Critical Point Network 1

Legislative change introduced on 16 September 2016 has alerted us to an impending reporting obligation that will have potential significant ramifications for certain employers (‘substantial’ employers).

BackgroundFrom 1 July 2018, substantial employers will be required to comply with Single Touch Payroll Reporting (STPR) requirements. These changes essentially are aimed at reducing administration, and providing the Commissioner with real-time information on an employer’s payroll through automated reporting.

The Commissioner will have direct access to information never previously reported by employers such as Ordinary Time Earnings and employer superannuation contributions. Further, the information will be provided almost immediately as part of the ordinary payroll process of the employer. The new compliance obligations do not change existing PAYG withholding or Superannuation Guarantee Charge obligation due dates.

Prima facie, for most affected employers, complying with the change should merely involve making sure that their payroll software complies with STPR requirements. However, due to the amount of information that the Commissioner will receive, any errors made by employers substantially increase the risk of an ATO review. As such, it is recommended that employers conduct a review of their internal processes and their compliance with PAYG withholding, and Superannuation Guarantee Charge Compliance.

Who is affected?A substantial employer is defined as an entity or wholly owned group that employs 20 or more individuals (note that this is not based on FTE equivalents, but the number of individuals employed).

The test for a substantial employer is imposed on 1 April preceding the reporting year. However, once an employer becomes a substantial employer, it must apply to the Commissioner to be exempt from the STPR requirements if its number of employees decreases permanently below 20 in a later year.

The Commissioner has the discretion to treat an employer as exempt from the STPR requirements on a case by case or class basis upon application by affected employers (including where the number of employees is expected to drop permanently below 20). It is anticipated that the Commissioner will provide automatic exemption from the STPR requirements in certain circumstances (via legislative instrument). The circumstances under which automatic exemption will be allowed are currently subject to a consultation process with the ATO.

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Single Touch Payroll Reporting Requirements

3 What is Fintech?

6 Events to watch out for...

4 GST and property transactions

5 Disasters: Failure is an option!

SUMMER 2016/17

This edition

Critical Point Network2

What are the changes?Broadly, the main changes are as follows:

• Employees will have the choice of completing Super Choice forms and Tax File Number declarations online (but employers must still provide paper forms to employees).

• PAYG withholding and gross payments at the employee-level will need to be reported to the ATO on or before the withholding amount is due. Currently the reporting occurs in the Activity Statement cycle of employers (on an aggregated basis).

• Ordinary Time Earnings and salary or wages at the employee-level for Superannuation Guarantee Charge purposes must be reported on or before the time of payment. Currently, this information is not reported at all.

• Superannuation Contributions at the employee-level must be reported to the ATO on or before the time of payment. Currently, the ATO does not directly receive the report from employers.

• Affected employers will no longer be required to issue payment summaries to employees and PAYG annual reports to the Commissioner (provided Reportable Fringe Benefit Amounts and Reportable Employer Superannuation Contributions are also reported through the Single Touch Payroll software prior to 14 July).

• Employees will be able to access real-time payroll information and annual reports online via an ATO portal.

What does this mean?The Commissioner will have real-time up-to-date information to use for data matching to determine whether employers have complied with PAYG withholding and Superannuation Guarantee Charge obligations. This is likely to increase the amount of compliance activity (particularly for Superannuation Guarantee Charge), as well as the speed at which the Commissioner reacts to any breach of the requirements.

While it is the intention for the Commissioner to provide some leeway to allow taxpayers to self-correct errors, the historical real-time information can be used to assess a taxpayer’s penalty for a future breach of the tax law (i.e. whether the taxpayer has a good compliance history and reliable processes).

Once the employer’s system has become fully automated, there will be fewer reporting requirements and compliance costs. For example employers will no longer be required to report PAYG withholding tax through activity statements, and may not be required to provide annual payment summaries to employees and the annual report to the ATO.

What should employers do?Employers will need to assess whether the STPR requirements will apply to their circumstances, and whether they should apply for the Commissioner’s discretion (e.g. they have a large workforce made up of active and inactive casual staff).

Over the next 8 to 10 months, it is essential that employers assess the robustness of their payroll processes and evaluate whether there are any systematic errors in the way they treat the various types of remuneration paid or provided to employees through the payroll system. This will give them time to implement any changes that are necessary or correct any mistakes.

Prior to 1 July 2018, employers should check that any class variations for PAYG withholding requirements are up-to-date (e.g. on car allowances).

Please contact your regular Pitcher Partners advisor if you would like more information on STPR requirements or would like assistance with an assessment of payroll compliance.

