1. 75
2 0 1 1
2 FEATURE INDEPENDENT
CONTRACTORS IN THE GUN
3 FEATURE FOREIGN INvESTmENT – A
kEy DRIvER IN AUSTRAlIA’S FUTURE
GROwTH
4 lEgislATion FAIR ENTITlEmENTS
GUARANTEE – PROTECTING EmPlOyEE
ENTITlEmENTS
5 FEATURE TRUST STREAmING – PART 1
6 CliEnT PRoFilE wESTERN ImAGING
GROUP
7 ADVoCACY – BUDGET UPDATE
TAx PAYER AlERT
8 WHAT’s nEW
TAx DiARY
Taking care of Business
Why do business owners delay making decisions about the future of Dr Richard Shrapnel
Executive Director – Business Consulting
their firms and potentially put at risk this most valuable asset?
Melbourne
Swinburne University and Pitcher of business owners intending to retire over The research project will employ a range
Partners are undertaking a two and a half the next ten years do not have an exit of data gathering techniques including case
year project which explores the dynamics strategy in place. The avoidance or delay of studies, interviews and a national survey,
that shape planning amongst family decision making by business owners over all of which will help identify and
businesses. In particular, the project aims succession, potentially weakens capital understand issues such as trust and
to understand the uncertainty and delay value, leaves family businesses at risk of communication across family businesses.
around family business succession failure and their stakeholders vulnerable to Clients will have the opportunity to
planning, clarify the dynamics which conflict and uncertainty. participate in the research phase if they
inform succession planning and develop so wish.
Although there is a substantial knowledge
effective strategies directed toward
of succession planning in family business We await the outcomes of the project with
orderly succession planning.
research, there has been very little interest, as it is expected that the study
The statistics surrounding family business sociological research conducted as to the will generate better strategies, protocols
are impressive. Family firms account for dynamics, barriers and strategies involved and policies for the succession planning of
70-80% of Australian businesses, and in family business succession planning. Australian family businesses. This
make up $4.3 trillion of business value. Family business owners and managers information will be invaluable in assisting
In the next decade, approximately $3.5 often seek help in succession planning Pitcher Partners to properly guide clients in
trillion of that value is expected to change from trusted professional advisors, but the evolution of their businesses in the
hands as the baby boomers pass on their some of the problems arising from future and we look forward to sharing the
businesses. Surveys of businesses succession planning are not financial or knowledge with you.
routinely report that the issue of legal, but rather social, involving a complex
succession is fraught and that over 50% array of decisions and processes embedded
in family communication and decision-
making.
A PUBLICATION EX AMINING ISSUES FOR OUR CLIENTS

2. Feature
Independent contractors
in the gun Brad Twentyman
Director – Superannuation
Melbourne
The push to limit the number of independent contractors is well under ■ Frequency
Reports will need to be lodged as an
way in the building and construction industry and it appears the
annual report in the approved form. The
commercial cleaning, information technology and transport industries will annual report (to be called a ‘Division 405
be the next targets. report’) will contain information that
identifies the ‘supplier’ and the building
In the recent Federal Budget the ■ Entities subject to reporting and construction industry payments to
Government announced it will require The entities subject to reporting will the ‘supplier’ in the reporting period.
certain businesses to report annually to include any contractor or subcontractor
the Australian Tax Office, payments that who is engaged in the building and We understand further consultation is
have been made to contractors and sub- construction industry, who quotes their scheduled on the form and method of
contractors in the building and ABN to the purchaser and receives a reporting.
construction industry with effect from payment for building and construction
Submission
1 July 2012. The Assistant Treasurer Bill work.
Pitcher Partners will discuss the form and
Shorten, claims the new reporting regime Reporting responsibility
■ content of its submission with clients. All
will require businesses to report Businesses, including sole traders or comments and views would be welcome.
information that is already required to be contractors wholly or principally For this purpose or for further information
collected and recorded under existing engaged in the building and on the announcement, please consult your
taxation law. He seems however, to construction industry, will be required regular Pitcher Partners contact.
overlook the additional compliance burden to report. Private individuals such
that reporting the information will owner builders will not be required
impose. to report.
Following on from the Budget, the
Assistant Treasurer released for public
comment a discussion paper outlining the 1 2 3 4 5
WHO? CREATE AND INVOICING PAYMENT QUARTERLY END OF YEAR BUSINESS
new reporting regime. Feedback from the
PERFORM UNDER CONTRACT BUSINESS TAX OBLIGATIONS
consultation will be used to finalise CONTRACT TAX OBLIGATIONS
reporting arrangements.
