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Dendra Accounting Group

October Tax Update

Director Penalty Notices

Recent changes have been made to Director Penalty Notices (DPN). These are notices served by the Tax Office to a company director which set out obligations of the director in relation to certain outstanding tax debts of the company. If appropriate action is not taken by the director or the company, the tax, which is the subject of the DPN, will become a personal liability of the directors.

When a DPN is received, the director has 21 days from the date of issue to comply with either of the following:

Have the company pay the amounts to which the DPN relates; or
Ensure the company either:
- enters into administration pursuant to the Corporations Act 2001; or
- winds up pursuant to the Corporations Act 2001.

There are defences available to directors which have been reduced under these recent changes. The onus of proof relies on the director to prove that they did not take part in the management of the company because of illness or some other good reason at the time the company incurred the tax debts which are the subject of a DPN and that it was unreasonable to expect the director to take part in the management of the company at the time.

DPNs are one of many tools available for use by the ATO, but they are effective in that they make directors liable for company debts. If a DPN is received and the company is unable to meet its obligations with the ATO, we recommend that you immediately seek our advice or contact an insolvency specialist.

Superannuation Contributions

Superannuation contributions for persons aged under 50 years are restricted to $25,000. If you are over 50 years, contributions for the year ended 30th June 2011 and for the 2011/2012 year can be $50,000.

The government has introduced new legislation that from the 1st July 2012, only those persons over 50 years with superannuation savings of less than $500,000 will be able to make a $50,000 contribution.

If the level of superannuation savings exceeds $500,000 - from the 1st July 2012, superannuation contribution for a person over 50 years will be restricted to $25,000.

If you would like to have a discussion relative to your superannuation contributions, please do not hesitate to contact us.

The ATO Is Using Benchmarks For Tax Audits

The Australian Taxation Office's benchmarking process is now being used to check taxation assessments. SMEs need to keep accurate, clear records of their business affairs to satisfy taxation officer's reviews.

If you fail to keep proper records and the business' financial performance is outside the benchmarks established for a particular industry, then the onus will be on the individual operator to prove that the Australian Taxation Office should not apply the industry benchmarks to that particular small business. This will prove to be extremely difficult if proper records have not been kept to support transactions for the business. The ATO is using the benchmarks business evaluation as part of its monitoring of the "cash economy". The ATO have instigated a program whereby thousands of small businesses will be monitored over the next 12 months and, if a business appears to not be performing within the "norm" established by the ATO benchmarks, then the small business owner will probably be subjected to a "finely tuned" audit.

The ATO has issued guidelines as to how they will undertake benchmarking audits. These include:

a letter will be sent to the taxpayer, with a copy to the tax agent, advising that the taxpayer's business is outside the benchmarks for that particular industry;
if deemed necessary, the ATO will request the client's records be submitted to the ATO for review. If the records are found to be acceptable there will be no further action taken by the ATO. (This highlights the necessity to ensure that proper records have been kept of all business transactions).
should the ATO deem that records are inadequate, the taxpayer will be advised that he/she will need to produce further records to support the variation from the ATO's benchmark for that industry. Without proof, or other compelling reasons, the ATO will then apply the benchmark to determine the taxpayer's assessable income.
if a small business receives a request from the ATO, relative to a benchmark audit, the taxpayer will have 14 days to respond to the request.

If you have any concerns as to how your business will perform against the ATO's benchmark for your industry and you would like us to conduct a review of your business systems and records, please contact us.

What's Does That Mean?

Creditors' Days Outstanding

This is a means of checking how a business is paying its creditors as compared to negotiated payment terms. It is important as it identifies how long on average your business takes to pay its suppliers and hence has a very important impact on cashflow. Calculations are as follows:

Purchasers from creditors (not cash) divided by 365 = average daily credit purchases.

The creditors' balance outstanding at the end of the month divided by the average daily credit purchases = creditors' days outstanding.

Example: Credit purchases for the year $1,205,000

Daily credit purchase figure:

$1,205,000	=	$3,301
365

Creditors' outstanding $162,000

Creditors' days outstanding calculations:
$162,000	=	49.1 days
$3,301

The information contained in this Update is general in nature and will apply differently to every individual and business. You should contact Dendra to discuss how any of the above strategies may apply to your particular circumstances.