by Katrina Brown | Apr 8, 2016 | Commercial Law, Conveyancing, Credit Management, Credit Management Advice, Property Law, Tax Advisory
The release of PCG 2016/5 comes as no surprise, which follows on the back of the Australian Taxation Office (ATO) publications ATO ID 2015/27 and ATO ID 2015/28, which set the tone for related party Limited Recourse Borrowing Arrangements (LRBAs). The ATO’s 2015 position clarified that nil interest rates and/or interest rate terms being other than “commercial” in nature, constituted “non-arms’ length income” within the meaning of subsection 295.550(1) of the Income Tax Assessment Act 1997 (ITAA97).
PCG 2016/5 sails past interest rates, and now gives the ATO’s position on the entirety of related party LRBAs, including requirements for principal and interest monthly payments, security, terms of lending and standards for setting fixed and variable interest rates.
IS ANYONE REALLY SURPRISED BY PCG 2016/5?
Given the overriding “sole purpose test” at section 62 of the Superannuation Industry (Supervision) Act 1993 (SISA) – what would lead anyone to think a related party LRBA could be made on other than an “arms’ length” basis, with a commercial standard of reference required? Let’s think this through – we are limited in acquiring assets from members and “related parties” of members by section 66 of the SISA, we are prohibited from providing financial assistance to members and relatives of members by section 65 of the SISA and we are required to deal with investments at an “arms’ length” in accordance with section 109 of the SISA. So, does it come as any real surprise that, if a member or a related party of the member is going to lend money to the self-managed superannuation fund (SMSF), it has to be on commercial terms?
It scares me when Trustees lose sight of the overriding black cloud of Part IVA of the ITAA97, and forget that the ATO has the benefit of hindsight in assessing anti-avoidance schemes. Looking beyond Trustees, those of us advising Trustees must also be alert to our civil, and possible criminal, exposure under SISA, including but not limited to section 55 of the SISA, which puts us, as advisors, on the line to pay losses or damages suffered by any “person” (not limited to members) as a consequence of another “person” (not limited to trustees) involved in a contravention of a SISA covenant. Remembering the Courts and Financial Ombudsman Service quite often favour the consumer, we need only look to section 52 of the SISA to appreciate the broad liability stacked on our shoulders when giving advice to SMSF Trustees of any nature which is other than, on its face, based on all parties acting on commercial arms’ length terms.
Let’s look, therefore, at PCG 2016/5. Whilst the ATO provides us with peace of mind as to its interpretation of “arms’ length terms” for purposes of related party LRBAs in the Safe Harbour provisions, the ATO recognises at paragraph 4 of PCG 2016/5 that other arrangements may nonetheless be based on arms’ length terms.
Safe Harbour 1: The LRBA and real property (commercial or residential)
| Interest Rate |
Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors. Applicable rates:
– For the 2015-16 year, the rate is 5.75%[1]
– For the 2016 17 and later years, the rate published for May (the rate for the month of May immediately prior to the start of the relevant financial year) |
| Fixed / variable |
Interest rate may be variable or fixed
– Variable – uses the applicable rate (as set out above) for each year of the LBRA
– Fixed – trustees may choose to fix the rate at the commencement of the arrangement for a specified period, up to a maximum of 5 years.
The fixed rate is the rate published for May (the rate for the May before the relevant financial year).
The 2015-16 rate of 5.75% may be used for LRBAs in existence on publication of these guidelines, if the total period for which the interest rate is fixed does not exceed 5 years (see ‘Term of the loan’ below) |
| Term of the loan |
Variable interest rate loan (original) – 15 year maximum loan term (for both residential and commercial)
Variable interest rate loan (re-financing) – maximum loan term is 15 years less the duration(s) of any previous loan(s) relating to the asset (for both residential and commercial)
Fixed interest rate loan – a new LRBA commencing after publication of these guidelines may involve a loan with a fixed interest rate set at the beginning of the arrangement. The rate may be fixed for a maximum period of 5 years and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 15 years.
For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 5.75% as their fixed rate, provided that the total fixed-rate period does not exceed 5 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan cannot exceed 15 years. |
| Loan to Market Value Ratio (LVR) |
Maximum 70% LVR for both commercial and residential property
If more than one loan is taken out to acquire (or refinance) the asset, the total amount of all those loans must not exceed 70% LVR.
The market value of the asset is to be established when the loan (original or re-financing) is entered into.