Building Co Building Co Building Co Building Co Building Co Building Co
Proposed regime
Building Co
Housing contracts Bob to receives Bob’s pays Bob for lodges its BAS on a completes and lodges annual
An example of the proposed reporting Developer install a bathroom invoice (including his services quarterly basis lodges their report detailing
ABN) income tax return payments to all
regime taken from the discussion paper is contractors
set out in the adjacent diagram.
Additional detail is provided in response to Building Co must Pay PAYG Building Co will
record the details instalments to ATO pay an income tax
common questions being asked of of the payment liability or receive
Government: it makes to Bob a refund
including Bob’s
■ Payments subject to reporting ABN
Payments that will be subject to
reporting, are payments under a Bob Bob installs the Once completed Bob receives Bob lodges his BAS Bob completes and
contract that is in whole or in part for Plumbing bathroom Bob bills Building payment for on a quarterly lodges his income
Contractor Co for his services his services basis tax return
the supply of building and construction
services. Payments either solely for the
supply of goods or materials or Key Pay PAYG Bob will pay an
payments of salary and wages for Stage Existing Obligations New Obligations
instalments to ATO income tax liability
or receive a refund
employees will not be captured.
Government Discussion Paper – Reporting of Taxable Payments for Contractors in the Building and Construction Industry
May 2011
2

3. Feature
Foreign Investment
– a key driver in Australia’s Ben Lloyd
future growth
Regional Executive
Baker Tilly International
Australia’s history of welcoming foreign investment has proved to be a In particular, he noted “our strong
institutions, flexible markets, highly skilled
key driver of our development as a nation. Foreign investment provides
workforce, culture of innovation, sound
additional capital for growth, creates new job opportunities and economic policy, natural resources and
supports existing jobs. It also encourages innovation and skills proximity”, all of which make us highly
development, introduces new technologies and promotes healthy sought after by the two major developing
economies, India and China. “We are a
competition amongst our industries. The Australian Bureau of Statistics country which offers diverse business
estimated at the end of 2008, that 25% ($100 billion) of foreign direct opportunities across a broad range of
investment was in mining and 19% ($74 billion) in manufacturing. industry sectors, and we welcome and
encourage foreign investment. Australia’s
investment climate is a good story and one
which we are proud to tell.”
At the recent 2011 Baker Tilly Asia Pacific In his address to delegates, The Minister In this encouraging investment climate,
Regional Conference in Melbourne hosted described Australia as an economy with Pitcher Partners’ membership of the Baker
by Pitcher Partners, the Hon Bill Shorten “strong fundamentals, low unemployment, Tilly network will enhance its ability to
MP, Assistant Treasurer and Minister for strong job creation and a massive pipeline provide clients with a recognised global
Financial Services and Superannuation, of business investment.” He noted that brand, and a leading, closely aligned
emphasised Australia’s “very consistent Australia has much to gain from our network of locally owned and managed
approach” to foreign investment. He told growing economic relationship with the firms focused on delivering exceptional
delegates that since 2007, the Government Asia-Pacific region and that future growth client service. The Baker Tilly network has
had approved over 1,600 foreign relies on our continued openness to 150 member firms in 120 countries
investment business proposals worth foreign investment. worldwide. In the Asia Pacific region, we
around $490 billion. “Australia is a globally competitive provide services across 24 countries.
The Government’s consideration of location to do business and offers a If you would like to know more about how
business proposals is done on a case-by- wealth of opportunities for businesses to Pitcher Partners can assist you in the region,
case basis, and despite the recent succeed”, said the Minister. please contact Ben Lloyd, on 03 8610 5425 or
speculation surrounding the acquisition of at ben.lloyd@bakertillyinternational.com
ASX by the Singapore Exchange,
(subsequently rejected by the
Government), Australia’s foreign
investment policy has not changed.
The Government continues to welcome
foreign investment because of the
benefits it provides the economy. It has
actively pursued a framework that will
allow for the introduction of competition
in Australia’s equity markets, which could
include foreign operators setting up
markets in Australia, and the
commencement of market competition
with the entry of Chi-X later this year.
