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Director Penalty Notices (DPN)

Directors need to be more aware of the increased ATO scrutiny of company reporting and payment obligations.

         

 

The ATO has been quickly increasing its focus on business audits, its 'bob-in’ a business scheme, collecting outstanding tax liabilities, and its visits to regional business sites.  This is a lot already but it's not all, the ATO is also increasing the amount of Director Penalty Notices (DPN).

What is a DPN?

A Director Penalty Notice (DPN) means the directors of a company can be pursued directly for outstanding Superannuation Guarantee Charges (SGC) and Pay as You Go (PAYG) liabilities.  Directors are no longer protected by a company’s corporate structure.

Under what circumstances would a DPN be issued?

  • Historical non-reporting;
     
  • Significant ATO debt which remains unpaid;
     
  • Suspicion of phoenix activity.  Phoenix activity is defined by the ATO here.

Obviously the main ATO trigger points for issuing a DPN relate primarily to obligations that have been outstanding for some time, though the current length of an outstanding obligation will most likely be shortened in the future.  Equally obvious is that phoenix activities are illegal. 

Directors need to pay very close attention to their company’s reporting and payment obligations and your accountant is well placed to help.  If you have any concerns, then don't hesitate to ask. 

Being more focused on these issues may sound relatively simple but in larger companies the directors may not have direct oversight regarding the company’s tax compliance obligations. In such cases all key personnel must also be very aware of the greater ATO scrutiny, and act accordingly. 

Nor are new directors exempt.  If there is an SGC, PAYG and GST liability that remains unpaid and unreported within 3 months from the date of a new director’s appointment then they too become liable.

Directors only have 21 days from the date a Director Penalty Notice is issued to act and avoid personal liability.

 

AcctWeb

 

Synchronised global economic slowdown

The International Monetary Fund (IMF) grabbed headlines this month on releasing its latest World Economic Outlook report, downgrading its global growth forecasts to the lowest levels since the 2008-09 financial crisis.

       

 

Pointing to heightened economic and political uncertainty, particularly in China and the United States, the IMF cut its 2019 global growth forecast by 0.3 per cent to 3 per cent, and its 2020 estimate by 0.2 per cent to 3.4 per cent.

Vanguard also expects global growth to continue to soften over the next 12 months, and sees the likelihood of a shallow recession occurring in the US in 2020 as being above 50 per cent, with the risk of a more severe recession a 10 per cent probability.

The IMF's forecast also came with a stark warning: that the world is in a “synchronised economic slowdown”, with financial markets expecting interest rates to stay lower for longer than had been anticipated earlier in 2019.

Indeed, more cuts to official interest rates in the US, Australia and other countries are highly likely as central banks attempt to use monetary policy as a lever to kick start growth.

“Financial conditions have eased even more, helping contain downside risks and support the global economy in the near term,” said a joint commentary by the IMF's director of monetary and capital markets, Tobias Adrian, and deputy director Fabio Natalucci.

“But loose financial conditions come at a cost: they encourage investors to take more chances in a quest for higher returns, so risks to financial stability and growth remain high in the medium term.”

Risk and fixed income inflows
Macro-economic and policy events have been among the key drivers of markets instability for some time, although risk assets such as equities are continuing to trade at high valuation levels.

“These periods of time do come about and they tend to be a more difficult time to invest, because you need to stay engaged in the market to earn respectable returns,” says Christopher Alwine, principal, head of credit, of Vanguard's global Fixed Income Group.

“But, in staying engaged in the market, it's also important to make sure the risk levels that you're positioning your portfolios in are consistent with the risks of an economic downturn, because those risks are elevated.

“To a retail investor, that really comes down to how much you have in stocks versus fixed income and cash.”

Ongoing large inflows into listed and unlisted bonds funds, where investment returns over the past year have been very strong, are a strong indicator of the de-risking phenomenon that's been occurring, and continues to occur, globally.

In a weak macro-economic environment, pointing to low inflation, higher unemployment and lower growth, broad fixed income strategies should perform relatively well as a risk diversifier to more volatile equities.

Most importantly, when you have your worst periods of equity performance, you want to see fixed income perform well. Yet, that's not always the case.

Understanding interest rate risk
Investors do need to be aware that the fixed income asset class is not homogenous. Indeed, depending on the investment strategy being used, investors in fixed income can be exposed to market risks they may not have appreciated at the time of making their investment.

For example, interest rate risk or sensitivity (duration) can enhance returns when share markets perform poorly.

But a fixed income fund may not necessarily perform this way if a fund manager has structured a portfolio in a way where the fixed income investments made materially change the underlying nature of the fund.

“One of the biggest decisions that you can make in a fixed income portfolio is to make significant duration bets,” says Vanguard senior manager, investment product management, Scott Cornfoot. “They are single decisions that can be quite volatile and surprise investors.

“What you don't want is to invest in a fixed income portfolio and, when equities go badly or markets get jittery … to find that your manager has taken a big duration position (that is, has effectively gone underweight fixed interest) and your portfolio doesn't perform as you would expect.”

This is why low-cost actively managed global credit funds that invest in high-quality investment grade bonds, and which have very tight duration constraints, are attracting investor demand.

In addition to the risk-free component generated from government bonds, these credit funds seek to generate additional performance by investing across investment grade bond markets and by seeking out opportunities to add value through specific security selection.

So, in a synchronised economic slowdown climate, if you're moving to de-risk your portfolio by shifting capital into fixed income, it's important to understand the nuances within the asset class and how they may impact returns.

This is where a licensed financial adviser should be able to provide guidance.

 

Tony Kaye
Personal Finance Writer,Vanguard Australia
29 October 2019
Vanguardinvestments.com.au

 

STP to be increasingly monitored

The ATO’s “softly softly” approach to Single Touch Payroll will not last long, warns a tax expert, as clients are urged to revisit historical data before the Tax Office catches up to them.

         

 

With Single Touch Payroll (STP) now mandatory for businesses of all sizes, BDO partner Ben Renshaw believes it will only be a matter of time before ATO audits increase as the agency begins analysing STP data.

“What the ATO has done with Single Touch Payroll is they’ve automated the process of collecting payroll data in a way that ultimately will make it much easier for them to audit,” Mr Renshaw said.

“So, my expectation is that the payroll data that the ATO is collecting from pretty much everybody now will be looked at using analytics tools and artificial intelligence–type tools to really start to pick out areas of concern from single organisations or industries or areas or whatever it might be.

“The ATO has got more and more data to be able to look at this, so they are committing more resources to this, but it’s part of the Single Touch Payroll approach that we’ve seen come in, and that’s going to drive more compliance in this space.”

Mr Renshaw said that while the ATO has adopted a collaborative approach to help employers get on board STP, that approach will not last forever.

“That gently, gently, softly softly approach, which has been fantastic, isn’t going to last forever,” Mr Renshaw said.

“The ATO is also going to look backwards. So when Single Touch Payroll information today highlights a concern or an error or an issue, the ATO will certainly want to look back historically, pre–Single Touch Payroll, to see if that issue also existed.

“[Employers] assume that STP is just a forward-facing thing, but you really need to be confident that what you’ve done historically is correct as well.”

 

 

Jotham Lian 
08 October 2019 
accountantsdaily.com.au

 

6 new accounting related videos

Videos are a good way to learn more about a topic or show to others who my be new to financial management.

Six new videos have just been added to our website. The topics covered are: 

  • How interest rates affect your loan
  • SMSF borrowing limited recourse loan
  • Cloud based accounting
  • Why you need business expense insurance
  • Understanding SMSFs
  • Saving and Investments

 

     

Click on the Video menu entry above to view our new collection.

 

 

 

GDP by country since 1800

This animated chart is simply amazing.  It's fascinating to see how the world has changed and is changing.  Food for thought!!

