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  1. 1. 75 2 0 1 1 2 FEATURE INDEPENDENT CONTRACTORS IN THE GUN 3 FEATURE FOREIGN INvESTmENT – A kEy DRIvER IN AUSTRAlIA’S FUTURE GROwTH 4 lEgislATion FAIR ENTITlEmENTS GUARANTEE – PROTECTING EmPlOyEE ENTITlEmENTS 5 FEATURE TRUST STREAmING – PART 1 6 CliEnT PRoFilE wESTERN ImAGING GROUP 7 ADVoCACY – BUDGET UPDATE TAx PAYER AlERT 8 WHAT’s nEW TAx DiARY Taking care of Business Why do business owners delay making decisions about the future of Dr Richard Shrapnel Executive Director – Business Consulting their firms and potentially put at risk this most valuable asset? Melbourne Swinburne University and Pitcher of business owners intending to retire over The research project will employ a range Partners are undertaking a two and a half the next ten years do not have an exit of data gathering techniques including case year project which explores the dynamics strategy in place. The avoidance or delay of studies, interviews and a national survey, that shape planning amongst family decision making by business owners over all of which will help identify and businesses. In particular, the project aims succession, potentially weakens capital understand issues such as trust and to understand the uncertainty and delay value, leaves family businesses at risk of communication across family businesses. around family business succession failure and their stakeholders vulnerable to Clients will have the opportunity to planning, clarify the dynamics which conflict and uncertainty. participate in the research phase if they inform succession planning and develop so wish. Although there is a substantial knowledge effective strategies directed toward of succession planning in family business We await the outcomes of the project with orderly succession planning. research, there has been very little interest, as it is expected that the study The statistics surrounding family business sociological research conducted as to the will generate better strategies, protocols are impressive. Family firms account for dynamics, barriers and strategies involved and policies for the succession planning of 70-80% of Australian businesses, and in family business succession planning. Australian family businesses. This make up $4.3 trillion of business value. Family business owners and managers information will be invaluable in assisting In the next decade, approximately $3.5 often seek help in succession planning Pitcher Partners to properly guide clients in trillion of that value is expected to change from trusted professional advisors, but the evolution of their businesses in the hands as the baby boomers pass on their some of the problems arising from future and we look forward to sharing the businesses. Surveys of businesses succession planning are not financial or knowledge with you. routinely report that the issue of legal, but rather social, involving a complex succession is fraught and that over 50% array of decisions and processes embedded in family communication and decision- making.A PUBLICATION EX AMINING ISSUES FOR OUR CLIENTS
  2. 2. Feature Independent contractors in the gun Brad Twentyman Director – Superannuation Melbourne The push to limit the number of independent contractors is well under ■ Frequency Reports will need to be lodged as an way in the building and construction industry and it appears the annual report in the approved form. The commercial cleaning, information technology and transport industries will annual report (to be called a ‘Division 405 be the next targets. report’) will contain information that identifies the ‘supplier’ and the building In the recent Federal Budget the ■ Entities subject to reporting and construction industry payments to Government announced it will require The entities subject to reporting will the ‘supplier’ in the reporting period. certain businesses to report annually to include any contractor or subcontractor the Australian Tax Office, payments that who is engaged in the building and We understand further consultation is have been made to contractors and sub- construction industry, who quotes their scheduled on the form and method of contractors in the building and ABN to the purchaser and receives a reporting. construction industry with effect from payment for building and construction Submission 1 July 2012. The Assistant Treasurer Bill work. Pitcher Partners will discuss the form and Shorten, claims the new reporting regime Reporting responsibility ■ content of its submission with clients. All will require businesses to report Businesses, including sole traders or comments and views would be welcome. information that is already required to be contractors wholly or principally For this purpose or for further information collected and recorded under existing engaged in the building and on the announcement, please consult your taxation law. He seems however, to construction industry, will be required regular Pitcher Partners contact. overlook the additional compliance burden to report. Private individuals such that reporting the information will owner builders will not be required impose. to report. Following on from the Budget, the Assistant Treasurer released for public comment a discussion