For an LRBA in existence on publication of these guidelines, the trustees may use the market value of the asset at 1 July 2015. |
| Security |
A registered mortgage over the property is required |
| Personal guarantee |
Not required |
| Nature and frequency of repayments |
Each repayment is of both principal and interest
Repayments are monthly |
| Loan agreement |
A written and executed loan agreement is required |
Safe Harbour 2: The LRBA and a collection of stock exchange listed shares or units
| Interest Rate |
Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors plus 2%. Applicable rates:
– For the 2015-16 year, the interest rate is 5.75% + 2% = 7.75%[2]
– For the 2016-17 and later years, the rate published for May plus 2% (the rate for the May before the relevant financial year) |
| Fixed / variable |
Interest rate may be variable or fixed – Variable – uses the applicable rate (as set out above) for each year of the LBRA
– Fixed – trustees may choose to fix the rate at the commencement of the arrangement for a specified period, up to a maximum of 3 years (see ‘Term of the loan’ below). The fixed rate is the rate for May plus 2% (the rate for the May before the relevant financial year)
The 2015-16 rate of 7.75% may be used for LRBAs in existence on publication of these guidelines, if the total period for which the interest rate is fixed does not exceed 3 years (see ‘Term of the loan’ below) |
| Term of the loan |
Variable interest rate loan (original) – 7 year maximum loan term
Variable interest rate loan (re-financing) – maximum loan term is 7 years less the duration(s) of any previous loan(s) relating to the collection of assets
Fixed interest rate loan – a new LRBA commencing after publication of these guidelines may involve a loan that has a fixed interest rate set at the beginning of the arrangement. The rate may be fixed up to for a maximum of 3 years, and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 7 years.
For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 7.75% as their fixed rate, provided that the total period of the fixed rate does not exceed 3 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan cannot exceed 7 years. |
| LVR |
Maximum 50% LVR
If more than one loan is taken out to acquire (or refinance) the collection of assets, the total amount of all those loans must not exceed 50% LVR.
The market value of the collection of assets is to be established when the loan (original or re-financing) is entered into.
For an LRBA in existence on publication of these guidelines, the trustees may use the market value of the asset at 1 July 2015. |
| Security |
A registered charge/mortgage or similar security (that provides security for loans for such assets) |
| Personal guarantee |
Not required |
| Nature and frequency of repayments |
Each repayment is of both principal and interest
Repayments are monthly |
| Loan agreement |
A written and executed loan agreement is required |
So, what happens if you can’t fit your arrangements into the Safe Harbours? You aren’t sunk just yet.
LET’S CONSIDER THE LOAN TERMS…
If your client borrowed from a commercial lender to on-lend to the SMSF, what does the commercial lender’s terms to the client look like?
To keep this simple, let’s create a reference:
Client Pty Ltd, as Trustee for Client Superfund, borrows from John Smith, the sole director of Client Pty Ltd and sole member of Client Superfund, to acquire Greenacre for $500,000. John borrowed $530,000 from Awesome Bank, secured against his home, on a 30 year interest free term, with the first 5 years being interest free only, with principal and interest from year 6. John gave a personal guarantee, and also offered up security against his personal share portfolio. The LVR was 80% of the combined value of John’s home and his share portfolio. The interest on the loan is variable, based on Awesome Bank’s published rates. Awesome Bank has their own internal assessment processes for determining variable rates. John’s advisor told him that he could on-lend at the Awesome Bank’s rate for the full acquisition value, on matching loan terms. John’s advisor also made sure John registered a mortgage over the property. What happens now?
Can John rely on Awesome Bank’s terms to escape the Safe Harbours? Not entirely.
Awesome Bank has recourse against John’s income as well, as the security and later acquired assets of John (through the personal guarantee). John only has recourse against the real property owned by the SMSF, and nothing else. Accordingly, given the additional risk, one would expect a commercial lender in John’s position would have either required higher interest rates, shorter terms or a varied LVR. However, the terms of Awesome Bank’s lending to John are nonetheless material; the first approach for John is to seek out Awesome Bank’s LRBA terms. If Awesome Bank’s LRBA terms at the time of acquisition were more lenient than the Safe Harbour provisions, John has a commercial “arms’ length” reference to hold to support a variation from the Safe Harbour. However, to the extent his LRBA terms are more favourable than the Awesome Bank’s LRBA terms, John would need to vary his own LRBA to match (even if the variation was less than the Safe Harbour provisions).