Single Touch Payroll Reporting Requirements - What employers need to know>> continued from page 1

Paul Hum Senior Manager – Tax Consulting Telephone (03) 8612 9272

Ali Suleyman Partner – Tax Consulting Telephone (03) 8610 5520

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‘Fintech’ is an umbrella term used to describe an industry of companies who develop and provide software to provide financial services. These companies use software to enable alternative ways to deliver financial services, analyse financial information or automate financial processes.

Specific applications include:

• Payments: digital wallets and peer-to-peer (P2P) payments• Lending and funding: P2P lending, crowdsourcing and crowd equity• Advisory and analytics: cognitive computing, robo-advisors• Commercial processes: smart contracts, decision/process

automation, identity management

What are the opportunities?Fintech provides SMEs with a range of services, with the most prominent being P2P lending. Where there is often a gap in the banking industry, P2P lending can provide a unique opportunity to raise funds.

Ultimately, P2P lending is an alternative funding service to that represented by the banks. It’s lending money to people and businesses though online services designed to match the risk appetites of lenders to the risk profiles of borrowers.

For consumers and SMEs it’s about more choice, and the opportunity to access services that would not have been available or affordable otherwise.

The real opportunity isn’t about cost reduction or eliminating jobs. It’s about empowering knowledge workers to perform high value activities at a greater scale than previously possible, leaving the back-end processing to be done more quickly and efficiently and freeing up advisors’ time to do what they should do best: provide strategic advice.

P2P lending case study: TruePillarsTruePillars has built a financial product marketplace for P2P lending.

It works like this:

1. The borrower applies for funds2. TruePillars assess the risk3. The investor funds the borrower4. The borrower repays5. TruePillars collects fees

This sounds like the traditional model, but when we delve a little deeper it’s far from it.

With P2P lending, the investor can usually set the rate (which is fixed) and compete for the lowest rate, essentially auctioning for the lowest rate/best deal. In most cases the investor receives a distribution each month when the borrower makes a payment.

Distributions are dependent upon the borrower making their scheduled payments, and as the loans are unsecured, there is a risk of default.

Automation case study: BreezedocsBreezedocs has developed a robotic mortgage processing tool that streamlines the processing of mortgage documentation.

Each day credit officers receive many loan applications from brokers and borrowers, containing documents such as pay slips, bank statements, tax returns etc.

All of these documents need to be organised according to income, assets, and liabilities in order to verify the borrower’s information. This has historically been a manual task that has taken credit officers hours of work.

Breezedocs reads these documents and robotically organises them into their respective categories within minutes. With integration the information can be sorted then posted directly into the loan origination and underwriting system.

What are the risks?For startups with a fintech bent, Australia’s financial services industry is highly regulated. This myriad of regulatory red tape provides Australian citizens and businesses with surety, but it’s also very difficult to navigate. This can inhibit innovation. In order to respond to this, ASIC provides an innovation hub or sandbox, which is there to help fintech firms find their way through the regulatory framework.

For the SME and consumer, security is seen as the key risk, especially susceptibility to hacking and denial of service attacks. But neither of these risks should deter a consumer from using well-known and established fintech companies.

Just as you would when making any other business decision, it is important to do the research and make educated decisions with regards to using a fintech product or service.

In summary – watch this space!Fintech is a fast growing industry both globally and in Australia, and it’s one that the government supports. It provides alternative options for SMEs and consumers helping to secure the financial services marketplace from events such as the GFC, where the banks were hamstrung to help. Fintech offers ways to reduce costs and increase efficiency and innovation.

In a highly regulated environment, the industry is not without its challenges. However with ASIC’s Innovation Hub and Regulatory Sandbox, Australian fintech start-ups can be excited about the future and SMEs can look forward to greater choice.

Given the emphasis the federal government has placed on innovation, this industry will continue to grow and contribute to the knowledge economy.

What is Fintech?

Elmira Karami Consultant – Pitcher Partners Consulting Telephone (03) 8610 5548

Charlotte Morison Senior Consultant – Pitcher Partners Consulting Telephone (03) 8610 5333

4Critical Point Network

The GST has now been in place for over 16 years yet two recent cases serve as a salient reminder of the simple risks involved in property transactions, and the potentially expensive GST consequences when things go wrong.

No doubt many practitioners and taxpayers who commonly deal with property transactions are generally aware of how transactions should be classified. But it is precisely this familiarity that can result in complacency, and with that complacency the potential for errors to occur.

When is a sale ‘Plus GST’?The first case is A&A Property Developers v MCCA Asset Managers Ltd [2016] VSC 653. In this case the vendor, A&A Property Developers, signed a contract to sell a property for $2.9 million. The parties utilised the standard Victorian Sale of Land contract.

The standard Sale of Land contract has a ‘Particulars’ page and a GST section that outlines the GST position. General condition 13 of that contract, as far as is relevant to this case, specifies that if GST is to be added to the price, the words ‘plus GST’ should be inserted in the relevant box on the ‘Particulars’ page.