paper outlining the 1 2 3 4 5 WHO? CREATE AND INVOICING PAYMENT QUARTERLY END OF YEAR BUSINESS new reporting regime. Feedback from the PERFORM UNDER CONTRACT BUSINESS TAX OBLIGATIONS consultation will be used to finalise CONTRACT TAX OBLIGATIONS reporting arrangements. Building Co Building Co Building Co Building Co Building Co Building Co Proposed regime Building Co Housing contracts Bob to receives Bob’s pays Bob for lodges its BAS on a completes and lodges annual An example of the proposed reporting Developer install a bathroom invoice (including his services quarterly basis lodges their report detailing ABN) income tax return payments to all regime taken from the discussion paper is contractors set out in the adjacent diagram. Additional detail is provided in response to Building Co must Pay PAYG Building Co will record the details instalments to ATO pay an income tax common questions being asked of of the payment liability or receive Government: it makes to Bob a refund including Bob’s ■ Payments subject to reporting ABN Payments that will be subject to reporting, are payments under a Bob Bob installs the Once completed Bob receives Bob lodges his BAS Bob completes and contract that is in whole or in part for Plumbing bathroom Bob bills Building payment for on a quarterly lodges his income Contractor Co for his services his services basis tax return the supply of building and construction services. Payments either solely for the supply of goods or materials or Key Pay PAYG Bob will pay an payments of salary and wages for Stage Existing Obligations New Obligations instalments to ATO income tax liability or receive a refund employees will not be captured. Government Discussion Paper – Reporting of Taxable Payments for Contractors in the Building and Construction Industry May 20112
  3. 3. FeatureForeign Investment– a key driver in Australia’s Ben Lloyd future growth Regional Executive Baker Tilly InternationalAustralia’s history of welcoming foreign investment has proved to be a In particular, he noted “our strong institutions, flexible markets, highly skilledkey driver of our development as a nation. Foreign investment provides workforce, culture of innovation, soundadditional capital for growth, creates new job opportunities and economic policy, natural resources andsupports existing jobs. It also encourages innovation and skills proximity”, all of which make us highlydevelopment, introduces new technologies and promotes healthy sought after by the two major developing economies, India and China. “We are acompetition amongst our industries. The Australian Bureau of Statistics country which offers diverse businessestimated at the end of 2008, that 25% ($100 billion) of foreign direct opportunities across a broad range ofinvestment was in mining and 19% ($74 billion) in manufacturing. industry sectors, and we welcome and encourage foreign investment. Australia’s investment climate is a good story and one which we are proud to tell.”At the recent 2011 Baker Tilly Asia Pacific In his address to delegates, The Minister In this encouraging investment climate,Regional Conference in Melbourne hosted described Australia as an economy with Pitcher Partners’ membership of the Bakerby Pitcher Partners, the Hon Bill Shorten “strong fundamentals, low unemployment, Tilly network will enhance its ability toMP, Assistant Treasurer and Minister for strong job creation and a massive pipeline provide clients with a recognised globalFinancial Services and Superannuation, of business investment.” He noted that brand, and a leading, closely alignedemphasised Australia’s “very consistent Australia has much to gain from our network of locally owned and managedapproach” to foreign investment. He told growing economic relationship with the firms focused on delivering exceptionaldelegates that since 2007, the Government Asia-Pacific region and that future growth client service. The Baker Tilly network hashad approved over 1,600 foreign relies on our continued openness to 150 member firms in 120 countriesinvestment business proposals worth foreign investment. worldwide. In the Asia Pacific region, wearound $490 billion. “Australia is a globally competitive provide services across 24 countries.The Government’s consideration of location to do business and offers a If you would like to know more about howbusiness proposals is done on a case-by- wealth of opportunities for businesses to Pitcher Partners can assist you in the region,case basis, and despite the recent succeed”, said the Minister. please contact Ben Lloyd, on 03 8610 5425 orspeculation surrounding the acquisition of at ben.lloyd@bakertillyinternational.comASX by the Singapore Exchange,(subsequently rejected by theGovernment), Australia’s foreigninvestment policy has not changed.The Government continues to welcomeforeign investment because of thebenefits it provides the economy. It hasactively pursued a framework that willallow for the introduction of competitionin Australia’s equity markets, which couldinclude foreign operators setting upmarkets in Australia, and thecommencement of market competitionwith the entry of Chi-X later this year. CO N TAC T 3