         

Simply click on the image and see how things have changed but also how, in many ways, they've stayed the same.

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee or independent contractor: What happens when it goes wrong?

The perennial question has reared its head and it was just a matter of time given the burgeoning gig economy.

           

 

The new working arrangements provide flexibility for workers, arrangers and customers. But what are the tax and other economic implications for those involved?

The changing working arrangements have put a spotlight on the traditional dichotomy between an independent contractor and an employee. The new arrangements suggest a further category, as yet undefined, that has characteristics of both.

A recent decision by the Fair Work Commission in Joshua Klooger v Foodora Australia Pty Ltd [2018] FWC 6836 demonstrates what can go wrong when the critical concept of engagement is misinterpreted.

Foodora was involved in the delivery of restaurant meals, food and drink and other items to homes and offices. Joshua Klooger entered into an “Independent Contractor Agreement” with Foodora that stipulated he was an independent contractor and not an employee.

In considering the “totality of the relationship” (a common line in such cases), the commission found that Joshua was, in fact, an employee. He was found to have been unfairly dismissed and Foodora was ordered to pay him compensation. Given that arrangements were the same for all its workers, the logical application of this decision is that it would apply to all of Foodora’s workforce.

Significantly, tax authorities circled during the heading and moved in once the decision was handed down.

Not only would payroll tax obligations seem to exist, but other employment tax obligations such as pay-as-you-go withholding (PAYGW), superannuation and personal services income (PSI) as well.

Two tax investigations were conducted into the Foodora business; one by Revenue NSW in relation to potential payroll tax liability and a separate investigation by the ATO looking at millions of dollars in potentially unpaid withholding taxes and superannuation.

The cumulative impact of this decision was that the German-founded food delivery business had to leave Australia.

As if these impacts were not enough, the decision of the Fair Work Commission effectively changes the flow of income and expenses for both Foodora and the worker.

Instead of the independent contractor receiving all the income and paying an amount to the digital platform provider, the result is now that the digital platform provider receives all the income and pays some of that to its employees. While this may not change the bottom line for either, the implications across a range of stakeholders including banks, government departments and auditors are significant.

Tax authorities in Australia have been grappling with the murky line between employees and independent contractors for many years. While there have been some attempts to solve the problem, none have been effective.

The commission’s decision, and in turn the ATO’s view of employees/contractors, can also be considered using a medical practitioner example. A medical practitioner is often not an “employee” of the medical practice, but an independent contractor. This generally sees the medical contractor issue the practice an invoice for their services. Under this scenario, the medical practitioner is responsible for paying their own superannuation, income tax instalments and liability insurance.

This is a very common example of a work arrangement between a medical practitioner and practice, which has generally been accepted by the ATO. However, the abovementioned Klooger v Foodora decision may provide precedence for some further investigation by the ATO.

With the above case in mind, the ATO may seek to further focus on contractor relationships such as this. If the ATO was to take the view that these practitioner/practice relationships are in fact an employee relationship, there would be a large number of medical practitioners and medical practices that would need to reconsider their tax structures and affairs.

From the view of the medical practice, this may involve more out-of-pocket expenses as not only would the practice have to pay the practitioners wage as an employee, they would also need to pay superannuation guarantee charge (SCG), allow for leave entitlements and ensure their insurances cover the employee.

From the view of the medical practitioner, this would likely simplify their tax affairs; however, as they are no longer carrying on a contracting business, certain tax deductions may no longer be available and the possibility of splitting income through certain tax structures would also be unachievable.

Alternatively, the practitioner and practice may elect to continue with their current arrangement; however, the ATO seeks to review the arrangement with the following outcomes:

  • Request the practice pay an applicable outstanding SGC to the practitioner’s superannuation fund. As this would be late paid superannuation, no tax deduction would be allowed for the payment.
  • Charge a 10 per cent interest rate and quarterly administration fees on the unpaid SGC amounts.
  • Amend the practitioner’s income tax return under the personal services income (PSI) provisions to disallow certain deductions and income splitting.

