WSC Caringbah E-News – February 2010

Key Dates
Delay in Processing of Tax Returns
ATO Comes Down Hard on Trust Distributions Owed to "Bucket Companies"
Why February is Cash Flow Hell .... And What To Do About It
ATO Trials Tax Payments by Credit Card
Goods Taken Stock for Private Use

Key Dates:

21 February:
Due date for lodgement and payment of January 2010 Monthly activity statement.

28 February:
Due date for income tax returns to be lodged by new companies or self-managed super funds (registered before July 2009) even if no tax is payable or company or fund did not trade.  Payment of any tax is also due by this date.

1 March:
Due date for lodgement and payment of December 2009 quarter Business Activity Statements and quarterly PAYG Instalment Activity Statements.

28 March:
Due date for income tax returns to be lodged by companies or self-managed super funds (excluding “medium” or “large” business taxpayers) with total gross income per the 2008 tax return of more than $2 million.  Payment of any tax is also due by this date.

Delay in Processing of Tax Returns

As many taxpayers would know, there has been a significant delay in tax returns being assessed and therefore, refunds being issued.  This delay was caused by a systems upgrade which the ATO commenced work on in early January and only completed last weekend.  The ATO has now started to process the backlog of returns and should be back on track by the end of February. 

ATO Comes Down Hard on Trust Distributions Owed to "Bucket Companies"

By way of background, for many years now the Tax Office has accepted that trusts could make distributions to private companies but not actually have to pay the amount.  These were called unpaid present entitlements.

These amounts were taxed in the hands of the company and the trustee was able to continue to use the funds for the benefit of all the beneficiaries.

The Tax Office has now reversed that longstanding view and issued a draft ruling that many see, at the very least, as contentious.

New Draft Ruling

The new draft ruling (TR2009/D8) means that, generally speaking, where a trust does not physically pay out a distribution to a private company, the Tax Office will deem that a loan has been provided by the private company to the trust.

Where that occurs, the amount owing under the “newly created loan” may be treated as a dividend to the shareholders of the company.

“Carve-out” for existing unpaid distributions

However, distributions made before 16 December 2009 are not affected by the ATO’s new interpretation, and will therefore not generally be treated as loans (or dividends).

Editor:  We have not gone into the technical side of this issue which is quite complicated to the uninitiated.

We recommend that any Trust clients who may be concerned with how this draft ruling could affect them should contact our office.

For what it’s worth, this is a draft ruling and it is possible, but not likely, that the ATO will change its view.  In addition, the Tax Office’s position has yet to be tested in Court.

Why February is Cash Flow Hell ... And What To Do About It

If you listen to the news reports Australia survived the economic crisis relatively unscathed.

But behind the news, companies are still failing and this February will be a vital test of our economic optimism.  The number one reason why companies fail is cash.  Don’t be deceived by the simplicity of this problem – some of the mightiest companies have simply run out of cash or their rate of growth has outpaced their capacity (or their banker’s willingness) to fund the additional investment.

The balance between growth and cash flow is always a delicate one.  All it takes is for a few major customers to either slow down or stop paying you and your cash flow is suddenly compromised.

February is traditionally the worst cash flow month in the calendar.  Last month Dunn & Bradstreet released data showing that business to business payment days have again risen and now sits at 53.9 days.  Large companies are the worst payers with smaller companies, previously the fastest payers, now slowing their payment cycles.  With another interest increase and BAS payments due, many will pick and choose who they pay.

If your customer base is consumers the news isn’t that much better.

A separate Dunn & Bradstreet analysis shows that up to four in ten Australian’s will now need to use their credit cards to pay bills.  The 18 to 24 age group and families with children appear to be faring worse now than they did at the height of the financial crisis.  And, this is without factoring in an interest rate increase.

The risk of default, regardless of whether you are a B2B (business to business) or B2C (business to consumer) business, is high.

So what can you do to reduce the risk?

Manage your debtors.  Set your payments terms and stick to them.  Have a strong follow up process.  In an environment where the first bill to be paid is the one judged to be the most urgent, its worth speaking up and asking for what is owed to you.

Plan.  Take a look at the cash requirements of your business and what investments need to be made.  Make sure forecasts are not overly optimistic and performance measured closely.

Explore.  Spend some time looking at efficiency.  Not so much cost cutting (we’ve probably all done this) but where gains can be made without sacrificing resources.

ATO Trials Tax Payments by Credit Card

The Tax Office is trialling payment by credit card for all taxation liabilities between $10 and $10,000.

To make a credit card payment taxpayers will need:

*  a Visa, MasterCard or American Express card; and
*  their ATO electronic funds transfer EFT code

in order to use the Government EasyPay website or telephone service.

Card Payment Fee

A card payment fee applies to transactions made using this service.  This fee is the non-GST component of the fee the Tax Office incurs from its banker for these transactions.

The fees are:

Card Type Fee
Visa/MasterCard 0.65%
American Express 1.25%

Goods Taken from Stock for Private Use

The Tax Office has issued a new tax determination which estimates the value of goods taken from trading stock for private use by taxpayers in certain industries for the 2009/10 income year.

Editor:  Clients who may be able to justify a lower value for goods taken from stock than that shown in the schedule should speak to us.

The Schedule for the 2009/10 income year is: