THE Australian Business Number (ABN) plays a critical role in the tax system, but registering an ABN without planning and forethought may be contributing to the black economy rather than acting as a deterrent, according to the Institute of Public Accountants (IPA).

“Whilst we applaud a simple, efficient system, there are not enough checks and balances to ensure the registration of an ABN is appropriate or not,” IPA chief executive officer, Andrew Conway said.

“The ease of applying for an ABN online by applicants who do not understand the legislative test for eligibility and their obligations, has resulted in many obtaining one when not entitled. 

“People involved in sham contracting who would otherwise be employees of a company fall into this category.

“There are also individuals applying for an ABN to legitimise a business which does not fully comply with its tax obligations," he said.

“The extension of reportable payments to high-risk industries illustrates how the ABN system has been deliberately misused with the cash economy alive and well.  

“When the building and construction sector was subjected to mandatory reporting in 2012, a whopping $2.3 billion of revenue was reported in its first 12 months," Mr Conway said. "Mandatory reporting is being extended to other high-risk sectors to reign in the cash economy.

“When the ABN system was introduced in 2000, it was supposed to hinder the black economy by strengthening the integrity of the tax system but that has simply not been the case.  

“Applying for an ABN is an important step and there needs to be more rigour in the process as it is effectively your ‘licence’ to do business.  We welcome the Government's consultation on reforming the ABN system to arrest current deficiencies and provide greater system integrity.

“Accountants are well placed to educate applicants of the rights and obligations of having an ABN and more importantly, to vet the applicant’s credentials for commencing a business that meets ABN eligibility criteria," he said. "This check and balance function will no doubt help the government and the ATO in the longer term.

“We urge individuals considering starting a new business, not to just jump online and apply for an ABN but to have a meaningful discussion with their accountant first and to understand what it takes to run a business and your obligations,” Mr Conway said.


FOOD PRODUCERS are on the countdown to showing they are compliant with the new Country of Origin Labelling (CoOL) legislation which comes into effect on July 1.

To assist, GS1 Australia is working closely with retailers to make sure their food suppliers are ready.

All companies that sell food priority products in Australian retail stores and online sites have until July 1, 2018, to change their labels to comply with the CoOL requirements.

By law, labels for priority food products grown, produced or made in Australia will have to carry the familiar Australian Made kangaroo symbol and bar chart, with accompanying text, that shows the proportion of Australian ingredients in the product. Non-priority foods only require a text statement of origin on their labels. 

GS1 Australia claims the new labels will provide Australian consumers with clearer and more meaningful country of origin information, so they can make more informed choices about the food they buy.

“Our collaboration with the retailers supports the shared vision of providing consumers with clearer information about the origins of their food,” GS1 Australia’s head of data and digital content services, John Hearn said.

“It also provides food suppliers with solutions to upload and share their CoOL attribute data with retailers who use our digital services.”

Mr Hearn said GS1 Australia’s suite of digital content services provided an easy solution for suppliers to provide their CoOL information to retailers.

The Data and Digital Content Services team at GS1 Australia have added the CoOL data fields to the National Product Catalogue (NPC) – GS1 Australia’s synchronisation solution that helps businesses exchange standardised supply chain information with their trading partners.

This means that food suppliers can enter CoOL attribute product data in the NPC and forward this information to retailers from a single location.

“Smart Media, our complete digital marketing solution for sharing digital content and photography with retailers and online marketplaces, also supports the Country of Origin Labelling data requirements of all major retailers,” Mr Hearn said.

To further assist suppliers and their trading partners, the GS1 Barcode Check Verification Report has also been updated to include CoOL legislation images as they appear on the finished product.

“GS1 Australia’s support so far has assisted the enablement of many food suppliers to be ready for July 1,” Mr Hearn said.

“An increasing number of suppliers are now populating CoOL attributes in the National Product Catalogue with many more suppliers in the pipeline to complete the legislative requirements.

“It is great to see that many food suppliers are populating the CoOL fields in the National Product Catalogue and we encourage all of them to start uploading content, so they are ready and compliant with the CoOL legislation,” Mr Hearn said.

He said this collaborative success story further demonstrated GS1 Australia’s commitment to the continued exchange of quality data between trading partners.

To assist in understanding the food labelling laws, GS1 has created a video supported by Coles and Metcash.

Further information is also available on the Australian Government website.


THE February 26 appeal decision by the Federal Court of Australia in Chowder Bay Pty Ltd v Paganin resulted in the valuer and the developer dodging a bullet by the skin of their teeth – and it’s a lesson to all in the property industry according to Mullins Lawyers.

Six investors had sued the valuer on the basis his valuation of the project at $67.8 million was misleading and deceptive. Mullins Lawyers special counsel Gordon Perkins said this valuation had resulted in the bank advancing money to the developer, which in turn resulted in a loss to the investors.

The investors argued in court that if the valuation had been accurate (estimated at about $45.5 million), the bank would not have financed the development and they would have sold the undeveloped land and recovered their money. 

“The argument failed because the valuers had qualified their valuation and the bank was a sophisticated user of valuations,” Mr Perkins said. “The outcome may have been different had the end user of the valuation not been as sophisticated as the bank.”

The Chowder Bay project attracted 23 investors at $500,000 each to develop a former caravan park in Western Australia into a residential resort.

The court was told that the investors were to receive one residential apartment each on sale of the remaining development and the developer was to receive several apartments. The bank was to finance about 45 percent of the sale price of all of the apartments.

When arranging the valuation, the developer gave the valuer a list showing the sale prices of the apartments and the 23 apartments to be given to the investors as ‘sold’.

“The valuer seemed to be unaware of the true consideration for those ‘sales’ but ultimately was aware they were to investors and inserted appropriate qualifications into the valuation,” Mr Perkins said. “The developer defaulted when sales of the remaining apartments were not sufficient to repay the loan before it expired. The bank appointed a receiver to the development and sold the apartments.”

Assessing the merits of the claim, the trial judge examined all of the circumstances surrounding the valuation and found that the bank was not misled or deceived as the assumptions and qualification by the valuer were clearly expressed. The bank’s knowledge of the transaction and its sophistication as a user of valuations were factors in this decision as was the qualification in the second valuation to the effect that the valuer had not seen the presale contracts and that the bank should confirm them.

The Court of Appeal supported the Judge’s reasoning in this regard and upheld the decision that the valuation did not mislead the bank. As a result, the case failed from an investor perspective.

Mr Perkins said there were several clear lessons from the case.

“Valuers need to consider to whom they are addressing their valuation and where appropriate to include sufficient explanation of unusual features and qualifications relevant to the degree of sophistication of the recipient,” Mr Perkins said. “Financiers should be aware of the basis for assumptions made by a valuer and specifically check matters raised by the valuer in any qualifications to the valuation.

“In this instance the argument was narrow and focussed on the valuation. A similar argument could have been raised by the investors to the effect that ‘they made a loss because the bank was negligent in making the loan. Had the bank been diligent and acted on the qualification they would not have made the loan and the investors would have recovered their money from sale of the undeveloped land’.

“Unfortunately the argument that ‘the bank should not have lent me the money’ arises too frequently for financiers to ignore this point. Developers, directors and their management must make sure that they fully and frankly advise valuers when instructing them.

“They should also ensure their financiers are fully and frankly advised of the nature of any special arrangements. Here the bank’s risk was that the sale of the remaining units did not occur in time to repay the loan.

“Although there was sufficient equity to protect the bank, had the developer been diligent, the issue could have been dealt with before the loan was drawn and the outcome for the developer and investors would have been different,” Mr Perkins said. “The developer and one of its directors misled the valuer by not advising the nature of the arrangements with investors described in the valuation as ‘pre-sales’.

“They were aware of the issue by the time of the second valuation. It’s possible they also misled the bank as to the nature of the ‘pre-sales’ to investors. This was not argued and nothing turned on the finding against the director and developer as the link with the loss claimed by the investors was broken (the valuer had not misled the bank).

“Had the outcome been different, the directors would have been liable for at least part of the loss. This scheme had more than 20 investors. If the investors each had paid less than $500,000 it would be a managed investment scheme requiring registration with ASIC.

“This was not relevant to the case above but we recommend that developers and others raising funds using trusts or other forms of investment vehicle check that their activities comply with the laws regarding managed investments,” Mr Perkins said.


THE Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has urged small businesses to prepare themselves to manage mandatory data breach reporting laws, effective February 22.

“If an unauthorised entity accesses anyone’s personal information from a business computer system, where it is likely to result in serious harm to that individual, that data breach will have to be reported to the Office of the Australian Information Commissioner (OAIC), as well as the individual affected,” Ombudsman Kate Carnell said. 

“An unauthorised entity could be an employee, an independent contractor or an external third party, such as a hacker (via cyber attack). Serious harm to an individual may include physical, psychological, emotional, financial or reputational harm.”

Ms Carnell warned this legislation carried significant financial penalties, and would affect any small business that collected personal information from their customers, and staff.

“Small businesses can’t afford not to understand what the new laws mean to them, and yet I’ve read a new study reporting 44 percent of Australian businesses are not fully prepared,” she said.

“Another report by Telstra last year found 33 percent of small businesses don’t take proactive measures to protect against cyber breaches.

“With penalties of up to $360,000 for individuals and $1.8 million for organisations, the impact of a breach on a small business is devastating.”