It is critical that any business, not just gig economy businesses engaging independent contractors, understand the issues and take all steps to ensure that their business model works; otherwise, the consequences can be catastrophic.

 

Tony Ince, senior analyst, RSM Australia
20 September 2019 
accountantsdaily.com.au

 

Single Touch Payroll (STP) reporting irregularities: ATO contacting businesses

The Australian Taxation Office it is currently emailing STP enabled employers who have either ceased reporting for over 45 days; or have submitted employees under multiple payroll or BMS IDs.

         

 

These reporting irregularities may cause their employees to see incorrect, incomplete or multiple entries in their income statements.

Any new system creates a learning curve for everyone – if you have made a mistake, the corrections can be made now, well before year end.

 

 

AcctWeb

 

Employee entitlements, ‘wage theft’ and Fair Work: Why it’s time to be proactive

The Press Club. Tokyo Sushi. Ezard. These three restaurants are just a few of the big names widely reported to be embroiled in the Fair Work Ombudsman’s crackdown on underpayment of staff.

           

 

Its investigations have uncovered serious breaches of Fair Work legislation, affecting businesses across the hospitality, retail and dining sectors as well as many other industries.

In the case of George Colombaris, the celebrity chef has admitted to underpaying his workers by $7.83 million, and has been ordered to pay a $200,000 fine. With heightened media attention and a new focus from employees on whether they are getting a fair deal, it’s likely that many other high-profile names will soon feel the heat from Fair Work. And it’s not just monetary risks that these businesses face. The media has coined the new term “wage theft” — and the reputational damage for anyone accused of this is going to be significant.

We ask the question, why do businesses in these industries, as well as other industries that typically employ large numbers of shift or casual staff outside of the regular nine-to-five, find it so hard to pay their employees correctly, and what can they do to remedy this?

Paying workers fairly: What are the challenges?

Employers often don’t understand their obligations under Australia’s highly complex industry awards systems. For example, the Hospitality Industry (General) Award 2010 allows companies to work out how much an employee would be paid for a 38-hour week. They can then uplift that by 25 per cent to recognise overtime, and pay this amount to the employee on an annual basis, as long as actual pay and total hours worked are reconciled annually, to ensure that the employee has been fully compensated for the time they actually worked.

However, the problem comes because staff in industries such as hospitality work long hours that can change frequently. If a business doesn’t have an effective way of recording hours worked, or never goes back and checks how much overtime a staff member has completed, it is unlikely that it will be paying employees correctly. As such, while employers may take care to roster employees appropriately, employees could end up working 60-plus hours per week and not get paid correctly for this if a reconciliation is never performed by the employer. The media attention given to this issue is prompting staff to check their own wages, and when they find a breach, go to the unions, Fair Work Ombudsman and the press.

The issue is made more challenging because many businesses in these industries don’t have a large or sophisticated HR department or payroll function — this may reduce the capability of the business to correctly review contracts, awards and rates of pay or perform annual reconciliations for those on annualised salaries.

What are the risks to businesses in this area?

There is no doubt that businesses are obliged to pay their employees correctly, fully and appropriately, and should do so in a timely manner. To do anything else is grossly unfair to employees as well as to competitors who are doing the right thing and are disadvantaged as a result.