What if Awesome Bank did not offer LRBA lending at the time of acquisition? Perhaps John could then look to Community Bank instead. If Community Bank has lending terms which were more lenient than the Safe Harbour provisions, then John would have a commercial “arms’ length” reference to support a variation.
To the extent John tries to find “arms’ length” terms different to the Safe Harbour provisions, he is best to ensure the comparative is truly “commercial”. John should not look to his best mate Bob, who is a third party lender, to provide the “commercial” comparative – unless Bob is a recognised credit provider who has engaged in LRBA arrangements as a regular component of his business (which business commenced well before the publication of ATO ID 2015/27 and ATO ID 2015/28).
LET’S CONSIDER SOME STRATEGIES…
Let’s say that John has to figure out how to raise the shortfall in the LVR. What are some options?
- John could make additional concessional and non-concessional contributions (subject to the contribution caps and restrictions) by allowing part of the loan to be paid down (do not forget the paperwork and required transactions!);
- John could invite new members to the fund and their rollovers and/or contributions could be used to reduce the loan (make sure the investment strategy is considered for each);
- John could sell the asset (which could be difficult by 30 June – but it is an option); and/or
- John could re-finance through Awesome Bank, and give Awesome Bank a personal guarantee (hopefully Awesome Bank values his business).
What if John is in pension phase, and he has to fund increased repayments on the LRBA from the SMSF? John could look to any of the above options, and he could also:
- Commute his pension and roll back to growth phase;
- Commute his pension, and commence a part pension with the balance of his member interest in growth phase; and/or
- Vary the terms of his pension to reduce his payments to the statutory minimums.
PCG 2016/5 is not the end of the world, but it is a wake-up call to all advisors in the SMSF space to favour conservatism in strategies. There may be litigation which flows out of PCG 2016/5, given some advisors made exceedingly ambitious strategic recommendations to clients who will not be able to float adequate remedial action by 30 June 2016. The ATO has given advisors a bit of leeway and, with a bit of creative manoeuvring, many SMSFs can sail to the Safe Harbours with minimal frustration (consider the above options, if the client could fund to lend – the client may likely remediate by treating funds as contributions).
If you would like to discuss PCG 2016/5 or what the ATO Safe Harbours mean for you or your clients, please contact Katrina Brown on 07 5574 3560 or via email.
by Katrina Brown | Mar 8, 2016 | Business Strategies, Business Structuring, Commercial Agreements, Commercial Law, Testimony Trusts
A complying self-managed superannuation fund (SMSF) is a trust at law, which is subject to the requirements and restrictions of the Superannuation Industry (Supervision) Act (SISA), Superannuation Industry (Supervision) Regulations (SISR), Income Tax Act Assessment Act 1997 (ITAA97), Income Tax Act Assessment Act 1936 (ITAA36), and such further relevant Commonwealth and State based legislation applicable thereto.
Whilst industry practice favours the establishment of a SMSF by “deed”, there is no obligation under Commonwealth or State legislation that a SMSF conform with the obligations of the common law characteristics of a deed. Section 10(1) of the SISA defines a deed to include “an instrument having the effect of a deed”.
Whilst the term “instrument” is not defined under the SISA, nor defined under the Acts Interpretation Act 1901 (Cth), the reference to “governing rules” and “deed” are used interchangeably, with the term “governing rules” defined at Section 10(1) of the SISA to mean, in respect to a “fund, scheme or trust”…“(a) any rules contained in a trust instrument, other document or legislation, or a combination of them, or (b) any unwritten rules, governing the establishment or operation of the fund, scheme or trust”.
Accordingly, setting aside the debate as to whether electronic transactions and digital signatures are allowed in respect to the settlement of a “deed” – a SMSF may be settled by any instrument which has the effect of a deed.
What, therefore, is an “instrument which has the effect of a deed”?
Returning to the nature of a SMSF, we cannot overlook the simplicity of what constitutes a trust. A trust has three necessary elements: the trustee, the trust property and a beneficiary. A trustee can also be the beneficiary, provided the trustee is not the only one (consider Section 17A of the SISA – with its restriction that a single member cannot act as a sole trustee). Whilst a trust may be settled by deed, there is no obligation at common law or statutory law to settle a trust by deed. In fact, a trust can be settled by common intention of parties, and to this end – the definition of “governing rules” at Section 10(1) allows for “unwritten rules.”
