Legal

Fix broken system before ‘insolvency tsunami’ hits: Ombudsman

AUSTRALIAN Small Business and Family Enterprise Ombudsman Kate Carnell said the just-released Insolvency Practices Inquiry final report exposes the many systemic failures that have harmed small and family businesses, ahead of a predicted ‘tsunami’ of insolvencies to come.

The report, released by the Ombudsman yesterday, details a suite of recommended changes to current insolvency practices that aim to achieve the best possible outcomes for small businesses in financial trouble. 

Ms Carnell said the report comes at a critical time, given the COVID-19 pandemic – which has come on the back of devastating natural disasters – "will likely trigger a wave of insolvencies in the coming months".

“Sadly, many small businesses have been driven to the brink by factors outside of their control, such as the COVID crisis,” Ms Carnell said.

“The reality is that Australia is now in the grip of a recession. Trading conditions are the worst we’ve seen since the Great Depression and many small businesses won’t survive.

“Our inquiry has found that the system as it stands does not work for small businesses," she said.

“Small businesses that have been through the liquidation process have told us their experience was so traumatic they will never fully recover, let alone try to start a new business down the track. 

“Instead of getting the support they need to turn it around, small businesses too often find themselves on an express train to winding up with no control over the process," Ms Carnell said.

“The system needs to change dramatically so that small business owners are given the chance to make important decisions about the future of their business, without being pushed into outcomes they don’t want – like losing their family home.”

The report recommends establishing a Small Business Viability Review program where small business owners experiencing significant financial stress can obtain a voucher of up to $5,000 to access a tailored plan from their trusted, accredited financial adviser.

“We know the sooner a small business seeks help, the more likely it is they can achieve a restructure or turnaround,” Ms Carnell said.

“But cash flow issues, compounded by falling revenue, may mean those small business can’t afford the professional financial advice they need. The ramifications of this could be devastating, both for the business and its owner and family, down the line.”

Another key recommendation is the establishment of a small business debt hibernation instrument when a state, territory or federal government declares a systemic shock such as a pandemic or significant economic downturn.

“COVID-19 has shown that businesses need a mechanism where they can take stock of their situation and prepare for the re-opening of trade,” Ms Carnell said.

“The minimum hibernation period would be 90 days, during which payments on loans, rent, tax and other outgoings could be deferred.”

The Ombudsman’s report recommends establishing a Directors’ Insolvency Agreement where a small business owner can provide a registered liquidator with a proposal on the best way to manage the business.

“External administrations are focused on maximising the benefit to creditors, while the small business owner’s expertise and knowledge is often brushed aside, Ms Carnell said.

“Small businesses have spoken of stock being sold at a low point in the market, assets being put up for sale in publications that aren’t relevant to their industry and thousands being spent by registered liquidators to chase down payments worth far less than the amount spent.

“If the small business owner, with the approval of a registered liquidator, could restructure their affairs, it would likely lead to more positive outcomes, including a greater return to creditors.”

Ms Carnell said the cost of insolvency should be capped for small businesses, particularly given the majority of small businesses entering liquidation have assets of less than $10,000.

“Throughout the course of this Inquiry, we have spoken with a range of registered liquidators who have indicated the minimum cost of a straightforward voluntary administration is about $12,000, while the average is closer to $50,000,” Ms Carnell said.

“For businesses that need to wind up, it is critical that the process be cost effective, quick and dignified.

“Ultimately if implemented, our Insolvency Practices Inquiry recommendations will go a long way to ensuring the Australian small business community retains its fighting spirit.”

www.asbfeo.gov.au

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Business Ombudsman calls for major changes to SME tax regime compliance

THE Australian Small Business and Family Enterprise Ombudsman Kate Carnell has called for major changes to Australia’s taxation framework, saying small businesses were "unnecessarily overburdened by compliance requirements".

The Ombudsman has made a series of recommendations in relation to taxation as part of her COVID-19 Recovery Plan.

These include optional single payment to the ATO to cover PAYG(W) superannuation guarantee and GST; a period of review for small business tax returns to be one year following lodgement; abolishment of Fringe Benefits Tax for small business; and permanent small business instant asset tax write-off of $150,000. 

“The coming months will be critical for Australian small businesses as they try to get back on their feet in this post-COVID recovery phase,” Ms Carnell said.

“There has never been a tougher time to be in business. The last thing small businesses need is the stress of complying with overly complicated processes while trying to balance their cash flow.

“The current system effectively forces small businesses to act as the ATO's unpaid tax collectors. Over recent decades, small business owners have been burdened with the requirement to withhold tax from employees’ wages (PAYGW), the additional superannuation guarantee and the GST. This has shifted administration responsibilities from the government to small businesses, which face significant penalties and interest if an honest mistake is made.