The parties signed the contract and on the ‘Particulars’ page inserted the letters ‘GST’ in the appropriate box. As the parties progressed to settlement of the contract, the vendor sought an additional amount as GST above and beyond the $2.9 million selling price. The buyer argued that the price was inclusive of GST and therefore the vendor was not entitled to ask for an additional amount.

The matter found its way to the Victorian Supreme Court where Ginnane J. considered the contract and determined that clause 13 of the general conditions was very specific in its requirement that the words ‘plus GST’ should be inserted in the appropriate box. The addition of solely the letters ‘GST’ was insufficient to satisfy the terms of the general condition and did not offer any clarity to the parties as to how the price should otherwise be determined. Accordingly the court found in favour of the purchaser and determined that the selling price of $2.9 million was inclusive of GST.

This case is an expensive and sobering reminder of the need to be very clear as to what the parties have agreed to when signing a contract.

New residential propertyThe second case involving property transactions was that of FKYL and Commissioner of Taxation (Taxation) [2016] AATA 810. In this instance the vendor, who was registered for GST, constructed four properties in Cranbourne and Pakenham. One property was sold and GST was paid to the Commissioner of Taxation. The three remaining properties were placed on the market for sale and the vendor entered into an arrangement with potential buyers whereby they leased the properties for some time while giving them an opportunity to save a deposit for the purchase of the properties.

The vendor had limited success with this strategy, having turned over a number of potential purchasers. All in all the properties were leased for approximately 3 1/2 years, after which time they were sold during 2012. The company did not pay GST on the sales, nor were input tax credits claimed.

In late 2014 the Commissioner undertook an audit of the company and determined the properties were sold as new residential premises and that a GST liability was applicable in respect of the sales. This evidently came as a significant shock to the taxpayer and the matter ended up before the AAT, where the Commissioner successfully argued his case.

The case did highlight some key reminders for entities involved in property developments, including the following:

• A new property will only cease to be new residential premises where it is solely leased for a period of five years before it is sold. The Commissioner takes the view that the five-year test will not commence while a property is concurrently being held for both sale and rental purposes as it is not being used ‘solely’ to make input taxed supplies in such circumstances.

• Margin scheme agreements, where applicable, need to be in writing. In this case the taxpayer failed to obtain a written agreement to use the margin scheme in the sale contracts, which is understandable, as it did not treat the sales as subject to GST in the first instance. Nevertheless, the Commissioner generously allowed the taxpayer some considerable time, even late into 2015, to obtain written agreements with the purchasers to apply the margin scheme. The taxpayer, to its ultimate detriment, failed to take advantage of this opportunity thereby further increasing its GST liability.

• Entities involved in similar transactions should be very clear of their initial intentions regarding the use of a property at the commencement of a development project and to document any changes in intention. This is critical to the determination of an entity’s GST liability and input tax credit entitlements. In this case the taxpayer was faced with a liability on the sale but had likely also lost at least a portion of its input tax credit entitlements, as some of these would have fallen outside the four-year claim period.

The case is also a reminder that the Commissioner is diligent with his data matching and audit activities with respect to property transactions; and regularly obtaining property data from the various State titles offices and matching this with taxpayers’ ABN, GST and income tax registrations. It pays to be well prepared for the eventuality of such visits from the Commissioner.

GST and property transactions – the devil is in the detail

Peter Quattrocchi Client Director – Tax Consulting Telephone (03) 8612 9255

Critical Point Network5

Disasters: Failure is an option! Part 5: Small and Medium Practices, Big Threats

Disasters can have adverse effects on any sized business. Despite an increase in natural and man-made disasters in recent years, the development of a practical plan on how businesses can prepare for them is still not high on the agenda.

Some of the most common effects of disasters are financial impacts such as the loss of uninsured assets, productivity losses caused by business disruptions and the social impacts such as environmental damage or employee loss.

The Black Saturday bushfires epitomise the severity of a natural disaster. In addition to the 173 lives that were tragically lost, this disaster caused more than $4 billion in property damage and lost agriculture (2009 Victorian Bushfires Royal Commission Report). The bushfires had a devastating impact on Victorian natural resources and highlighted the significance of disaster planning.

Why should disaster planning be a priority?

• Nature is unpredictable – Many disasters such as floods, fires and earthquakes can occur anytime and anywhere. These types of disasters can also result in temporary or even permanent business closures.

• Machines and hardware can fail – While modern IT hardware is fairly resistant to failures, no one is immune to hard disk or internet connection failures where data loss can strike.

• Customers want access 24x7 – If your business can’t get up and running swiftly, customers could jump ship to a competitor that can offer them access whenever it’s convenient for them.

