Under the previous law, company directors could be liable to penalties where the company withheld amounts from payments under the PAYG provisions, including salary and wage payments to employees, but failed to remit the amounts to the Australian Taxation Office. The Tax Office could issue a “director’s penalty notice” for a penalty equal to the amount withheld but not remitted. However, no action could be taken to recover the penalty for 21 days after the notice was given and a director could extinguish their liability if, before the end of that period, the director caused one of the following to happen:

• the company remitting the withheld amount to the Tax Office;
• the company entering voluntary administration; or
• a liquidator being appointed to the company.

Defences are available to directors who can show that they were not involved in the management of the company at the relevant time due to illness or that they took all reasonable steps to ensure compliance.

These penalty provisions had been introduced to encourage corporate compliance with tax obligations as part of reforms that saw the Tax Officer lose its priority against other creditors in a company’s winding-up. Although they are aimed at deterring phoenix activity, liability does not depend on the parties having engaged in such activity.
As part of the 2011-12 Budget, the Government announced changes to expand and strengthen these arrangements. In particular, the Government expressed concern that the existing provisions allowed directors to escape liability by placing the company into administration or liquidation as, where this happens, the amounts were also not likely to be recovered from the company. After exposure drafts and community consultation, the Tax Laws Amendment (2012 Measures No 2) Act 2012 passed into law on 29 June 2012.

The new law makes a number of important changes to the personal liabilities of directors, including:

Making directors personally liable to pay penalties for unpaid Superannuation Guarantee Charge, as well as PAYG amounts withheld but not remitted.
Companies which engage substantial numbers of contractors who may be considered employees at common law face a particular risk here. If contractors are subsequently determined to be employees and no superannuation contributions were made for those individuals, directors could become personally liable retrospectively for this failure.

To avoid this, the new law provides a defence if the company treated the SGC law as applying to it in a way that was reasonably arguable and taken reasonable care in applying the SGC law, which should include a determination of individuals are contractors or employees.

No option to place the company into voluntary administration or liquidation
The amendments remove the option of placing the company into voluntary administration or liquidation where three months have elapsed from the time the unpaid SGC should have been paid, or the withheld PAYG amounts remitted to the Tax Office.

This means that directors will remain personally liable for PAYG and SGC debts after the three month period unless the company itself is able to pay or a defence is otherwise available.

Additional tax liabilities for directors and their associates for PAYG non-compliance
If a director is not liable to a director’s penalty for PAYG amounts withheld but not remitted but is entitled to PAYG credits against their own tax liability, the director could become liable to pay a new PAYG withholding non-compliance tax. The amount of the tax will be the lesser of the PAYG credits available to the director and the company’s PAYG withholding liability for the relevant income year.

The effect of this is that directors will lose the benefit of their own PAYG credits, and therefore pay higher amounts of tax personally. There are defences to payment of the tax available which are similar to those availability to directors penalties.

Significantly, family members or other associates of directors can also become liable to pay the tax, even though they are not themselves directors. This can only arise in certain circumstances, including where the director is not liable to a director’s penalty and:

• the associate knew or ought reasonably to have known that the company failed to remit withheld amounts and the failed to take reasonable steps to ensure that the amounts were remitted, that the Tax Office was notified or that the company was placed in administration or liquidation; or
• the associate was treated “more favourably” than other company employees in relation to PAYG withholding.

The exact scope of these arrangements, and how they will be administered is unclear. However, there is a risk to spouses and other family members of directors of the tax becoming payable even where they were not aware of the relevant circumstances but the Tax Office considers they ought reasonably to have known simply by virtue of being an associate of the director. Further, as the liability only arises if the director does not have a director penalty liability, it is possible that an associate could find themselves liable to PAYG withholding non-compliance tax, even though the relevant director has a defence to the relevant penalty.

The Government had also originally proposed to “automate” the director’s penalty provisions. This would have meant that the Commissioner could take action to recover the penalty from a director, even though the director had not been notified of his or her liability. However, the Government has chosen not to proceed with this change at this stage.

Nevertheless, these amendments mean that directors and their associates should review their companies’ systems for remitting PAYG amounts and paying superannuation contributions and ensure that these are adequate. Additionally, individuals considering accepting directorships should ensure that they conduct appropriate due diligence on these systems before acceptance.