CO N TAC T 3

4. Andrew Yeo
Partner – Business Recovery & Insolvency
Melbourne
Legislation
Fair Entitlements Guarantee
– Protecting Employee Entitlements Andrew Yeo
Partner – Business Recovery and Insolvency
Melbourne
The Federal Government’s “Protecting 3. Administrative changes to strengthen As also noted in the recently released
Workers’ Entitlements package” has been the ATO’s powers to prosecute directors Federal Budget, the super reforms extend to
designed to increase the level of legislative personally for unremitted employee the ATO and the Fair Work Ombudsman
protection for employee entitlements superannuation as well as increasing the (FWO) receiving additional enforcement
when their employer goes into liquidation powers of the Australian Securities and powers.
through the implementation of three key Investments Commission (ASIC) to fight
As of 1 July 2011, the ATO will have stronger
initiatives: Phoenix activities.
powers to ensure companies comply with
1. Introduction of the Fair Entitlements The Fair Entitlements Guarantee will not their superannuation requirements through:
Guarantee Legislation. This proposed apply to: ■ An extension of the Directors Penalty
legislation is designed to protect ■ The portion of income earned above Notice (DPN) regime to include unpaid
employee entitlements including: the annually indexed rate of superannuation entitlements; and
■ Redundancy (up to a maximum of four $108,300.00; and ■ Improving the capacity of the ATO to
weeks for each year of service); ■ Directors or other ‘excluded employees’ conduct proactive compliance activity
■ Annual Leave; of the employing company such as and investigate worker’s complaints.
spouses, children or relatives.
■ All Long Service Leave; and These amendments would see an increase
The Federal Government also proposes in the personal liability of Directors for
■ Up to three (3) months of unpaid
that under its “Securing Super” reforms, unremitted superannuation contributions.
wages.
employees will receive: Employees who are employed by
The proposed Fair Entitlements Guarantee unincorporated entities will also see their
■ Information on their payslips about the
will replace the existing General Employee entitlements ranking improve under the
amount of superannuation actually
Entitlements and Redundancy Scheme proposed reforms. The reforms propose the
paid into their super account; and
(GEERS). aligning of the priority of employee
■ Quarterly notification from their entitlements under the Bankruptcy Act 1966
2. Amendments to increase compliance
superannuation fund if regular with the priority provisions encompassed
and recovery measures against company
payments cease. under the Corporations Act 2001.
directors in relation to superannuation.
These proposed reforms should tighten For more information consult your local
the mechanisms associated with the Pitcher Partners’ contact.
timely payment and disclosure of all super
payments, although we have concerns
that employees could become alarmed
unnecessarily because of the usual time
delay in remitting contributions.
4

5. Feature Part 1
Trust Streaming Alexis Kokkinos
Executive Director – Tax Consulting
Melbourne
Considerable uncertainty regarding the ability of Trustees of discretionary discuss in Part Two of this article. Critically,
as resolutions or records need to be in
trusts to stream different classes of income has now been removed for
place by 30 June 2011 for dividends and 31
capital gains and franked dividends. The Government has released August 2011 for capital gains, this does not
legislation that will allow two classes of income to be streamed through a leave a lot of time for trusts to consider
trust, being capital gains and franked dividend income. The legislation is the proper application of these new
provisions, and put in place documents to
scheduled to have effect from 1 July 2010.
comply with these provisions.
On that note, the ATO has indicated that,
The new provisions will allow Trustees to 50% of the total distribution, however in the event of an audit or review, it will
specifically allocate capital gains and they would be attributed the taxable not apply its long standing administrative
franked distributions to nominated amount referable to the streamed income practice of allowing trustees until 31
beneficiaries, provided they are made only. Assuming the individual rate of tax August to pass resolutions distributing the
specifically entitled to the amounts under paid is the top marginal rate, the total tax income of a trust for a prior income year.
the terms of the trust. However, to access payable would be $6,825. Accordingly, due care must be taken
these provisions, the Bill critically requires before 30 June 2011 to comply with the
Under the proportionate method (i.e.
written records to be in place by 30 June requirements of the new provisions.
where the trust does not stream), this
2011 for dividends and by 31 August 2011 Indeed, it will be a critical issue for
would mean that beneficiary A and B
for capital gains. distribution statements and resolutions
would be allocated 50% of the total
for the year ending 30 June 2011 to comply
In the absence of a Trustee’s resolution or taxable income (or $10,000 each), being a
with the new provisions. We would
appropriate records allocating income in combination of 50% of the capital gain
strongly recommend seeking advice as to
this way, the ATO’s practice of allocating ($2,500) and 50% of the business income
these requirements, especially where a
income proportionately across all ($7,500) each. Furthermore, beneficiary B
trustee is seeking to stream capital gains
beneficiaries will apply. (being a company) would lose access to
or franked dividends.