“Our plan recommends the ATO should develop a solution that enables the employer to meet these obligations with a single payment to the ATO on each payroll run or monthly. It would need to be phased in to give small businesses the chance to manage their cash flow accordingly," Ms Carnell said.

“While most small businesses pay their dues, ATO audits can be conducted as much as five years in arrears, which is incredibly disruptive and distressing.

"Our plan notes the ATO has enough timely data to identify non-compliance within a year of lodgement. When an unintentional error is found, the small business should be given the opportunity to rectify it.

“Our plan recommends the Fringe Benefits Tax (FBT) be abolished for small business. As it stands, small businesses are required to pay FBT on items that large businesses provide in-house to retain staff such as meals, gyms and childcare centres and don’t have to pay FBT.

“Equally small businesses need certainty to be able to plan to buy major equipment. The Government’s recent instant asset write-off threshold increase to $150k is welcome, but most small businesses are currently focused on their survival. Our plan recommends this temporary policy be made permanent. This would significantly reduce the need for depreciation and cut red tape.

“We know the government is serious about a business-led recovery from this pandemic but success is only possible if it is balanced with the support small businesses need to get the economy firing on all cylinders again," Ms Carnell said.

“Ultimately, small businesses need to be released from the burden of unnecessary regulation and onerous compliance requirements, along with the fear of ATO recovery action and severe penalties.”

www.asbfeo.gov.au

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Ombudsman: Small Business Award the simple solution to a complex problem

THE Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has welcomed Prime Minister Scott Morrison’s commitment to 'go back to the drawing board on industrial relations' and is calling for the introduction of a Small Business Award.

The recommendation is part of a suite of reforms to support small businesses in the post-coronavirus recovery phase, as outlined in the Ombudsman’s COVID-19 Recovery Plan.

“The Prime Minister was right in his Press Club address, in saying the current industrial relations system is not fit for purpose,” Ms Carnell said.

“In this new world we live in, with business confidence at a historical low, the system needs to make it easy for small business employers to be able to hire and manage staff, so they can get on with the job of running their business. 

“The Fair Work Act has 960 sections and over a quarter of a million words. On top of this, Australia has more than 100 industry awards, with hundreds more classifications within those awards," Ms Carnell said.

“If big businesses with large HR and payroll departments struggle to comply, it’s nearly impossible for small businesses who really want to do the right thing. If nothing changes, those small businesses that were planning to grow their business or start a new venture, simply will not.

“COVID-19 has had a devastating impact on Australian jobs and that needs to be countered with positive changes that make it simpler for businesses to grow and employ – particularly at a time when small businesses are trying to get back on their feet,” Ms Carnell said.

If adopted by the government, the Small Business Award would be simpler than existing awards and available to all small businesses on an ‘opt in’ basis. It would cover all staff, irrespective of their different duties and would include a ‘permaflexi’ classification.

The Award should have minimum standard pay rates, which can include penalty rates but not overtime ie: loaded rates, the Ombudsman said.

“Permaflexi gives the employee a permanent and secure position with standard forms of leave, but it also gives the employer the flexibility to ensure all duties are carried out, without the onerous need to move a staff member to a different award classification,” Ms Carnell said.

“If a small business decides to stay within the current award structure, they need access to comprehensive advice regarding their obligations. A reg-tech solution should be created – accredited by the FWO – that provides a technology-driven method for small business to comply.

“Small businesses will be facing enormous challenges and uncertainty as they emerge from hibernation. If they don’t have flexibility and confidence in the system, they won’t employ," Ms Carnell said.

“The overly complex current system effectively forces small businesses to seek expensive legal advice to avoid the threat of significant penalties if they make a mistake.

“Another logical move would be to clarify the Small Business Fair Dismissal Code, to give small and family businesses the confidence they need to employ more Australians.

“We’ve provided the government with our Review of the Small Business Fair Dismissal Code, which recommends a number of changes to help small business employers meet their obligations," she said.

“Without a system overhaul, business confidence will continue to be undermined and that hurts both small businesses and workers.

“We look forward to taking an active role in the government’s industrial relations discussions, as announced by the Prime Minister, over the coming months, so the small business community is heard on these issues that affect them directly. This has the potential to be a game-changer for Australia’s small business and family enterprise sectors," Ms Carnell said.

“We are committed to working to achieve the best possible outcomes for small businesses.” 

www.asbfeo.gov.au

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Parliamentary inquiry into litigation funding in Australia

THE Parliamentary Joint Committee on Corporations and Financial Services will begin a new inquiry into litigation funding, following a referral from the House of Representatives today.

The committee has been asked to examine whether current regulations surrounding Australia’s growing class action industry is impacting fair and equitable outcomes for plaintiffs. 