Whilst the writer does not suggest a SMSF may be settled on a resulting or implied trust, the writer does not agree with the proposition that the formalities of a deed are necessary for the establishment or maintenance of a “complying” SMSF under the SISA. To the contrary, the SISA accommodates settlement by any instrument which is a deed, or has the effect of a deed. The focus throughout the SISA is on the governing rules, to which there is no formality of implementation.
In particular, Section 8 of the Electronic Transactions Act 1999 (Cth) (ETAC) stipulates that a transaction is not invalid under the laws of the Commonwealth merely because it takes place wholly or partly by means of one or more electronic communications. A “transaction” is defined at Part 1, Section 5 of the ETAC to be “any transaction in the nature of a contract, agreement, or other arrangement”, “any statement, declaration, demand, notice or request” and “any transaction of a non-commercial nature”. Part 2, Section 10 of the ETAC provides that the signature of a person may be given electronically, provided consent is given to the execution and method. Part 2A of the ETAC allows for the application of Parts 1 and 2 of the ETAC to contracts and transactions in the nature of a contract. To the extent an “instrument having the effect of a deed” is in the nature of a contract, Part 2A makes allowances for electronic transactions and digital signatures in respect to such instruments, notwithstanding the exclusions at Item 142 of Schedule 1 of the Electronic Transactions Regulations 2000 (Cth). To read the exclusions at Item 142 to broadly prohibit the applications of the ETAC to the SISA for such purposes is, the writer suggests, against legislative intent.
EXECUTION BY A CORPORATION
Section 127 of the Corporations Act 2001 (CA) does not limit the means by which a corporation can execute a deed. The Electronic Transactions Act Regulations 2000 (Cth) (ETR) exclude the application of the ETAC from applying in respect to “company laws” – but the inclusive nature of Section 127 of the CA does not prevent the company from resolving a means of executing a deed by way of electronic signature.
Whilst parties referring to a deed executed by a corporation, other than a prescribed manner at Section 127 of the CA, may require additional evidence of the corporation’s execution of the deed – the provision of the evidence does not invalidate the execution made by the corporation in accordance with its own mechanisms.
EXECUTION BY AN INDIVIDUAL
The following States either allow for, or are likely to be deemed to allow for, the execution of a deed by electronic means by an individual:
The following States do not allow deeds to be executed by electronic means by an individual, and it is therefore in these States that consideration must be given to what constitutes the execution of an “instrument having the effect of a deed”:
Therefore, returning to the question of what is an “instrument having the effect of a deed”? The formalities of the common law execution of a deed in respect to the signing and delivery on “parchment, vellum or paper” are not obligated by the SISA. Notwithstanding, four of the Australian States allow deeds to be issued electronically. It follows that an “instrument having the effect of a deed” is an instrument, transacted with consent of the parties, by way of electronic mechanisms suitably qualified in accordance with the relevant Electronic Transactions Acts of the Commonwealth and States.
The Queensland Court of Appeal, in 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245, considered the question of what constitutes a deed, and in doing so considered 12 Halsbury’s Laws of England, 4th ed, para 1301, which defines a deed as “an instrument” which:
“…must express that the person or corporation so named makes, confirms, concurs in or consents to some assurance (otherwise than by way of testamentary disposition) of some interest in property or of some legal or equitable right, title, or claim, or undertakes or enters into some obligation, duty, or agreement enforceable at law or in equity, or does or concurs in some other act affecting the legal relations or positions of a party to the instrument or of some other people or corporation.”
The term “instrument” is not defined under the SISA or the Acts Interpretation Act 1901 (Cth) (AIA); however the Acts Interpretation Act 1954 (QLD) (AIA), Schedule 1 defines a “document” as “any paper or other material on which there is writing…and any disc, tape or other article or any material from which sounds, images, writings or messages are capable of being produced or reproduced (with or without the aid of the device)”. An “instrument” is defined in the AIA as any “document.”
Section 44 of the Property Law Act 1974 (QLD) (PLA) entitled “Description and form of deeds”, does not require a deed to be on parchment, vellum or paper. Notwithstanding, Part 2 of the Electronic Transactions Act (QLD) (ETAQ) allows for an electronic instrument to be effective, provided the execution standards are satisfied and the transaction is not excluded.