the discount component of the capital
Example: gain and would be taxable on another Part Two of this article, which will appear
To demonstrate the application of the new $2,500. The tax payable in this case would in the next issue of Contact, will examine
provisions, assume that a trust derives a be $8,400, an increase of $1,575 or 23% some of the many compliance problems
capital gain of $10,000 (which is that arise under the new provisions,
While the above example seems simple,
discounted for tax purposes to $5000), including: expense and loss allocation
the provisions are mechanical and
requirements; dealing with prior year
and other business income of $10,000 complicated, leaving significant
capital losses; asset revaluation reserves,
(which results in a taxable amount of opportunities for error. Furthermore, the
requirements for preparing accounts;
$15,000 due to timing differences). new provisions do not support the ability
dealing with contracts that straddle year-
Therefore, assume that the total trust law to stream other classes of income,
end; and the operation of the CGT market
(accounting) income is $20,000 and the including: interest income; unfranked
value substitution rule.
total taxable income is also $20,000. dividends; rental income; business
income; royalties and foreign income. For further information please refer to our
The trust may wish to stream the taxable
Tax Bulletin at www.pitcher.com.au/53/
capital gain to beneficiary A (e.g. an
Due care must be taken Bulletins, or consult your local Pitcher
individual) and the taxable other business
Partners contact.
income to beneficiary B (e.g. a company) In many cases, the results under the new
under the new provisions contained in the provisions can be far different from those
Bill. In this case, each beneficiary would under the ‘old’ rules – which we will
receive a cash distribution of $10,000 or
CO N TAC T 5

6. Client Profile
Western Imaging
Group
David Staples
Partner – Private Clients
Sydney
Western Imaging Group is an then sit, stand or place themselves in conventional lie down MRI’s, and therefore
whatever position is most appropriate and provides a more accurate diagnosis”, says
independent, comprehensive,
comfortable for imaging. Dr Matthew Lee from Western Imaging
private radiology practice located in Group.
The new open and upright design means
the western Sydney suburb of the patient is not enclosed in any way, so Pitcher Partners NSW has been providing
Blacktown. Since 2005, the practice there is no claustrophobia – they can even business advisory and compliance services
has provided a variety of diagnostic watch television while being imaged. to Western Imaging Group since
The MRI allows imaging of any part of the December 2009 on a range of issues
services to patients, including X-ray,
body, and enables the patient to be placed including business advice on the
ultrasound, mammography, barium expansion of the practice, financing of
in a weight bearing position which
studies, biopsies and CT referrals. reproduces pain and other symptoms. This new equipment, due diligence of other
allows a more accurate diagnosis and radiology firms and review of existing
In late 2010 Western Imaging was able to
better targeted treatment, with reduced operations. Since 2005, we have also
offer to patients, the first Fonar Open
health costs for both the patient and the undertaken comprehensive risk reviews
UPRIGHT® Multi-Position MRI. Developed
government funded health system. and assisted in the development of
by Dr Ray Damadian of the Fonar
appropriate succession plans.
Corporation in New York, the man “The added benefit is that the MRI
accredited with the development of the provides improved access to a greater Pitcher Partners are delighted to have
conventional lie down MRI, this machine is range of patients, including those Western Imaging Group as a key client and
one of only 140 in the world and the only suffering from claustrophobia, obesity or to be able to work with the principals of
one of its kind in Australia. It has no who are children. It allows the referring this successful enterprise to support their
tunnel and allows the patient to walk in, doctor to see the whole picture rather future growth and business evolution
than just part of it, which is the case with plans.
6

7. Advocacy – Budget Update
Ray Cummings
Director – Tax Consulting
Melbourne
Some Not for Profits to lose charity While the crackdown applies only to new
status activities from 10 May 2011, this measure may
severely restrict the viability of many
The crack down on unrelated commercial charities. For example, where all of the profit
activity for the not for profit sector in the from the commercial activity finds its way to
Federal Budget, will see a reassessment of altruistic purposes, there may be a need for a
the charitable status of entities based on a build up of cash reserves either as working
new definition of a charity which will see capital for the business, or to be earmarked
some organisations losing their charitable for some future initiative of the charity. These
status. funds may become taxable.