The committee will also scrutinise proposals to allow lawyers to enter into contingency fee arrangements, currently being considered by the Victorian Parliament, and the flow on consequences for the Australian economy of these trends.

“I welcome this referral from the Parliament," Parliamentary Joint Committee on Corporations and Financial Services Chair, Senator James Paterson said.

"It’s vitally important that our legal system delivers justice to those who deserve it. It does not exist to benefit lawyers or others seeking to profit from it.

“Any recommendations made by the committee will be guided by evidence. This inquiry is an opportunity to provide greater public transparency into how the litigation funding business model works and to assess whether regulatory change is necessary,” Senator Paterson said..

The committee will soon open submissions and wwill take evidence from all stakeholders.

Public hearings will be scheduled and the committee will report by December 7, 2020.

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Top legal minds urge Australian 'Magnitsky-style' laws

ONE OF THE WORLD'S best-regarded legal minds, Queens Counsel Geoffery Robertson OAM, and international human rights lawyer Amal Clooney will be among the experts to appear before an Australian Government inquiry on whether to impose sanctions upon individuals who commit human rights abuses.

The public hearing will be held on Friday, May 15 at Parliament House with witnesses appearing via videoconference. 

Kevin Andrews MP, chair of the Human Rights Sub-Committee of the Joint Standing Committee on Foreign Affairs, Defence and Trade, confirmed that interest in the Inquiry was strong, with international human rights legal experts keen to provide evidence.

"The Sub-Committee looks forward to contributions from a number of pre-eminent human rights experts who are experienced with Magnitsky-style laws at the global level," Mr Andrews said. 

"The Sub-Committee will learn from international experience and collaboration. The evidence indicates that communication and collaboration between jurisdictions is vital to the success of targeted sanctions," Mr Andrews said.  

Other witnesses will include Lord Neuberger of Abbotsbury, representing the High-Level Panel of Legal Experts on Media Freedom, Professor Irwin Cotler and financial human rights activist and author of Red Notice, Bill Browder, whose work has been widely credited with instigating Magnitsky legislation around the world.

Senator Fawcett, Chair of the Joint Standing Committee on Foreign Affairs, Defence and Trade said, "The level of interest in this inquiry reflects the high level of international commitment to human rights, and recognition that Australia’s contribution to a global collective effort is vital."

The proceedings will be broadcast via www.aph.gov.au/live 

Morning and evening sessions will allow experts from various time zones to participate. A full program will be published by Business Acumen when made available.

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Legal update: Who are ‘essential travellers’ during COVID-19 border restrictions?

By Sandra Barry >>

The states and territories have passed separate legislation restricting domestic interstate travel, which has significant implications for some employers.

The following states and territories have implemented interstate border restrictions:

  • Queensland from 12am on Wednesday, 25 March 2020

  • South Australia from 4pm on Tuesday, 24 March 2020

  • Tasmania from Friday, 20 March 2020

  • Western Australia from Tuesday, 24 March 2020

  • Northern Territory from 4pm on Tuesday, 24 March 2020.

Each of these jurisdictions have declared the restrictions will apply to all travellers arriving by air, land and sea. Travellers will need to comply with strict quarantine requirements or be refused entry. 

Each jurisdiction has declared that the strict border restrictions and quarantine requirements will not apply to persons who fall within ‘essential travellers’ exemptions.

Which states and territories have not implemented interstate border restrictions?

New South Wales, Victoria and the Australian Capital Territory have announced that their borders will remain open to interstate travellers. However, based on the rapid changes occurring as states and territories attempt to deal with coronavirus, it is highly likely that some form of border restrictions in these jurisdictions will also be implemented.

Essential traveller exemptions

The rules for interstate border restrictions are slightly different in each state and territory but exemptions for essential travellers appear to be relatively the same. The essential travellers categories are generally:

  • national and state/territory security and governance

  • health services and essential medical treatment

  • transport, freight and logistics services

  • skills critical to maintaining key industries or businesses

  • emergency services workers

  • cross border community members (for the purposes of work and obtaining essential goods and services)

  • passing through (excluding Tasmania)

  • compassionate grounds

  • FIFO workers (that are linked to an essential traveller category and are able to provide evidence of their employer and location they are travelling).

Essential traveller exemption applications

At the time of writing this article, the legislative directives for each state and territory are not fully in place or complete. Due to the complexities in implementing border restrictions, it is likely that these directives and legislative provisions will change rapidly.

In Queensland, essential travellers are required to complete an online application to obtain a Queensland Entry Pass and have documentation supporting their status available. Queensland Police have also indicated they are working on an ‘identifier’ (a visible sticker) to place on vehicles regularly passing across the border. Police have also closed roads to support the Queensland restrictions.

In Tasmania and the Northern Territory, essential travellers are required to complete arrival forms at available border access points. In some circumstances, essential travellers will need to have applied to the relevant government authority to obtain the necessary exemptions before travel.