• Humans make mistakes – Much like machines, people aren’t perfect, so files may be accidentally deleted and devices broken or damaged. Human errors are some of the hardest mistakes to prevent.

Planning for the unknown can be challenging. However without the proper precautions in place to protect your data, you could be at risk of losing it all.

Matthew Hill Analyst – Pitcher Partners Consulting Telephone (03) 8610 5446

Ask yourself one question to determine whether your business needs to plan for disasters: “Can my business continue to function without my critical data?” Consider disaster planning strategies as an insurance policy for your business and critical data should something unexpected occur.

What are some of the strategies to mitigate the impact of disasters?

What activities to consider How to think about them What are the benefits

Business Impact Analysis (BIA)

• BIA is performed to help understand and quantify the impacts of an interruption to business functions and processes

• This process identifies potential loss scenarios which enables businesses to plan an approach for each risk

• This analysis is used to determine what processes should be restored first should a disaster occur

• Vulnerabilities identified

• Business functions are prioritised

• Disaster impact is evaluated

Business Continuity Plan (BCP)

• A BCP details how a business can maintain critical operations after a disaster and preparing a BCP will help your business recover quickly

• A plan is developed for each key business function on how operations can be continued and the required assets and resources to reduce the cost of disasters

• Consider an event that leaves an office building uninhabitable – cloud-based applications would allow for continued operations elsewhere

• Minimal disruption to customers

• Prevent/minimise financial loss

• Making the right decisions quickly

Disaster Recovery Plan (DRP)

• A DRP describes how business operations can be resumed quickly after a disaster

• A DRP should detail risk management and recovery processes for systems and data

• Compiling an inventory of hardware, software and data ensures that critical assets are protected

• Corrective measures in place

• Minimise downtime and preserve brand

• Backup of data and systems

Simone Ozbek Senior Consultant – Pitcher Partners Consulting Telephone (03) 8610 5311

6

CPN Contacts

MELBOURNEGess Rambaldi, Andrew Yeo or David Vasudevan Level 19, 15 William Street Melbourne VIC 3000

Telephone +61 3 8612 9261 Facsimile +61 3 8610 5999 partners@pitcher.com.au

PERTHDaniel Bredenkamp Level 1, 914 Hay Street Perth WA 6000

Telephone +61 8 9322 2022 Facsimile +61 8 9322 1262 partners@pitcher-wa.com.au

NEWCASTLEMichael Minter The Glass House, Suite 4, Level 1 101 Hannell Street Wickham NSW 2293

Telephone +61 2 4911 2000 Facsimile +61 2 4911 2099 newcastle@pitcher.com.au

www.pitcher.com.au

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The material contained in this publication is general commentary only for distribution to clients of Pitcher Partners. None of the material is, or should be regarded as advice. Accordingly, no person should rely on any of the contents of this publication without first obtaining specific advice from one of the Partners of Pitcher Partners. Pitcher Partners, its Principals & agents accept no responsibility to any person who acts or relies in any way on any of the material without first obtaining such specific advice. © Pitcher Partners 2016 PrintPost Approved PP381827/0043

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SYDNEYScott Treatt Level 22, MLC Centre, 19 Martin Place Sydney NSW 2000

Telephone +61 2 9228 2284 Facsimile +61 2 9223 1762 partners@pitcher-nsw.com.au

ADELAIDEMichael Basedow 160 Greenhill Road Parkside SA 5063

Telephone +61 8 8179 2800 Facsimile +61 8 8179 2885 partners@pitcher-sa.com.au

First Breakfast Briefings for 2017

Session 1 Date Tuesday 7 February 2017 Venue Pitcher Partners, Level 19, 15 William Street, Melbourne

Session 2 Date Thursday 9 February 2017 Venue Pitcher Partners, Level 1, 80 Monash Drive, Dandenong South

Time 7.15am for 7.30am start – 9.00am conclusion Cost Members $40 and non-members $60 (GST inc.)

For further details please head to www.pitcher.com.au/critical-point-network/events

Professional Advisors’ Conference

The CPN Professional Advisors’ Conference held on Friday 14 October at Crown Melbourne was a resounding success, with over 150 attendees enjoying the presentations and networking opportunities on the day.

Alastair Clarkson (Hawthorn’s 4-Time AFL Premiership Coach) proved to be a captivating keynote speaker as he discussed the need for ‘crucial conversations’ both at work and in life. The fantastic lineup also included Catherine Willis from the ATO (Assistant Commissioner in its Private Groups & High Wealth Individuals business line) and a host of Pitcher Partners’ experts and guests covering a range of topical issues.

The next Professional Advisors’ Conference will be held in May/June 2017, so watch this space for more information in the next edition of the CPN Newsletter!

Events to watch out for…

Season’s Greetings to all our members and best wishes for a safe and happy 2017!