  4. 4. Andrew Yeo Partner – Business Recovery & Insolvency Melbourne Legislation Fair Entitlements Guarantee – Protecting Employee Entitlements Andrew Yeo Partner – Business Recovery and Insolvency Melbourne The Federal Government’s “Protecting 3. Administrative changes to strengthen As also noted in the recently released Workers’ Entitlements package” has been the ATO’s powers to prosecute directors Federal Budget, the super reforms extend to designed to increase the level of legislative personally for unremitted employee the ATO and the Fair Work Ombudsman protection for employee entitlements superannuation as well as increasing the (FWO) receiving additional enforcement when their employer goes into liquidation powers of the Australian Securities and powers. through the implementation of three key Investments Commission (ASIC) to fight As of 1 July 2011, the ATO will have stronger initiatives: Phoenix activities. powers to ensure companies comply with 1. Introduction of the Fair Entitlements The Fair Entitlements Guarantee will not their superannuation requirements through: Guarantee Legislation. This proposed apply to: ■ An extension of the Directors Penalty legislation is designed to protect ■ The portion of income earned above Notice (DPN) regime to include unpaid employee entitlements including: the annually indexed rate of superannuation entitlements; and ■ Redundancy (up to a maximum of four $108,300.00; and ■ Improving the capacity of the ATO to weeks for each year of service); ■ Directors or other ‘excluded employees’ conduct proactive compliance activity ■ Annual Leave; of the employing company such as and investigate worker’s complaints. spouses, children or relatives. ■ All Long Service Leave; and These amendments would see an increase The Federal Government also proposes in the personal liability of Directors for ■ Up to three (3) months of unpaid that under its “Securing Super” reforms, unremitted superannuation contributions. wages. employees will receive: Employees who are employed by The proposed Fair Entitlements Guarantee unincorporated entities will also see their ■ Information on their payslips about the will replace the existing General Employee entitlements ranking improve under the amount of superannuation actually Entitlements and Redundancy Scheme proposed reforms. The reforms propose the paid into their super account; and (GEERS). aligning of the priority of employee ■ Quarterly notification from their entitlements under the Bankruptcy Act 1966 2. Amendments to increase compliance superannuation fund if regular with the priority provisions encompassed and recovery measures against company payments cease. under the Corporations Act 2001. directors in relation to superannuation. These proposed reforms should tighten For more information consult your local the mechanisms associated with the Pitcher Partners’ contact. timely payment and disclosure of all super payments, although we have concerns that employees could become alarmed unnecessarily because of the usual time delay in remitting contributions.4
  5. 5. Feature Part 1Trust Streaming Alexis Kokkinos Executive Director – Tax Consulting MelbourneConsiderable uncertainty regarding the ability of Trustees of discretionary discuss in Part Two of this article. Critically, as resolutions or records need to be intrusts to stream different classes of income has now been removed for place by 30 June 2011 for dividends and 31capital gains and franked dividends. The Government has released August 2011 for capital gains, this does notlegislation that will allow two classes of income to be streamed through a leave a lot of time for trusts to considertrust, being capital gains and franked dividend income. The legislation is the proper application of these new provisions, and put in place documents toscheduled to have effect from 1 July 2010. comply with these provisions. On that note, the ATO has indicated that,The new provisions will allow Trustees to 50% of the total distribution, however in the event of an audit or review, it willspecifically allocate capital gains and they would be attributed the taxable not apply its long standing administrativefranked distributions to nominated amount referable to the streamed income practice of allowing trustees until 31beneficiaries, provided they are made only. Assuming the individual rate of tax August to pass resolutions distributing thespecifically entitled to the amounts under paid is the top marginal rate, the total tax income of a trust for a prior income year.the terms of the trust. However, to access payable would be $6,825. Accordingly, due care must be takenthese provisions, the Bill critically requires before 30 June 2011 to comply with the Under the proportionate method (i.e.written records to be in place by 30 June requirements of the new provisions. where the trust does not stream), this2011 for dividends and by 31 August 2011 Indeed, it will be a critical issue for would mean that beneficiary A and Bfor capital gains. distribution statements and resolutions would be allocated 50% of the total for the year ending 30 June 2011 to complyIn the absence of a Trustee’s resolution or taxable income (or $10,000 each), being a with the new provisions. We wouldappropriate records allocating income in combination of 