FROM THE ATO WEBSITE

The exception is that, from 30 June 2012, a director penalty will not be remitted if the underlying liability remains unpaid and unreported three months after the due date unless the company pays its liability. That is, in those circumstances, the directors will not be able to avoid liability for a director penalty by placing the company into administration or winding up.

Before Royal Assent (29 June 2012) directors could use PAYG withholding credits (for amounts withheld from payments to them by the company) to offset their individual income tax liability, even when the company had failed to pay some or all of its PAYG withholding liability to the Commissioner.

From 30 June 2012, directors and their associates will, in some instances, be liable to pay the new NCT where their company has a PAYG withholding liability for an income year and the individual is entitled to a credit for amounts withheld by that company during the income year.

When the changes commence

The changes commenced on 30 June 2012, being the day after the changes received Royal Assent.

The details of the application of each of the changes are listed here:

• Amendments to extend the director penalty regime to apply to unpaid superannuation guarantee charge
  • These amendments apply to a company’s superannuation guarantee charge for a quarter if the day by which the company must lodge a superannuation guarantee statement for the quarter occurs on or after 30 June 2012.
• Amendments to the estimates regime
  • An estimate in force just before 30 June 2012 has effect from this date as if it had been made under the new laws.
• Amendments to the director penalty notice and defence requirements
  • these amendments apply to penalties due at or after 30 June 2012, and penalties due before 30 June 2012 to the extent that the penalties are not paid, remitted or discharged before that date.
• Rules particular to new directors
  • The new rules apply to individuals who become directors (and begin to be under an obligation to ensure that the company pays the relevant liability) on or after 30 June 2012.
• Three month non-remission rule
  • The amendments restricting the remission options available to directors after a company liability has been unpaid and unreported for three months apply if the director stops being under an obligation to ensure that the company pays the relevant liability on or after 30 June 2012, for example, if an administrator is appointed to the company or the company begins to be wound up after 30 June 2012.
• PAYG withholding non-compliance tax (NCT)
  • The NCT applies to a director or associate in relation to amounts withheld during the individual’s 2011-12 income year and later income years, if the company is required to pay the amounts to the Commissioner on or after 30 June 2012.

Allow me to guide you through a couple of key areas you want to focus on, whether you are starting out or struggling to climb up to the next rung of the ladder of success.

The very first step to starting or running a business, is to ask yourself a few simple questions; why are you in business? How big is your dream business? Do you see yourself owning a $100 million empire or running a small business from your home? What are you attempting to achieve and is there a time frame?

The point of asking all these questions, is to determine how you are going to start the business with a clear vision of the end in mind. Why is this important? Well, because taking care of a business is very much similar to raising a child. It is easy for a business owner to find their entire life, suddenly over shadowed by the business’ needs within a matter of days, weeks or months. Believe it or not, it is possible for a business owner to end up working around the clock and still not achieve much, unless the proper course of action is employed. In other words, without a clear vision on what the future may hold for you and your business, it is very much possible for you to end up an underpaid employee in your own company.

The idea that I am suggesting, is not to sit down and spend ages developing a 30 page business plan (Then again, you may have to do just that if you are seeking capital from banks or seeking for business partners). What you need to do is to come up with a crystal clear visual of what you are hoping to achieve and the reasons behind the intention. This clear vision is what will make your business different from your competitors .The plan is to make sure that you devise a business plan that allows your company to grow up to be a business model that is not entirely reliant on you.

One of the main benefits of having a comprehensive business plan is to make sure that you are always on the right track. Apart from being a reminder as to why you have decided to start your own business, a properly devised business plan can be used as a representation of your vision to potential team members, investors, banks and buyers. While it doesn’t take long for you to get your business plan on paper, it will definitely take you a long way.

So you are reading this. What if you are one of the 90% of business owners who are kept on a tight leash by their own companies? In other words, what if you are one of those people who have no life outside their office spaces? Fear not! You can still take action and turn things around with a little help from the tools mentioned below.

These tools are ideal for business owners who are planning to maintain focus and to keep themselves ACTION ORIENTED right from the very beginning.