New measures will also see the This is a serious issue for the not for profit
establishment of a new Australian sector, and we envisage that there will be
Charities and Not for Profit Commission extensive consultation between both the
(‘ACNC’). One of the Commission’s roles Federal Government and the not for profit
will be to re-assess the charitable status of sector in the future. Pitcher Partners will be
entities and then instigate the removal of advocating that this issue be handled with
tax concessions for income for those care, particularly at this time, when public
organisations whose activities are deemed donations are difficult to come by and
not for altruistic purposes. Government expenditure is under review.
Tax Payer Alert
Decision on treatment of Corporate
UPEs must be made by 30 June.
In the last edition of Contact we focused on Taxpayers are now reminded that the
the Divison 7A issues concerning trusts deadline for trustees to adopt an
with corporate unpaid present investment option approach is 30 June 2011.
entitlements (UPEs), specifically the
If this affects you please contact your
opportunity for trustees to avoid traditional
regular Pitcher Partners contact to discuss
Division 7A problems by putting those UPEs the matter as soon as possible.
on investment option terms.
CO N TAC T 7

8. What’s New
Pitcher Partners Association is pleased to announce our 7 New Partners
Peter Braine Gavin Debono Mark English Sharon Leong Leon Mok Rob McKie Dr Richard Shrapnel
Tax Consulting Private Clients Audit & Assurance Audit & Assurance Tax Consulting IT Consulting Business Consulting
Melbourne Melbourne Perth Perth Perth Melbourne Melbourne
Pitcher Partners Melbourne – Partners Association nationally and stay providing audit, business services,
on the Regional Advisory Board for Baker management and company secretarial
Management Changes Tilly in Asia, while remaining as a full time advice. Founder of the Monash Group,
After 8 years at the helm, Don Rankin will Partner in the Business Advisory and Mark English, who joins Pitcher Partners
step down on 30 June 2011, and John Assurance Division. Perth as a Director, has over 30 years
Brazzale will take over as Managing experience in Australia and overseas. Mark
Partner of Pitcher Partners Melbourne. Pitcher Partners Perth brings with him fellow Director Sharon
John is currently the Partner in Charge of announces merger Leong and a team of other professional
the Tax Consulting Group. Don Rankin will and support staff.
Pitcher Partners Perth has merged with
remain as Chairman of the Pitcher
the Monash Group, which specialises in
Contact is printed on paper Certified Carbon Neutral. With 55% recycled fibre
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Tax Diary – July, August & September 2011
For comments on this edition or if you wish to
be removed from the Contact mailing list please
email us at editor@pitcher.com.au
14 July 2011 28 July 2011 21 August 2011
PAYG Payment Summaries to be provided Lodgement and payment of fourth quarter Lodgement and payment of July monthly
to employees, company directors and office superannuation guarantee contributions. BAS/IAS.
holders.
Lodgement and payment of the third quarter 21 September 2011
21 July 2011 BAS/IAS. Lodgement and payment of August monthly
Lodgement and payment of June monthly BAS/IAS.
14 August 2011
BAS/IAS.
Lodgement of PAYG Withholding Payment
Lodgement and payment of fourth quarter Summary – Annual Report.
PAYG instalment activity statement for head
companies of tax consolidated groups.
Melbourne Adelaide
John Brazzale, Managing Partner Telephone +61 3 8610 5000 Tom Verco, Principal Telephone +61 8 8179 2800
Level 19, 15 William Street Facsimile +61 3 8610 5999 160 Greenhill Road Facsimile +61 8 8179 2885
Melbourne VIC 3000 partners@pitcher.com.au Parkside SA 5063 partners@pitcher-sa.com.au
Sydney Brisbane
David Young, Managing Partner Telephone +61 2 9221 2099 Nigel Fischer, Managing Partner Telephone +61 7 3220 0355
Level 22, MLC Centre, 19 Martin Place Facsimile +61 2 9223 1762 Johnston Rorke Facsimile +61 7 3221 7779
Sydney NSW 2000 partners@pitcher-nsw.com.au Level 30, Central Plaza 1 partners@pitcher-qld.com.au
345 Queen Street
Perth
Brisbane QLD 4000
Bryan Hughes, Managing Partner Telephone +61 8 9322 2022
Level 1, 914 Hay Street Facsimile +61 8 9322 1262
Perth WA 6000 partners@pitcher-wa.com.au 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
www.pitcher.com.au 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
Pitcher Partners, including Johnston Rorke, is an association of independent firms. person who acts or relies in any way on any of the material without first obtaining such specific advice.
Liability limited by a scheme approved under Professional Standards Legislation. © Pitcher Partners 2011 PrintPost Approved PP381827/0043
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