50% of the capital gain strongly recommend seeking advice as tothis way, the ATO’s practice of allocating ($2,500) and 50% of the business income these requirements, especially where aincome proportionately across all ($7,500) each. Furthermore, beneficiary B trustee is seeking to stream capital gainsbeneficiaries will apply. (being a company) would lose access to or franked dividends. the discount component of the capitalExample: gain and would be taxable on another Part Two of this article, which will appearTo demonstrate the application of the new $2,500. The tax payable in this case would in the next issue of Contact, will examineprovisions, assume that a trust derives a be $8,400, an increase of $1,575 or 23% some of the many compliance problemscapital gain of $10,000 (which is that arise under the new provisions, While the above example seems simple,discounted for tax purposes to $5000), including: expense and loss allocation the provisions are mechanical and requirements; dealing with prior yearand other business income of $10,000 complicated, leaving significant capital losses; asset revaluation reserves,(which results in a taxable amount of opportunities for error. Furthermore, the requirements for preparing accounts;$15,000 due to timing differences). new provisions do not support the ability dealing with contracts that straddle year-Therefore, assume that the total trust law to stream other classes of income, end; and the operation of the CGT market(accounting) income is $20,000 and the including: interest income; unfranked value substitution taxable income is also $20,000. dividends; rental income; business income; royalties and foreign income. For further information please refer to ourThe trust may wish to stream the taxable Tax Bulletin at gain to beneficiary A (e.g. an Due care must be taken Bulletins, or consult your local Pitcherindividual) and the taxable other business Partners contact.income to beneficiary B (e.g. a company) In many cases, the results under the newunder the new provisions contained in the provisions can be far different from thoseBill. In this case, each beneficiary would under the ‘old’ rules – which we willreceive a cash distribution of $10,000 or CO N TAC T 5
  6. 6. Client Profile Western Imaging Group David Staples Partner – Private Clients Sydney Western Imaging Group is an then sit, stand or place themselves in conventional lie down MRI’s, and therefore whatever position is most appropriate and provides a more accurate diagnosis”, says independent, comprehensive, comfortable for imaging. Dr Matthew Lee from Western Imaging private radiology practice located in Group. The new open and upright design means the western Sydney suburb of the patient is not enclosed in any way, so Pitcher Partners NSW has been providing Blacktown. Since 2005, the practice there is no claustrophobia – they can even business advisory and compliance services has provided a variety of diagnostic watch television while being imaged. to Western Imaging Group since The MRI allows imaging of any part of the December 2009 on a range of issues services to patients, including X-ray, body, and enables the patient to be placed including business advice on the ultrasound, mammography, barium expansion of the practice, financing of in a weight bearing position which studies, biopsies and CT referrals. reproduces pain and other symptoms. This new equipment, due diligence of other allows a more accurate diagnosis and radiology firms and review of existing In late 2010 Western Imaging was able to better targeted treatment, with reduced operations. Since 2005, we have also offer to patients, the first Fonar Open health costs for both the patient and the undertaken comprehensive risk reviews UPRIGHT® Multi-Position MRI. Developed government funded health system. and assisted in the development of by Dr Ray Damadian of the Fonar appropriate succession plans. Corporation in New York, the man “The added benefit is that the MRI accredited with the development of the provides improved access to a greater Pitcher Partners are delighted to have conventional lie down MRI, this machine is range of patients, including those Western Imaging Group as a key client and one of only 140 in the world and the only suffering from claustrophobia, obesity or to be able to work with the principals of one of its kind in Australia. It has no who are children. It allows the referring this successful enterprise to support their tunnel and allows the patient to walk in, doctor to see the whole picture rather future growth and business evolution than just part of it, which is the case with plans.6