Big One Page Business Plan – This is a  great tool that can be used to  effectively  map out your 1, 3, 5 and 10 year plans and goals for your business. In addition, it will allow you to break down your strategies and successfully steer your business to achieve these plans and goals within each quarter. This is not solely directed at the business owner, but also at key team members who will be working with you.

Big 9 Business Plan – Once again, this is a one-page plan that allows you to attain or regain focus on what you want your business to be in 3 years. Wherever you stand, the Big 9 will allow you to identify the 3 key strategies that require your attention and focus to maximize cash flow, profit and growth.

Roles & Responsibility Plan – You can’t run a business by yourself. You need to learn how to delegate responsibilities to the right people or to the right external parties to be outsourced or automated. The idea is to take off at least a few of the many hats that you put on at the beginning of your business and to hand them over to others who are competent and qualified to handle them. This way, your business will no longer be completely reliant on you and expect you to attend to its needs 24/7. Once you are free from handling all these responsibilities, you will have plenty of free time to focus on other areas of your business that you are passionate about.

Time Management Matrix – While we can’t take credit for this, we can all agree that Stephen Coveys ‘7 Habits of Highly Effective People’ has created an absolutely terrific tool. As a matter of fact, I have been, and will continue to use this fantastic tool. The Time Management Matrix is a tool that acts as a reminder of what you are currently spending your valuable time on. This will allow you to keep track of how you are balancing your business affairs with recreation, as well as how you are keeping the distractions at bay.

Competitor Analysis SWOT – This is a great tool to assist you, when you are starting out. Actually, this will be a useful tool even if you are already running a business. The idea is to find out how and what your competitors are doing in your particular area of business. Then, you can use the gathered information to find that perfect niche in your industry and to do what you can to become the best.

Personal & Business Goal Setting Template – To tell you the truth, when I was younger, I was never very big on setting personal and business goals. While I may have thought of things that I would like to achieve, I was often too busy to pay much attention or to review them. However, once I started setting easily attainable personal goals and began to see results faster than I normally would, I decided to extend these goals out to my business. Just to make sure that things were kept as simple as possible, I retained the same framework from my personal goals to set the business goals. Let me give you a small inside tip; always set your goals, personal and business, when you are operating within the absolute perfect mindset. It is highly important that you are realistic and responsible while setting these goals. Equally important is to confide in a trustworthy person, as well as making a note to regularly review the progress.

Starting a business means different things to different people. Some wish to get away from the 9-to-5 and to work when they feel like it, some wish to be their own boss, for others, it’s all about earning more money. True, starting one’s own business with the prospect of working flexible terms, flexible hours and the extra cash is rather tempting. However, more than a few people have found out, the hard way, that starting, running or buying a business is not always as fascinating as it is cracked up to be.

We have decided to write a book, with the intention of sharing what we have learned through our years of experience in the business arena. This book is a collection of resources, tools and how-to advice that can come in handy for those of you who wish to follow in our footsteps. The advice presented in this book can come in handy at all different stages of any business and have been proven to be effective for the two of us as well as the many businesses that we are and have been involved with, in the past.

Stay tuned for Stage One: Starting a business and getting through the first years!

Ensuring that the fund’s investment strategy (and trust deed) permits the SMSF to purchase options

And,

That the fund has a derivative risk statement, that is a statement that explains the SMSF’s risk management policies when using derivatives.

Additionally the definition of “assets” under the CGT rules in the Taxation Act includes:

• land or a building in Australia (or an interest in land or a building)
• a CGT asset you have used in carrying on a business through a permanent establishment in Australia
• a share in a private company that is an Australian resident company for the income year that the CGT event happens
• a share, or an interest in a share, in a public company that is an Australian resident company and you and your associates have owned at least 10% of the value of the shares at any time during the five years before the CGT event happens
• a unit in a unit trust that is a resident trust and you and your associates have owned at least 10% of the issued units at any time during the five years before the CGT event happens
• an interest (other than a unit) in a trust that is a resident trust for CGT purposes for the income year that the CGT event happens
• an option or right to acquire any of the preceding CGT assets.

Further to that… it is explicitly stated in the Tax Act.

CGT event D2 happens if you grant an option to a person or an entity, or renew or extend an option that you had granted.

