Categories
Company Liquidation

Why Aussie Savings could be Sending the Country Broke

Why is there all this talk of doom and gloom?

For those with a job and a decent income, surely life has never been better? The cost of food, petrol, and clothing is reasonable. Rent in the major cities may be high, but it is affordable.

Then why is there so much negativity? Why are we unwilling to loosen the purse strings and spend for the good of the economy, particularly when interest rates are at historic lows?

Rather than spend savings from our mortgages or the petrol pump, we are choosing to pay down debt at a faster rate than ever before. In fact, the CBA says that more than 75% of mortgages are now ahead on scheduled repayments, many with a buffer of 2 years or more.

Why haven’t low interest rates raised confidence levels, stimulated spending and the economy? Why is there concern that lowering rates further will not work as intended? Why are we choosing to save? Why is confidence so low?

Perhaps it’s because unemployment is edging higher or that the mining sector appears to be in real trouble. It could be the price of iron ore that is collapsing with increased supply coinciding with reduced demand from a weakening China.

It could also be concern that the government seems unable to get its own budget in order or contain its spending and its ever increasing debt levels. Perhaps it’s because the government sees the looming problem and is now signalling cuts to services and benefits while looking to scrap superannuation incentives and increase taxes generally.

All these factors affect confidence

Meanwhile, individuals who feel they are already paying their fair share of tax watch while the government grapples helplessly with multi-national companies who shift profits offshore and pay comparatively little tax.

On top of this, individuals are expected to save for a retirement that may never come, as well as paying additional amounts for health care, schooling, universities, tolls etc etc etc. One could argue we live in a “user pays twice” system.

And despite all this, individuals are left feeling the government always wants more!

So it is not surprising to see people with little confidence will choose to save, rather than spend any benefits from low interest rates. Clearly they perceive the world in which they live could get far worse before it gets better!

And this tendency to save in the face of uncertainty may be our undoing and the reason why interest rate cuts alone may not have the desired effect.

As Interest Rates and the $AUD Fall, What Can We Expect to See?

Lower interest rates have succeeded in bringing the $AUD from parity to about 77 cents. This is close to where the RBA said it wanted to see the local unit. But now, with the collapse of commodity prices, and in particular the price of iron ore, the RBA seems intent on driving the dollar to 70 cents and below. And it is likely they will achieve this by further interest rate reductions which are now seen as a virtual certainty in May.

If that occurs, Australian exporters should become more competitive and Australia should become more attractive & affordable for local and overseas tourism. There may also be some easing of the pain in the mining sector.

On the other side, as most businesses have some exposure to overseas suppliers, one might expect the cost of goods to increase as input costs surge. This could see inflationary pressures build and it seems this is what the RBA may be trying to achieve.

What if Confidence Doesn’t Improve? What if Spending Remains Weak?

If rates fall again but money continues to be saved rather than spent, economic activity may further contract which could send the economy into a downward spiral that will inevitably lead to business bankruptcy, company liquidation and personal insolvency.

If this occurs, and the economy heads into recession or worse, then it’s over to the government once again for further quantitative easing, increased government spending or decreased taxation.

What’s your view?

Did it work last time? If so, will it work again? It’s nearly a decade on from the Global Financial Crisis – has anything changed? Are we really better off? Has the system been fixed or have we lost a decade?

If you’re facing tough times, call The Insolvency Experts for help and options.

 


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Taxation

How to Negotiate with the ATO without Losing your Shirt

Small businesses account for more than 60% of the total debt owing to the ATO. So if you’ve got a tax debt, you are definitely not alone.

But don’t make the mistake of ignoring a tax debt. It is not going to go away on its own. In fact there is no time limitation for the collection of tax so you must do something to deal with the issue as if you don’t, it is very likely the ATO will exercise its extreme powers and this could lead to company liquidation, bankruptcy and the loss of your personal assets.

This article will help you consider how to approach the ATO and how to best plead your case for an accommodation or compromise of your debt.

The ATO has Power and very Deep Pockets.

If you have a tax debt, you can’t afford to ignore it. The ATO has a number of significant powers and aggressive recovery measures that they will use against taxpayers who don’t or refuse to pay tax.

One possibility is for the ATO to raise a tax assessment, and immediately issue a garnishee.

A garnishee is a tool that directs a bank to withdraw funds from the taxpayers’ account and remit them to the ATO. A garnishee can also be used to direct a debtor to pay money to the ATO rather than you!