South Australia has only stated that police will be stopping persons at checkpoints, taking details and making enquiries as to the person’s movements and reason for travelling into South Australia. Because of the limited guidance, we recommend that essential travellers have documentation supporting their status available.

In Western Australia, essential travellers are required to complete forms on arrival at points of disembarkation, road checkpoints or stations. For persons entering by road, there is a further requirement that only ‘designated roads’ be used (Victoria Highway or Eyre Highway).

Quarantine conditions for essential travellers

Tasmania requires essential travellers to comply with strict quarantine conditions, including self-accommodating and monitoring symptoms for COVID-19.

At this stage, it does not appear that essential travellers need to comply with quarantine conditions in other state and territories. However, this position may change rapidly.

What this means for employers

Employers with interstate operations will need to ensure that travel complies with interstate border restrictions and that operations fall within the essential traveller categories.

In Queensland, employers need to ensure that they have provided employees required to travel interstate with a Queensland Entry Pass.

For other interstate travel, employers will need to consider what application or exemption forms and documentation needs to be available to employees ahead of interstate travel. This will include determining whether exemptions need to be submitted and granted by relevant authorities before travel.

There are strict monetary penalties for both individual employees (of up to $62,800) and corporate employers (of up to $250,000) where border restrictions and essential traveller requirements are not complied with.

Employers with interstate operations affected by the interstate border restrictions can contact us for further advice.

www.cgw.com.au

Sandra Barry is a senior associate at Cooper Grace Ward Lawyers, based in Brisbane. Input into this report also came from Cooper Grace Ward partners Belinda Winter and Annie Smeaton.

High Court confirms BHP Billiton Group members are ‘associates’ for tax purposes - ATO win

THE Australian Taxation Office (ATO) has welcomed the decision of the High Court on March 11 in relation to the meaning of 'associate' for tax purposes, with broader relevance to dual listed companies, staples and other similar structures.

The relevance in the context of BHP was in relation to the Australian taxation of a relatively small component of its profits made by a marketing-hub established in a low-tax jurisdiction by the BHP dual-listed group BHP Group Limited, formerly known as BHP Billiton Limited in Australia (BHP Australia) and BHP Group Plc, formerly known as BHP Billiton Plc, in the UK (BHP UK), namely the profits from the on-sale of commodities from Australian subsidiaries of BHP UK.

Following the simplification of their structure announced by BHP as part of the transfer pricing settlement with the ATO in 2018, BHP Australia is already being taxed on 100 percent of the profits of the marketing hub in Singapore from the sale of Australian commodities owned by BHP Australia, the vast bulk of its Australian operations. 

This High Court  decision now finalises the dispute between the ATO and BHP in relation to the on-going Australian taxation of the marketing hub profits, which will be fully taxed in Australia.

The decision in BHP Billiton Limited v Commissioner of Taxation saw the High Court confirm the Commissioner’s position that BHP Australia is taxable on its share of the marketing hub’s profits from sales of commodities acquired from Australian subsidiaries of BHP UK as well as those acquired from Australian subsidiaries of BHP Australia. This is because BHP Australia and BHP UK are associates of each other and the marketing hub in Singapore.

“This decision means that BHP Australia was taxable on its share of profits derived by the marketing hub from selling commodities mined in Australia which it purchased from BHP UK's Australian subsidiaries,” Deputy Commissioner of Taxation for Public Groups Rebecca Saint said. 

“The resolution of this case in conjunction with BHP’s earlier structural simplification and $529 million transfer pricing settlement [for the years 2003 to 2018] means this long running dispute is now concluded, and Australians can have full confidence that BHP, as one of Australia’s largest companies, is paying full tax on its profits from the sale of Australian commodities," she said.

“Complex domestic and international tax structures of global multinationals have been a focal point of the ATO’s Tax Avoidance Taskforce. This decision validates our robust approach of ensuring complex arrangements comply with Australian taxation laws and that large corporate groups are paying the correct amount of tax.”

This case highlights the Tax Commissioner’s continued commitment to protecting the Australian tax base and willingness to hold large well-resourced multinationals operating in Australia to account to ensure that those multinationals pay their fair share of tax in Australia rather than diverting profits offshore to no-tax or low-tax jurisdictions.

“We are committed to taking strong action to ensure multinationals comply with the Australian tax regime and we are prepared to litigate to protect the integrity of the Australian tax system,” Ms Saint said.

The precedent set by the decision provides clear guidance that will assist the ATO in its efforts to ensure that other multinationals pay their fair share of tax in Australia. The decision will also have broader implications for other taxpayers affected by taxing provisions that use the concept of an 'associate'..

The High Court decision can be read in full here.

www.ato.gov.au

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