Issue 59, 25 July 2003
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Welcome to your free fortnightly edition of CPD Communicator for tax and accounting professionals. The Tax Office has said tax agents, businesses and taxpayers can expect shorter and less costly dealings with the ATO through new technical developments to its services tabled for the next three years. Companies are falling short when providing information to shareholders about related-party transactions with a recent ASIC study revealing 39 out of 52 sets of documents relating to the transactions failed the test. We also cover:
From ATP’s desk:
If you have any questions, feedback, or story ideas, feel free to contact me at lauram@thomson.com.au Enjoy the read. Laura McGeoch Tax office gets personalThe ATO is turning towards technology in its latest bid to deliver a more efficient tax system. Its website, phone and online services will all be enhanced and its staff "better trained" during a three-year program expected to lower the time and costs of Tax Office dealings for tax agents, businesses and individuals. The Easier, cheaper and more personalised program – the latest instalment in the ATO’s Change Program – will "as far as possible" include developments that provide taxpayers with online access to information from previous ATO dealings, as well as connect them with tax officers who have an "understanding" of their queries. Tax agents’ existing access to the online tax agent portal will be extended to enable them to send and receive enquiries, requests for technical assistance and transactions electronically within three years. More immediate portal developments include the ability to transfer account balances between the multiple accounts of a client and view previously lodged client details. Assistant commissioner for the Change Program, Raelene Vivian, said the ATO was "gradually extending the scope of functionality" of the tax agent portal to small businesses. "We are trialling a portal for small businesses that will enable them to download information from their e-record accounts to pre-populate their BAS," she told CPD Communicator. Vivian said business would also see improvements to the phone service that will indicate the waiting time a caller can expect to endure. The customer’s place can be held in the queue if they wish to hang up and be called back by an ATO officer. The ATO is also working on new customer relationship management technology. "This technology will enable us to build up a history of advice that has been given to the business including any letters or other information that has been sent to them," she said. Business underwhelmedMike Potter, chief executive of the Council of Small Businesses of Australia welcomed any initiatives that would make life easier for small businesses, but said he was "not convinced there will be a huge uptake" because many relied on their accountant. He said those who did use the initiatives would directly benefit from having access to their businesses’ tax details. "In terms of getting information out of the system to identify details such as what has and hasn’t be paid, it will certainly be easier," he told CPD Communicator. In addition to increased training, from July 2005 ATO officers will have access to improved reference systems and content enabling them to know the details of the caller’s previous communications with the ATO and client interactions through a caller identification process. Vivian said the ATO would monitor the program’s success by analysing statistics and "talking" to users of the system. Moving into peak time for the ATO, recent statistics from 14 to 18 July reveal the ATO received 54,500 calls from tax agents, 116,665 from individuals and 122,884 from businesses. Vivian said 92 per cent of these calls were answered within five minutes. During non-peak periods, around 80 per cent of calls are answered within two minutes. The ATO has put out a request for an implementation partner and software provider to assist the program. Vivian denied reports that the program would cost $800m and predicted the figure would be lower. Related websites Related-party transactions lack vital details for shareholders: ASICInformation given to shareholders about related-party transactions (RPT) too often contains "common defects" and lacks details that are critical to help shareholders make informed choices, the Australian Securities and Investments Commission says. A 2002/2003 ASIC review of 52 sets of RPT documents required 39 of them to be amended. Companies’ most common failing was not placing a value on options issued to directors of related parties. ASIC director of corporate finance, Richard Cockburn, said shareholders must know this value or proposed benefit to help them decide whether or not to approve the transaction. "Where a company is giving options to a related party or director you need to value what the option is to let shareholders know what they are giving up," he told CPD Communicator. ASIC also found that disclosure was often inadequate in the event of a company proposing to acquire a business from a related party. He said related-party transactions had given rise to a "consistent area of inadequate disclosure" and the companies involved in the latest breaches were "the smaller, listed companies". Cockburn said the companies with related-party disclosure breaches had all agreed to changes made by ASIC. The alternative would be for the regulator to require the company to circulate a statement to their members outlining the breaches on behalf of ASIC. Under the Corporations Act, public companies need shareholder approval to give related parties a financial benefit that is not "at arms length". Cockburn encouraged companies to calculate the value of options through the model in the International Accounting Standards Board’s exposure draft ED 2 "Share-based payment". Published by CPD, the ASIC Working Guide for Company Directors informs you of your responsibilities regarding financial reports, independence, shareholder notices, lodging documents and prospectuses. Related websites Ex-ATO officer tax cheat jailedA former ATO officer who used his position to commit income tax fraud of more than $83,000 has been sentenced to three years’ jail. Michael Andrews, 38, of Toongabbie, pleaded guilty to fraud and dishonestly obtaining financial benefit by deception in the Downing Centre District Court. Judge Warwick Andrew condemned Andrews’ abuse of his position. "It’s hard to imagine a worse case of breach of trust," he said. "It’s almost unthinkable