Fair Work has recognised that there’s an endemic problem with hospitality-related businesses, and is directing its investigations towards these industries. This poses significant risks for any business found to be breaching of their obligations, including:

  1. Reputational damage: “Wage theft” is not a term you want associated with your business, and the risk to business reputation is significant. The business’s ability to attract new customers and high-quality staff in the future will be impacted.
  2. Financial impact: Companies found to be breaching their obligations may have to pay fines as well as compensation to employees, which may grow as the press becomes even more negative. This is in addition to the clear requirement that they make good any historical underpayments to employees. Many hospitality businesses don’t operate on high margins at the best of times, so unexpected employee costs, together with monetary penalties, could have the potential to end operations altogether.
  3. Immigration restrictions: Many employees in the hospitality and retail industries (and many other industries) are in Australia on work visas. Any Fair Work investigation is likely to be referred to the Department of Immigration and Border Force, and vice versa. These bodies will conduct their own investigations into how a company is paying workers from abroad. This may lead to restrictions or bans on employing people from overseas as well as separate fines and additional adverse press coverage for breaching immigration law. Data sharing has become much more efficient among government organisations, meaning the Australian Taxation Office and other government departments may also become interested.
  4. Criminalisation: There has been genuine political interest in criminalising Fair Work Act breaches, and the government has indicated that it is considering drafting further legislation around this. If passed, business owners and directors may face criminal charges and potential prison time if they are found to be underpaying workers.

How can businesses stay compliant with Fair Work?

Firstly, if a business believes it may have underpaid workers or otherwise be in breach of the Fair Work Act, it must deal with the issue quickly and honestly. The owners must work out how much they’ve underpaid their staff and start to remediate. This is essentially their only choice — if Fair Work doesn’t believe the company is trying to remedy the situation, the case is likely to go to court.

Moving forward, the business may need to reshape its workforce or business model. The problem is that many such businesses operate on such low margins that, had they been paying their workers correctly, their viability may be called into question. For companies that have not yet discovered a breach but would like to be more proactive in this area, there are several steps they can take:

Develop a thorough understanding of the awards: There are complicated rules around roster patterns, rates for grades of employees, part-time versus full-time, number of shifts a staff member can work, how many days off they can have, and length of time given between shifts. Support from professionals, including employment lawyers, will likely be a good idea in this regard.

Create policies and procedures around time and attendance records: This is one of the most common errors we see at BDO. In retail there are often very basic paper timesheets, prone to manipulation and error, and without good sign-off and approval protocols. Even if a business has a digital solution, if there aren’t thorough procedures around when an employee says they’ve started their shift (versus when they simply arrive at the  workplace), it’s hard to keep track of who’s working what hours and when.

Offer training: Make sure frontline employees and staff understand these formal policies and procedures to ensure compliance.

Check that annual salaries actually match up to time worked: Another common error we see is that businesses will calculate someone’s annual salary based on estimated hours under an award, but won’t go back and check it correlates with the time an employee has actually worked. This is made even more difficult when shifts are incorrectly recorded or an employer offers alternative arrangements such as time in lieu.

Audit periodically: Regular sample testing and independent checks are a must. This will ensure that employees are following time-recording processes correctly and that payroll teams are checking annual salaries against the hours staff members have actually worked.

 

Ben Renshaw, partner, BDO
27 September 2019
accountantsdaily.com.au

 

How’s Australia really doing – the real figures?

One great source of data about Australia. Become better acquainted with the country we love.

       

An up-to-date snapshot of Australia's vital statistics.  

 

Please click on the following link to see all this interesting information. The areas covered are:

  • Overview
  • Markets
  • GDP
  • Labour
  • Prices
  • Money
  • Trade
  • Government
  • Business
  • Consumer
  • Housing
  • Taxes
  • Climate

 

Access all this data here.

 

 

tradingeconomics.com/australia

 

Pension deeming rates cut from 1 July 2019

The Government has announced that it will lower the social security deeming rate from 1.75% to 1.0% for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples.

       

 

The upper deeming rate of 3.25% will be cut to 3.0% for balances over these amounts.

This deemed rate is probably higher than many pensions are earning on bank deposits.  Under the new rates, age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples, $1053 extra a year, and $31 a fortnight for singles, $804 a year.

The reduced deeming rates have been backdated to 1 July 2019. Any additional pension payment will flow through into pensioners' bank accounts from the end of September 2019 in line with the regular indexation of the pension.

 

 

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