Specifically, an electronic instrument is taken to be effective by Sections 16 and 17, of Part 2 of ETAQ, where: a) the electronic form of the document is provided by a reliable mechanism which maintains the integrity of the information contained in the document, b) it is reasonable to expect the information contained in the electronic form will be readily accessible for subsequent reference and c) the parties to the communication consent to the provision of an electronic form. Part 4 of the ETAQ reads Part 2, to apply to any “transaction” in the nature of a contract.
Therefore, deducing from 400 George Street, “an instrument which has the effect of a deed” is an instrument in which parties thereto express a consent, undertaking, obligation, duty or agreement which affects an interest in property, or some legal or equitable right, title or claim. The formalities of execution are not necessarily dispositive, provided the intention of the parties is demonstrated.
Is an “instrument having the effect of a deed” not, therefore, for purposes of establishing a complying SMSF, in the “nature of a contract”, such that Part 2 of the ETAQ allows for the execution of SMSF deeds (which are, notwithstanding the name, an “instrument having the effect of a deed”)?
There is no case law to answer this question; however, reading the statutory provisions above cited as inclusive, rather than exclusive, it would follow, the writer suggests, that a SMSF may be validly settled by a quasi-deed (for example, a self-managed superannuation fund deed of establishment, settled without compliance to the PLA and/or common law execution standards), electronically by not only corporations – but individual trustees. Electronic transactions are not foreign to the SISA (see Section 11D) or CA (see Chapter 2P), and the modern business practice of electronic dealings would reasonably lead to a conclusion that it is unlikely that a SMSF would be found to be non-complying merely because a deed was executed electronically and by way of digital signatures of company officers and/or individuals and their respective witnesses – as a SMSF can be established by an “instrument having the effect of a deed” (Section 10(1) of the SISA).
It may be that third parties may require a company to execute more traditionally for their internal requirements; however, this requirement does not negate the effect of the “instrument having the effect of a deed,” given the consent and intentions of the parties to be bound therein. Further, given the inflexibility of banks and other relevant institutions, it is best practice to adopt a means of execution by individuals likely to be universally accepted; however, given a SMSF does not have to be settled in common law deed form, there is no express prohibition to adopting digital signatures for the execution of a deed (notwithstanding in absence of the formality, it would be “an instrument having the effect of a deed) of the individual and his/her witness.
by Katrina Brown | Aug 25, 2015 | Tax Advisory, Tax Advisory
“SMSF BLUEPRINT” LAUNCH – A WELCOME RESOURCE FOR SUPERANNUATION TRUSTEE PLANNING AND STRATEGY
During the last year, it has been my pleasure to assist Julie Dolan, of SMSF Blueprint, with ideas and concepts desperately needed by our clients who utilise self-managed superannuation funds (SMSFs) in their investment portfolios.I am pleased to see the launch of SMSF Blueprint in the industry, and have offered to share the platform with our clients to assist in the dissemination of what we believe to be a sound tool for our clients. The firm receives no remuneration whatsoever, but I believe strongly in the platform and its usefulness to our clients – so wanted to share this resource with you.
Whilst Julie is a consultant with the Firm, I find her educational platform to be an astounding educational benefit and compliment to the offering of our team generally.
I, along with Julie, have advised many trustees across Australia this year in respect to SMSF compliance, and this educational platform was established by Julie and her partners to address what appears to be an industry wide confusion as to trustee obligations and strategies. I have been consulted on a number of non-compliant SMSFs in the last year, and I am concerned about the expanding enforcement powers of the ATO generally (not to suggest that I disagree with the enforcement process, and its purpose in the marketplace).
Breaches of the rules and regulations can be a very costly exercise – as demonstrated by a recent case in which a 62 year old trustee was handed down an 80 hour community service order after failing to lodge multiple years’ tax returns.
Along with its existing compliance powers, the ATO introduced its new penalty regime effective from 1 July 2014. Penalties of up to $10,200 per trustee for certain breaches of the rules and regulations can be handed down by the ATO. These penalties are payable by the trustee and cannot be reimbursed from the fund.
I am a subscriber to SMSF Blueprint, and find the content to be brilliant and easy to use. I ca use it with clients for demonstration purposes, and general education. However, it is a platform that you can subscribe to for ongoing compliance and training purposes. Plus, Julie and her team offer strategic ideas in respect to planning ideas. The platform changes constantly, with new content on legislation and forward planning ideas.