that an ATO officer could use his position in this way." ATO internal control measures uncovered Andrews’ fraud. Andrews was ordered to repay the money he stole and will be eligible for parole after two years. An ATO spokeswoman would not make comments about this case but pointed to the ATO’s response to recent media allegations about fraud within its offices. It said no level of fraud was acceptable but in an organisation of 20,000 people who are dealing with large amounts of money "it is inevitable that a small number of employees would be tempted to engage in fraudulent or criminal activity." The ATO added that it continually reviewed its "extensive " fraud controls. Related websites UK extends use of International Accounting StandardsFrom January 2003, all British companies will be able to use International Accounting Standards (IAS) instead of UK accounting standards, the same time as listed companies are required to adopt them. Following public consultation, the Department of Trade and Industry (DTI) announced publicly traded companies in the UK would also be permitted to use IAS in their individual accounts. It further allowed for other companies and limited liability partnerships in the UK to be permitted to use the IAS for both their individual and consolidated accounts. UK minister for industry, Jacqui Smith, said the extensions reflected the need for all businesses to keep on top of international standards developments. "The use of International Accounting Standards is gathering pace throughout the global economy," she said. "IAS is the way forward and we are giving all our companies the choice to use it." Technical adviser for the Institute of Chartered Accountants in Australia, Keith Reilly, recommended the consistent application of IAS to all companies. He said that because Australia had adopted International Accounting Standards principles in 1996 for all reporting companies, the 2005 transition wouldn’t be too arduous for smaller entities with fewer resources. He told CPD Communicator that IAS would have the greatest impact on the big end of town and while any change keeps people "occupied", smaller Australian reporting entities were not in for many surprises. Related websites ATO slow to act on complaint handling changes: OmbudsmanThe ATO has made "limited progress" in adopting key 1999 recommendations to improve its complaint handling process, Taxation Ombudsman Professor John McMillan has found. In his July 2003 report on the ATO’s complaint handling process, the Ombudsman said a central recommendation of his 1999 interim report was for the ATO to devise a "consistent system of complaint record-keeping and reporting". The ATO had made little inroads on this recommendation and cited the new tax system as a reason for its inactivity, he said. "In part, the ATO has attributed this delay to the extraordinary demands placed upon it by the introduction of the new tax system," said Prof McMillan. The Ombudsman made six key recommendations to the ATO in his latest report. A key recommendation was for the tax office to establish consistent record-keeping systems and investigate reasons for its past poor performance in relation to complaint handling. McMillan further recommended the Tax Office implement a best practice "relationship management" strategy that incorporates elements of ‘key client management’ and further develop alternative dispute resolution processes. It should also develop a system of alerts for possible future complaints and reinforce to staff the importance of a prompt response to complaints. Service standards in relation to complaint resolution, including providing an extension of time where warranted, should also be implemented, the Ombudsman said. The Tax Office accepted the recommendations, but said many of them would build on programs underway. "For example, we are already well advanced on the development of a single complaint recording system to support better complaint handling and analysis across the organisation," Tax Commissioner Michael Carmody said. Carmody said the ATO had also begun implementing flexible service standards for complaint resolution and would keep the Ombudsman informed of its progress. Super Trends reveals drop in super assetsAustralian superannuation assets for the March quarter decreased 1.7 per cent from $516.6bn in the December quarter to $507.7bn, according to the latest edition of Super Trends, a joint survey from the Australian Prudential Regulator and the Australian Bureau of Statistics. Super Trends reviews information from 368 Australian funds, which comprise the largest in the industry with a cut-off point for inclusion sitting at $60m in assets. Employer contributions at $8.4bn reflected a slight increase compared to the December quarter but member contributions were down by 12.3 per cent. Smaller fund assets, with less than five members, experienced growth of 2.4 per cent during the quarter. Related websites IFAC to "elevate" ethics codeThe International Federation of Accountants (IFAC) has proposed its Code of Ethics for professional accountants be elevated from a "model code" on which to base national requirements to a "standard". The IFAC Board and Ethics Committee agreed it was in the public’s interest that professional accountants abide by a framework requiring them to identify, evaluate and address threats to compliance with the fundamental principles, instead of complying with a set of possibly "arbitrary" rules. The IFAC said the change was part of its "overall efforts" to work with member bodies on raising the quality of practice by accountants. It said the proposed revised code exhibited a conceptual change and that member bodies would have to consider the possibility of new training requirements needed for such a transition. Guidance for accountants on integrity, objectivity, professional competence, confidentiality and professional behaviour are addressed in the revised code. The proposed revised Code establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework for applying those principles. Unless a limitation is specifically stated, the principles are equally valid for all professional accountants. IFAC is seeking comments on the proposals by 30 November 2003. Related websites Margin Scheme: ATO Fact Sheet ... a kind gesture?by Peter Konidaris, Senior Associate and Damian Haber, Solicitor, Freehills The ever rising Australian property market and the margin scheme's ability to reduce the amount of GST payable on residential property sales is "spicing up" what many otherwise consider to be a tax