The amount of your capital gain or capital loss from CGT event D2 is the difference between what you receive for granting the right and any expenditure you incurred on it. The CGT discount does not apply to CGT event D2.

Exercise of an option

If the option you granted is later exercised, you ignore any capital gain or capital loss you made from the grant, renewal or extension. You may have to amend your income tax assessment for an earlier income year.

Similarly, any capital gain or capital loss that the grantee would otherwise make from the exercise of the option is disregarded.

The effect of the exercise of an option depends on whether the option was a call option or a put option. A call option is one that binds the grantor to dispose of an asset. A put option binds the grantor to acquire an asset.

It is pretty clear that these types of assets are allowed to be held in a SMSF provided they are provided for in the Investment Strategy and Risk Statement

The 5 big releases from that are as follows:

1. From 2012-13, the Government is significantly simplifying small business tax arrangements. Small businesses will be allowed to claim an immediate deduction for each asset they purchase less than $6,500, and to depreciate more expensive assets in a single pool. These will assist up to 2.7 million sole traders, partnerships, companies and trusts.
In addition, the Government will also allow small businesses to immediately write off the first $5,000 of the cost of a motor vehicle. This will help companies finance the investments, training and restructuring that is needed to improve competiveness. These changes will also make the tax system simpler for small business, boosting the productivity of small business owners, as they spend less time on tax matters and more time on their business.

2. From 2012-13, we will improve access to company tax losses by introducing a loss carry-back, and extending this to a two year carry-back from 2013-14. This tax reform will make it easier for businesses to invest and innovate in order to compete. This reform is expected to improve the cash flows of an estimated 110,000 businesses over its first four years, which includes one in six manufacturing companies.

3. The Government is reducing disincentives for business to invest in long life infrastructure. The Government recognises the long horizon for infrastructure projects of national significance, and will introduce an uplift allowance so that the value of tax losses is preserved over time. It will also exempt these tax losses from the continuity of ownership test and the same business test.

4. The Government is also continuing with the planned increase in the Superannuation Guarantee from 9 per cent in 2012-13 to 12 per cent in 2019-20.

5. The Government is reforming the fringe benefits tax (FBT) treatment of cars, to remove the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession. Instead of providing a sliding scale of rates that rewards those who drive further, the Government is transitioning to a flat rate by 1 April 2014 that will apply, irrespective of the distance travelled. The Government is also modernising the method for determining the taxable value of airline transport fringe benefits, to a market value method, which is consistent with commercial practice.

Three years on, it’s pretty clear who was right. ‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’ Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. The recovery started just in time for the 2010 Swedish election, in which the Conservatives were re-elected for the first time in history.

‘Everybody was told “stimulus, stimulus, stimulus”,’ he says — referring to the EU, IMF and the alphabet soup of agencies urging a global, debt-fuelled spending splurge. Borg, an economist, couldn’t work out how this would help. ‘It was surprising that Europe, given what we experienced in the 1970s and 80s with structural unemployment, believed that short-term Keynesianism could solve the problem.’ Non-economists, he says, ‘might have a tendency to fall for those kinds of messages’.

He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done. ‘In most cases, the company would not have been created without the owner,’ he says. ‘There would be no Ikea without [Ingvar] Kamprad. We would not have Tetra-Pak without [Ruben] Rausing. They are probably the foremost entrepreneurs we have had in the last few decades, and both moved out of Sweden.’

But they were not rich, I say, when they were starting out. ‘No, but they were becoming rich. If you have a high wealth tax and an inheritance tax, people emigrate because it becomes too costly to own a company. Ownership is a production factor. Entrepreneurs are a production factor. Yes, these people are rich and you can obviously argue that we want to encourage social cohesion. But it is also problematic if you drive out entrepreneurs from your country, because they are the source of job creation.’

What even Borg did not expect was that his tax cut for the low-paid would increase economic growth so much that it has almost entirely paid for itself. Borg had created something that Osborne’s critics say does not exist: a self-financing tax cut. ‘There was some criticism at the time that we were borrowing to finance tax cuts,’ he says. But Sweden could do it, because it was expecting to return to surplus soon; Britain has no such luxury, he says. His main advice to Osborne is: ‘Keep on dealing with the deficit, because deficits destroy everything else.’

Source – The Spectator