.

Broker support describes it well:

Every day in business, we all do Cost/Benefit Analysis. It maybe a case of "do I really need that great new 3 in 1 copier". You ask yourself - will it increase productivity, and therefore make me more money? If the answer is YES, then you spend the money and buy it. If the answer is NO, then you don't buy it and make do with what you have.

Short term loans are exactly the same. Will your client make money or save themselves from a worse position if I take this loan? If the answer is YES, then they take the loan and get on with the job. If the answer is NO, then do not take the loan and work on finding another solution.

Contact us for more information.

Investment and Intellecual Property

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We have been asked to look into making a new technology company “Investment Ready”.

What does this mean?

Essentially, we run through our "Investment Ready" checklist to ensure that the Client Company is correctly structured and has the necessary documentation in place to accept external investment. These items include: Corporate secretarial file up to date, financial accounts in order and audited, assets identified, WAIT – what does that mean?

Asset identification is a vital part of the process because, let’s face it, this is what the investor is probably buying. Sometimes the process is relatively simple. The Company owns property, equipment, etc. that is registered or otherwise documented to be an asset of the Company (see our blog on personal property securities register.)

Often, the key asset of the business is not tangible. The asset may be a business process, goodwill, technology or other intellectual property. So what do we do to identify these assets as part of the Investment Ready process?

There are a number of ways to document ownership of intangible assets and the method used will depend on the type of asset. If the Company uses a patentable process or technology, is the patent registered? Where? For how long? Has it been assigned to the Company (it is amazing how often this is missed.)

Business processes should be documented in a Procedure Manual or similar (you cannot really expect someone to invest in your Company when the key asset is in your head.)  Is goodwill the value of your customers? Do you have a customer database or CRM system?

In summary, the more tangilbe (documented) the Company can make it's intangible assets - the more valuable they will be to your potential investor.

Marketing Strategy

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We are often asked about simple marketing ideas for our SME clients.

Our role is to devise the business strategy. We are not an advertising agency, public relations firm or search engine optimisation (SEO) business. We look at what our client’s business has, what they want, what is realistic, agreeing on a strategy and budget, and then (and only then) finding the most cost effective way of implementing. This may or may not include the services of advertising agencies, public relations firms, SEO, etc.

We have have seen too often, businesses run off with the latest marketing idea pitched to them, with no concept of what they want to achieve, or if the marketing has any hope of any outcome. For example, is the business looking for more leads, or is the conversion rate the issue, is it both, what costs more to achieve, what produces the best result, etc…

“I want more sales income” is not a strategy – it is an outcome that needs a strategy to become reality.

Personal Property Securities Register

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Australia is moving to a new system of registration of property securities. The Personal Property Securities Register will allow lenders to secure loans against specific assets and have those securities registered in a centralised database. This reform is due to commence in October, 2011 and will replace several state based registers.

What are personal property securities:

Personal property is any form of property other than land, buildings or fixtures which form a part of that land. It can include tangibles such as cars, art, machinery and crops; as well as intangibles such as intellectual property and contract rights.
A personal property security is when a secured party takes an interest in personal property as security for a loan or other obligation, or enters into a transaction that involves the supply of secured finance. 
An example is when a person borrows money from a bank and offers it as collateral or security for the loan. The bank’s interest over the collateral is a personal property security.
The grantor, who owns the property and is borrowing against the security, can be an individual, company or business.

We believe the register can be an important tool in the protection of business assets. If the business has loans from shareholders or directors, it may be prudent to formally secure these loans against key assets of the business.

To properly achieve this protection, agreements, mortgages and registration must be completed at arms length and the secured assets properly and clearly identified.

Hudson & Young is able to discuss with you the implementation of these new measures in your business.

Product Pricing

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We often see businesses experiencing financial difficulties that can be attributed to incorrect pricing of their products or services. Too often pricing is based on the gut feel of the owner without proper analysis of true costs, market models and strategy.

Ezine@rticles published a recent summary of basic product pricing strategies including:

  • Market size

"If a market is small, the costs of production are spread among fewer customers. This means higher prices for each unit of product. Conversely, if the market is large, you can afford to take less profit for each sale in the hope that you will eventually recoup your investment from the many buyers available"

  • Competition

"Depending on the quality of your products and market perceptions, you can either lose or win by charging less."

  • Buyer Behaviour

"Where buyers are sensitive to price, a small change can affect sales and market share tremendously."

  • Organizational Objectives

"The price of a product has to be tailored towards meeting the company's objectives."

These issues vary in importance depending on the business and it's products or services. The key factor missing from this article's summary is costing. A full and accurate analysis of the product's costing, I find is the starting point in the pricing strategy and a precurser to the strategies above.

Last Updated on Friday, 29 July 2011 16:15

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