I am recommending the platform for all of my clients, and making it a mandatory subscription for my new SMSF clients because the risks of not complying are too great. It is such an easy and convenient platform, you can watch the videos anytime and anywhere. It is like having a financial advisor at your fingertips – and certainly gives you the fuel for informed discussions with your financial advisor and accountant. I personally think the platform saves clients’ money, because they can do research and investigate ideas on their own – and then go to the specialists for advice on the suitability and implementation process on those ideas that they find worthwhile considering.
Of course, I am always here to help you in your SMSF planning – but I believe clients should be informed, and the SMSF Blueprint platform is a minimal cost for a vast resource to SMSF trustees.
If you would like to speak to Julie, please feel free to give her a call on 040 445 5001, or email her. Definitely have a look at SMSF Blueprint, if you are considering or managing a SMSF – I think you will be quite pleased at the platform.
For your convenience, you can click here to view the link that I use to link through to SMSF Blueprint.
Katrina Brown BA ATIA SSA TEP
Senior Lawyer
by Katrina Brown | Aug 14, 2014 | Commercial Law
It is commonly misunderstood that community organisations and/or non-profits are not encumbered by duties burdening the commercial sector. To an extent, that is true. However, when the question relates to the collection and use of personal information – even the community group is subject to restraints. This article is intended to assist community organisations and non-profits in the basics of Privacy Obligations under the Privacy Act 1988 (Privacy Act), and Privacy Regulations 2013.
Long gone are the days wherein organisational databases could be passed around between members as a benefit of membership. Accordingly, each community and/or non-profit organisation (and each of its members) is obligated to apply the Australian Privacy Principles. We have summarised the relevant Privacy Principles applicable:
- Consideration of Personal Information Privacy. This Principle obligates an organisation to provide an open and transparent privacy system in relation to the holding of personal information, including procedures to ensure the sanctity of the information. To achieve this end, the organisation must develop a Privacy Policy which is available for its members (and other individuals to whom information is collected) that explains the kinds of information collected and held, the manner in which the information is collected, the purpose for which the information is collected, how a member (including executive member) can access the information, how an individual can complain about unauthorised or inappropriate access (such as the private use of personal information by an executive or standard member), whether the information is available for overseas dispersal, and to which countries this access would be granted.
- Anonymity and Pseudonymity. The organisation must also offer members (and individuals to whom personal information is held) the right to be identified by pseudonym, or the option of not identifying themselves generally in such records.
- Collection of Solicited Personal Information. The organisation must also ensure private information is not maintained unless it is reasonably necessary for the objectives of the organisation. Generally, in community organisations, private information relevant to be held would include names, addresses, perhaps employment and/or sector details. However, it might not be relevant to maintain a database of family details, extended business matters, financial information, and alike.
- Dealing with Unsolicited Information. If an organisation obtains personal information which is not relevant or necessary to its objectives or operations, the information must be deleted or destroyed as soon as possible. In other words, unless an individual gives information to the organisation with the intent that it be used and/or held by the organisation – the information should not held. Merely granting access to personal information, does not give an organisation the right to deal with or hold such information.
- Notification of Collection of Personal Information. As soon as reasonably possible, an organisation must take steps to instruct individuals of the manner and type of information held by organisation, including the purpose for which the information is collected.
- Use and Disclosure of Personal Information. An organisation may not distribute, nor may any member (including an executive member) use the personal information held by the organisation for any private. We cannot be explicit enough in the obligations of the organisation to ensure that its members do not obtain access of the membership lists, attendance rolls, or other personal information for their own personal gain or motivations (unless approved by the individuals to whom the information is held).
- Direct Marketing. An organisation may not use personal information for direct marketing, except dissemination of information generally about the matters to be expected generally (i.e. newsletter regarding upcoming events, versus a member’s personal business marketing). This Principle furthers, and builds on, Principle 6 in that equally no member can use a membership list, supplier list and/or personal information data held by the organisation to direct market themselves, their employer, their business, etc.
A violation of the Privacy Act is not to be taken lightly. Organisations can suffer significant pecuniary fines, and individuals can suffer criminal charges.
If your organisation has not already done so, the organisation should formulate a Privacy Policy, and ensure that a copy of the Privacy Policy is attached or incorporated in membership applications (which provides effective notice on acquisition of personal information from an individual). To the extent personal information is collected in another manner, then ensure that the Privacy Policy is somehow made available. Another option which is beneficial (but cannot satisfy organisation’s obligations in isolation) would be a posting of the Policy on organisation’s website and/or printing copies of the Policy for membership meetings.