which is simply paid and claimed back through the production process until the point of private consumption. Relevantly, the ATO has released a fact sheet clarifying and expanding the margin scheme's application on supplies of real property acquired before 1 July 2000. As indicated in some press reports, this finalised fact sheet does not contain any time limit on the ability of taxpayers to obtain valid valuations for margin scheme purposes where the original valuation relied upon was not valid. However, there are a number of conditions and limitations relating to the obtaining of "late" valid valuations. Set out below is a summary of some of the key points arising from the fact sheet. When to choose to apply the margin scheme The choice to apply the margin scheme must be made at or before the time of making the supply. In the context of most property transactions, the time of supply will be at settlement. Provided taxpayers choose to apply the margin scheme at or before the time of the supply, they can make their choice about how to calculate the margin (consideration or valuation method) and, if the valuation method is chosen, as to which valuation they rely on, until the due date for lodgment of the BAS for the tax period in which the GST on the supplies is attributable. Note that previously, under the GST public ruling on the margin scheme (GST Ruling GSTR 2000/21), the Commissioner required the valuation to be completed by the end of the tax period to which GST on the supply is attributable, so now more time is allowed. Changing methods: Consideration or Valuation Method Taxpayers are entitled to choose the calculation or valuation that results in them paying the least amount of GST. If the choice was made to apply the margin scheme and the margin scheme calculation was based on consideration, no change to the valuation method can be made after the BAS due date unless a valid valuation was undertaken by the BAS due date. The ability to go back to a valuation after the BAS due date appears to be somewhat contradictory to the position that taxpayers must elect which method they use before lodgment of the BAS. It is perhaps indicative of the fact that the ATO recognises that taxpayers are probably not maximising their GST position when the consideration method (except where the property was acquired in the property boom of the late 80s and is still above current values!!) is used and the ATO considers a post-BAS registration charge in margin scheme calculations from consideration to valuation as fair for less sophisticated GST taxpayers. This conclusion appears to be supported by the further position taken in the ATO fact sheet which provides that if a valid valuation was obtained by the BAS due date and the margin was calculated on that valuation, there can be no change to the calculation of GST on the sale after that date. Furthermore, if more than one valid valuation was held at the BAS due date, one needs to be chosen by the BAS due date and there can be no change to that choice after the BAS due date. Exceptions to obtaining valuations by the BAS due date Exceptions to the requirement for the valuation to be obtained by the BAS due date are:
Where parties contracted on the basis that the supply would be a GST-free supply (eg a going concern) but the margin scheme is to be used if the sale is not GST-free for any reason, a short period is allowed after it is established that the supply is a taxable supply for the valid valuation to be obtained. Failing to obtain valuation in time Where a decision to apply the margin scheme was made, none of the 5 available valuation methods were used and there were no exceptional circumstances that prevented a valid valuation being undertaken by the BAS due date, there are 2 possibilities:
However, if the possibility selected results in more GST being payable, administrative penalties and the general interest charge (GIC) are likely to apply. Invalid valuations If taxpayers chose to apply the margin scheme using the valuation method but the valuation used was not valid, there are 4 possibilities:
If as a result of correcting a valuation or using a different valuation, more GST is payable, administrative penalties and/or the GIC may apply. However, if a genuine mistake was made, no administrative penalties will apply - the GIC will apply though. If an error is identified which results in a different amount of GST being payable, the relevant BAS should be amended. If there is an error but there is no change in the GST payable, a note should be made and maintained in the taxpayer's records in the event of a subsequent audit. This is an shortened version of Mr Konidaris’ article. The full article appeared in ATP’s Weekly Tax Bulletin. The WTB keeps you totally up to date with all that’s happening in tax in Australia, plus regular comment from tax practitioners on key tax issues. Medical indemnity insurance subsidy is assessable incomeBy Stuart Jones The Government’s medical indemnity insurance subsidy for certain medical practitioners will be treated as assessable income, according to an ATO fact sheet. The ATO considers that the Government subsidy (applicable from 1 January 2003) received by certain medical practitioners in relation to the day-to-day cost of insurance incurred in carrying on their business as a medical practitioner, will be assessable income. The ATO apparently considers that the cost of a medical indemnity insurance premium is a deductible expense incurred in carrying on a taxpayer’s business as a medical practitioner, and the subsidy received in relation to that cost is part of the taxpayer’s assessable income. Thomson ToolsTurn raw data into valuable information for your clients Business & Financial Analyser Professional gives accountants in practice an easy way to create new fee-generating services that aid clients in their business development. It turns financial data into meaningful information that helps clients develop business goals, identify problem areas, and understand the financial implications of their decisions. With Business & Financial Analyser Professional you can easily:
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Professional Development (CPD) ABN 64 058 914 668 Disclaimer: The information contained in this bulletin neither represents nor is intended to be legal or professional advice. Whilst every care has been taken in its preparation, no person should act specifically on the basis of the material contained herein. If expert assistance is required, competent professional advice should be obtained. |