  7. 7. Advocacy – Budget UpdateRay CummingsDirector – Tax ConsultingMelbourneSome Not for Profits to lose charity While the crackdown applies only to newstatus activities from 10 May 2011, this measure may severely restrict the viability of manyThe crack down on unrelated commercial charities. For example, where all of the profitactivity for the not for profit sector in the from the commercial activity finds its way toFederal Budget, will see a reassessment of altruistic purposes, there may be a need for athe charitable status of entities based on a build up of cash reserves either as workingnew definition of a charity which will see capital for the business, or to be earmarkedsome organisations losing their charitable for some future initiative of the charity. Thesestatus. funds may become taxable.New measures will also see the This is a serious issue for the not for profitestablishment of a new Australian sector, and we envisage that there will beCharities and Not for Profit Commission extensive consultation between both the(‘ACNC’). One of the Commission’s roles Federal Government and the not for profitwill be to re-assess the charitable status of sector in the future. Pitcher Partners will beentities and then instigate the removal of advocating that this issue be handled withtax concessions for income for those care, particularly at this time, when publicorganisations whose activities are deemed donations are difficult to come by andnot for altruistic purposes. Government expenditure is under review. Tax Payer Alert Decision on treatment of Corporate UPEs must be made by 30 June. In the last edition of Contact we focused on Taxpayers are now reminded that the the Divison 7A issues concerning trusts deadline for trustees to adopt an with corporate unpaid present investment option approach is 30 June 2011. entitlements (UPEs), specifically the If this affects you please contact your opportunity for trustees to avoid traditional regular Pitcher Partners contact to discuss Division 7A problems by putting those UPEs the matter as soon as possible. on investment option terms. CO N TAC T 7
  8. 8. What’s New Pitcher Partners Association is pleased to announce our 7 New Partners Peter Braine Gavin Debono Mark English Sharon Leong Leon Mok Rob McKie Dr Richard Shrapnel Tax Consulting Private Clients Audit & Assurance Audit & Assurance Tax Consulting IT Consulting Business Consulting Melbourne Melbourne Perth Perth Perth Melbourne Melbourne Pitcher Partners Melbourne – Partners Association nationally and stay providing audit, business services, on the Regional Advisory Board for Baker management and company secretarial Management Changes Tilly in Asia, while remaining as a full time advice. Founder of the Monash Group, After 8 years at the helm, Don Rankin will Partner in the Business Advisory and Mark English, who joins Pitcher Partners step down on 30 June 2011, and John Assurance Division. Perth as a Director, has over 30 years Brazzale will take over as Managing experience in Australia and overseas. Mark Partner of Pitcher Partners Melbourne. Pitcher Partners Perth brings with him fellow Director Sharon John is currently the Partner in Charge of announces merger Leong and a team of other professional the Tax Consulting Group. Don Rankin will and support staff. Pitcher Partners Perth has merged with remain as Chairman of the Pitcher the Monash Group, which specialises in Contact is printed on paper Certified Carbon Neutral. With 55% recycled fibre it is FSC Mixed Source Certified, sourced from sustainable plantation wood, Elemental Chlorine Free and manufactured by an ISO 14001 certified mill. Tax Diary – July, August & September 2011 For comments on this edition or if you wish to be removed from the Contact mailing list please email us at 14 July 2011 28 July 2011 21 August 2011 PAYG Payment Summaries to be provided Lodgement and payment of fourth quarter Lodgement and payment of July monthly to employees, company directors and office superannuation guarantee contributions. BAS/IAS. holders. Lodgement and payment of the third quarter 21 September 2011 21 July 2011 BAS/IAS. Lodgement and payment of August monthly Lodgement and payment of June monthly BAS/IAS. 14 August 2011 BAS/IAS. Lodgement of PAYG Withholding Payment Lodgement and payment of fourth quarter Summary – Annual Report. PAYG instalment activity statement for head companies of tax consolidated groups.Melbourne AdelaideJohn Brazzale, Managing Partner Telephone +61 3 8610 5000 Tom Verco, Principal Telephone +61 8 8179 2800Level 19, 15 William Street Facsimile +61 3 8610 5999 160 Greenhill Road Facsimile +61 8 8179 2885Melbourne VIC 3000 Parkside SA 5063 BrisbaneDavid Young, Managing Partner Telephone +61 2 9221 2099 Nigel Fischer, Managing Partner Telephone +61 7 3220 0355Level 22, MLC Centre, 19 Martin Place Facsimile +61 2 9223 1762 Johnston Rorke Facsimile +61 7 3221 7779Sydney NSW 2000 Level 30, Central Plaza 1 345 Queen StreetPerth Brisbane QLD 4000Bryan Hughes, Managing Partner Telephone +61 8 9322 2022Level 1, 914 Hay Street Facsimile +61 8 9322 1262Perth WA 6000 The material contained in this publication is general commentary only for distribution to clients of Pitcher Partners. None of the material is, or should be regarded as advice. Accordingly, no person rely on any of the contents of this publication without first obtaining specific advice from one of the Partners of Pitcher Partners. Pitcher Partners, its Principals & agents accept no responsibility to anyPitcher Partners, including Johnston Rorke, is an association of independent firms. person who acts or relies in any way on any of the material without first obtaining such specific advice.Liability limited by a scheme approved under Professional Standards Legislation. © Pitcher Partners 2011 PrintPost Approved PP381827/0043 PP3577