Mrs Carnell said information on what a breach is, how to report a breach, or how to take steps to avoid notification in a timely manner can be accessed from the OAIC website.

“With the new laws commencing in around three weeks, I suggest small business operators also read our Cyber Security Best Practice Guide,” Ms Carnell said.

Small businesses in categories that must comply with the Notifiable Data Breaches scheme can be determined through the Office of the Australian Information Commissioner.


THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has welcomed the Unfair contract terms and small business loans report released on Friday by the Australian Securities and Investments Commission (ASIC).

“Just over a year ago, ASBFEO and ASIC jointly reviewed small business standard form contracts, and we found the major four banks had failed to take the necessary steps to comply with their obligations under unfair contract terms (UCT) legislation,” Ms Carnell said.

“This was after a generous one year transition period to meet the November 2016 implementation deadline. 

“Shortly after our UCT review, the big four banks committed to a series of changes to make sure small business loans of up to $3 million entered into or renewed from 12 November 2016 would be protected from unfair contract terms.

“The legislation covers all financial institutions in Australia and we are yet to see the rest of the financial services industry make the appropriate changes, so their standard form loan agreements comply with the law.”

Ms Carnell said small business loan contracts are complex, with many pages and in highly legalistic language.

“Often small businesses do not understand the significance of what they are signing,” she said.

The unfair contract terms removed, or limited in use, from small business contracts by the big four banks are:

  • unilateral variation: the ability to vary anything in the contract without agreement;
  • financial indicator covenants: used to trigger a default and debt recovery even if loan repayments made;
  • material adverse change events: the power to terminate the loan for an unspecified negative change in the circumstances
  • entire agreement clauses: prevent bank being held responsible for conduct, statements or representations made to the borrower outside the writer contract
  • broad indemnification clauses: borrower to cover losses and costs incurred due to fraud, negligence or wilful misconduct of the bank employees, agents or a receiver appointed by the bank.

“The actions a big four bank can take on a small business loan is now more transparent to the borrower and proportional to the management of risk,” Ms Carnell said.

“We will monitor the use of the changed clauses by the big four banks, and ensure their existing applicable small business customers are aware of the changes.

“We will also continue to apply pressure on the rest of Australia’s financial institutions, to make sure they too meet the unfair contract terms legislation.”


THE Federal Government is introducing legislation to close tax consolidation rules that are alleged to have been misused by multinational companies to avoid Australian tax.

Tax consolidation allows wholly-owned corporate groups to be treated as a single entity for tax purposes. Under existing rules, multinational consolidated groups can, in some circumstances, achieve tax free gains on assets by transferring entities between non-resident associates.

“There are about 12,000 tax consolidated groups in Australia, including the majority of our largest businesses,” Revenue and Financial Services Minister Kelly O’Dwyer said. “These rules reduce compliance costs for business and improve the integrity of the tax system. 

 “This legislation will improve the integrity of the consolidation regime by preventing multinational groups from sheltering future income tax by 'churning' entities between related parties.

“This will ensure that these multinational groups pay the right amount of tax on gains from their Australian assets.

Ms O’Dwyer said the Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018 improves the integrity and operation of the consolidation rules by removing a double tax benefit arising from the treatment of deductible liabilities; simplifying the rules by disregarding deferred tax liabilities; preventing double benefits from arising from securitised assets; ensuring the tax treatment of certain assets and liabilities is consistent with economic substance; and closing a loophole allowing access to double deductions by shifting value across entities.

“The changes in this Bill implement recommendations made by the Board of Taxation in its post-implementation reviews of the consolidation regime,” Ms O’Dwyer said.

“The government has consulted extensively on these measures, including as part of the Board of Taxation reviews. The government has listened carefully to stakeholders in the design of these changes to ensure they are fair and balanced.”


SUPERANNUATION Guarantee (SG) contributions paid by employers may be key to a person’s retirement plan,  but some penalties for non-compliance may be detrimental to small business and there may be more red tape on the way, according to the Institute of Public Accountants (IPA). 

“There is no doubt that employers should be making timely and accurate superannuation contributions on behalf of their staff but some penalties associated with late payments and non-compliance are draconian to say the least,” said IPA chief executive officer, Andrew Conway. 

“The imposition of punitive costs on employers who pay their SG contributions late or in part can be extremely damaging on a small business struggling with cash flow issues.

“If the employer does not pay the correct amount of SG contributions on time, it can be deemed as a shortfall and SG onerous charges are imposed.  This consists of the total of the employer’s individual SG shortfalls for each employee and attracts further nominal interest and administration fees for that quarter.

“To add further insult, employers are then asked to calculate SG contributions and SG charge on a different basis to the norm which adds further compliance complexity to the employer.  This calculation can actually make the shortfall higher.  And worse, all of the above is non-deductible. 

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