We strongly urge your organisation to require any member (including executive member) accessing personal information databases to sign a letter acknowledging they understand the Privacy Principles, and agree to use the information strictly for the purposes of the organisation (and as reasonably expected by the individuals providing personal information for this end).
Should you have any questions about Privacy Obligations, please do not hesitate to contact Katrina Brown by emailing her at Katrina@nautiluslaw.com.au.
Nautilus Law Group supports community organisations and is happy to give assistance to further the objectives of organisations assisting the community.
Article submitted by Katrina Brown, Senior Lawyer, Nautilus Law Group.
by Katrina Brown | Aug 14, 2014 | Commercial Law, Nautilus Law, Tax Advisory
It comes as no surprise that the Tax Office has delivered its TR 2014/5 finding that distributions of property or money from a company as a consequence of Family Court Orders constitute assessable income. TR 2014/5 does, however, remind practitioners and parties that Tax Contingency Reports must be considered.
Whilst there exists significant roll over reliefs (essentially deferral of capital gains) and stamping exemptions arising as a consequence of Family Law Orders, the question is now answered definitively by the Tax Office that transfers of property or money, from a company structure in satisfaction of a claim to a family law property pool, are taxable.
It has been argued previously by a minority of tax practitioners that the transfers obligated as a consequence of Family Court Orders (section 79 of the Family Law Act 1975) constitute a “discharge of an obligation” by the company. This position, however, was at odds with section 44 of the Income Tax Assessment Act 1936 (ITAA 1936) which otherwise defined a dividend (in other words, assessable income) to be a payment out of profits of a company to a shareholder (or associate of the shareholder) and section 207 of the Income Tax Assessment Act 1997 (ITAA 1997) which deals with the availability of tax offsets (franking credits) in relation to dividends to shareholders (or associates). Certainly, within the context of Division 7A of ITAA 1936, the position has been that a payment, use or guarantee of company assets constitutes a deemed dividend.
In short, the Tax Office has its hand up whenever company assets are distributed or used for other than generating assessable income to the company. The upside of utilising the company as an operating entity is to quarantine (and recycle) profits at a 30% tax rate, until such time as determined reasonable to distribute the profits to shareholders (and/or associates). As confirmed by TR 2014/5 – the breakdown of a relationship does not change this position (reference includes an associate of a shareholder). Therefore, it is critical for parties to consider not only the equity of the family pool division – but also the tax consequences (and indeed the cash flow funding) of the proposed division.
A common situation arises wherein a husband and wife have conducted their family business through a company, and have retained profits. For this example, let us assume the couple have retained profits of $1,000,000 in the company, with cash in bank at $1,500,000. We shall further assume the company has a net market value (including assets and goodwill) of $5,000,000. Let us also assume the couple hold real estate in a family trust controlled by the couple that is worth $1,500,000. Finally, we assume the couple has a primary residence with a net value of $500,000.
Setting aside the potential for small business concessions and legal tax planning options, if the parties conclude that the wife should receive control of the family trust (valued at $1,500,000) and the family home (valued at $500,000), and a cash payment of $1,000,000 from the company and an asset of the company valued at $500,000 – this is not going to result in a 50/50 after tax outcome to the wife.
In fact, the $1,500,000 benefit from the company will attract tax at the wife’s marginal tax rate (in the ballpark of $650,000!). Whilst the company may be able to frank the payment to the wife, she will nonetheless bear a tax consequence of 16.5% of the franked dividend (in this case it could be in excess of $320,000!).
Therefore, it goes without saying that TR 2014/5 forces tax to be a significant factor in family law negotiations.
Katrina Brown, Senior Lawyer with Nautilus Law Group, authors Tax Contingency Reports for parties seeking definition of the possible tax contingencies factorable in property settlements. Consideration given in the Reports includes availability of franking banks (available for offset against tax payable on assessable income in the hands of a shareholder of associate), capital gains tax roll over reliefs and small business concessions, and funding options for legal entities operated in a family group. Further, it is often the case that non-family related business proprietors are associated with legal entities which are subject to family law proceedings (or threatened to be compromised as a consequence of such proceedings). The Reports, therefore, also have regard to best case outcomes for the non-family business proprietors.
If you are interested in speaking with Katrina Brown regarding Tax Contingency Reports, please feel free to arrange a meeting by our offices on (07) 5574 3560.
We thank you for considering Nautilus Law Group.
by Katrina Brown | Oct 14, 2013 | Commercial Law, Debt Recovery
So you have an outstanding debt and you would like to collect it?
Your letters to the debtor have not brought about payment. You are at a loss as to what to do next – should you refer your debt to a collection agency? Should you seek assistance from a lawyer?
This article will attempt to dispel some common myths about mercantile agencies, debt collection agencies and lawyers, and will help you to decide the best step forward for your business and its debt recovery strategies.
Myth One: Lawyers are only for when you want to sue someone!
Many people believe that initial debt recovery steps must be performed either in-house, or through a debt collection agency, and that lawyers must only become involved where it becomes time to take a debtor to court.
While it is true that lawyers are often involved in debt recovery litigation, Nautilus Law Group believes that it is cost effective and efficient for our clients that we provide a “one-stop” debt recovery service that allows a client the best opportunity to recover their debt amount.
As such, Nautilus Law Group has the resources to provide you with initial collection services charged on a per item basis. We can work closely with you to formulate a strategy for recovery of debts which is suited to the particular circumstances of your business, which may include demand letters, telephone demands or arranging field calls.
Myth Two: I can’t afford a lawyer!
Traditional debt collection agencies will often charge a collection fee based on a commission, or a percentage of the recovered debt. Nautilus Law Group believes that your costs associated with recovery of the debt should relate to the amount of work performed by us, and not to the size of your debt!
Nautilus Law Group is a small business, and understands the importance of being able to plan for expenses. Nautilus Law Group does not charge a collection fee or percentage of amount collect as you would encounter if you took your debt to a traditional collection agency. We work with you to provide a fixed fee schedule for all initial collection services so that you always know what the cost will be to your business.
We provide our clients with a “Strategic Plan” for their debt recovery, which outlines all fixed-fee costs associated with the litigation process. To the extent that we cannot provide a fixed fee estimate (such as on a file which is defended by the debtor), we will always aim to provide you with an accurate estimate of the costs associated with the next step in the process.
If you have exhausted traditional debt recovery options (or if you prefer the aggressive approach) and want to proceed to litigation, we are here to assist you. The Court applications we recommend to our clients are governed by the Uniform Civil Procedure Rules 1999. In the legislation is a scale of costs that the Court considers reasonable professional fees for the cost of issuing items such the Claim and Statement of Claim, Judgment and Enforcement proceedings. These Court-approved amounts are the amounts that Nautilus Law Group charges its Clients and the amounts we seek to recover from the debtor.
Myth Three: Legal fees are not recoverable – I may as well just write off my debt!
As discussed above, Nautilus Law Group charges scale fees to our clients where possible – which are the fees already deemed reasonable by the Court. This means that in the event that we were to proceed to Default Judgment or Summary Judgement on a matter, we are more likely to recover the majority, if not all, of your costs associated with the litigation.
Filing fees to the Court and a portion of the service fees are also recoverable from the debtor. Interest, whether it is an amount you are entitled under your contract or an amount provided for under legislation, will be added to your debt amount and will continue to accrue until full payment is received.
Does that mean that this won’t cost me anything? No. Unfortunately, some costs will be incurred for the day to day management of the file. Not all matters proceed directly to Judgment. When a Defence is received on a matter, time must be spent responding to the Defence and preparing for Trial if necessary. Defended matters incur costs which are not fully recoverable and are not provided for by the Court in the scale fees. Nautilus Law Group strives to provide the most effective advice while being conscious of costs.
Interest that is recoverable under contract or by statutory right is intended to be ‘compensatory’. This means that interest is imposed to assist in compensation for any out-of-pocket expenses that are incurred in attempting to resolve the matter which are not otherwise recoverable if the file moves to Judgment.
At Nautilus we strive to be transparent in our costing and will provide to our clients our Strategic Plan which outlines the costs of our services for every step of a debt recovery matter. We provide our client’s options in pursuing the debt and always consider the amount of the debt, the likelihood of the debt being recovered and costs of pursuing the debt. We believe in providing commercial strategies for your business.
If you would like to enquire about collecting your outstanding debt, we welcome you to contact our offices on (07) 5574 3560 or email info@nautiluslaw.com.au. We thank you for considering Nautilus Law Group.
Submitted by: Nautilus Law Group