Personal Liability for Company Tax Debts

The tax department can also hold a director of personally liable for unpaid company debts – specifically unpaid PAYG and superannuation. They do this by issuing a Director Penalty Notice.

Normally, a director is not responsible for company debts unless a personal guarantee has been granted. However, where BAS returns are not made for more than 3 months past the due date for lodgement, a director becomes immediately personally liable for the unpaid & unreported PAYG and superannuation.

ATO Attitude to Recoveries

The ATO routinely pursues individuals into bankruptcy and companies into liquidation for outstanding tax debts.

In fact, historically, the ATO has been responsible for the most number of forced insolvency cases in Australia – so ignoring a tax debt is not an option.

 

During the Global Financial Crisis, the ATO assisted taxpayers by entering into payment arrangements over 2 years or more without any real documentation in support. In this way, the government carried many companies through the worst of the crisis.

Subsequently from about 2010 onwards, as things improved, the ATO would allow instalment agreements over a 12 month period, and sometimes a little longer, if the taxpayer could demonstrate by way of documentation, that the business could sustain such an arrangement as well as maintain its current tax obligations.

The rules for ATO compromises are contained in the Public Governance, Performance & Accountability Act 2013 and Law Administration Practice Statements.

These statements lay out the basic rationale for how the law and the discretionary powers to compromise are to be exercised. 

Essentially, the ATO has the power to enter into an agreement if it is financially prudent to do so and if it enables the efficient collection of tax liabilities from those obliged to pay them.

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A taxpayer wishing to propose a compromise arrangement must fulfil the minimum requirements that follow:

  • The debt must not be in dispute.
  • The proposal must be in writing and supported by appropriate material that would explain how the compromise would be fulfilled.
  • The compromise must offer all the taxpayers net assets (with limited exceptions)
  • The Commissioner expects to be treated the same as other creditors. Proposals that prefer or prejudice the ATO will not be accepted

If the ATO is able to conclude a compromise is in the interests of good management or administrative common sense, and that the agreement leads to the most efficient way to collect taxation liabilities, it will be likely to reach a compromise.

What will swing the balance in favour or against a Compromise?

The ATO will exercise its discretion to allow or reject a compromise proposal based on taxpayer behaviour. In particular;

  1. The ATO will favour taxpayers who have acted early and not allowed a debt to become larger by ignoring it.
  2. The ATO prefers taxpayers who take the initiative. When there is a problem, do not hide or pretend the issue will resolve itself. It rarely does.
  3. The ATO will take into account a taxpayers’ payment and lodgement compliance history. If there has been an ongoing issue regarding non-lodgement, failure to pay regularly or honour commitments, it is unlikely an agreement will be made.
  4. The compromise must deliver a better return to the Commonwealth that would be obtained by any available recovery processes. There must be a positive advantage of substance to revenue for accepting a compromise.

In making compromise agreements, the ATO will be concerned not to be seen to condone anything that is detrimental to revenue generally or to be seen to be encouraging the proliferation of these types of agreements as being the normal way of dealing with tax debts.

No matter how difficult the financial situation, company insolvency or personal bankruptcy is not the only option. Liquidation is but one of a range of alternatives that director must consider for their own benefit before they make any formal appointment.

If you are facing financial difficulties, take control, and learn about the alternatives available to you. As always, call The Insolvency Experts for help on 1300 767 525.


Disclaimer

This paper is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Insolvency

Penalty Rates + 275% Hurts Business, Employees & Customers

While there are many, according to research conducted by CCH Australia, the top reason for small business failure is cited by 61% of respondents as being due to an inability to manage costs and anticipate rising costs.

Recently the Shop Assistants Union in South Australia reached an agreement to abolish or reduce weekend penalty rates in return for general pay increases and some flexibility.

Employer groups are applauding the agreement and saying that business cannot afford to pay crippling penalty rates of up to 275% set by the Fair Work Commission. Employers say they are not arguing against penalty rates, but rather their excessive levels.

Employees on minimum wages are saying that if they lose penalty rates, they will lose a vital component of their income and this could lead to poverty.

The ACTU that represents all unions say employees who work nights and weekends deserve to be compensated.

With so many interested stakeholders, this issue will require careful consideration. Questions such as can a business really afford to pay casual employees $50 per hour to serve coffee need to be addressed? Are employees and unions expectations fair & reasonable? Can increased costs be passed on, or will customers be lost?

What happens if an appropriate balance cannot be achieved?

Penalty Rates – A Brief History

Penalty rates for Sunday work were introduced in 1919 as compensation for “unsociable hours” of work.

In 1950, penalty rates were said to be a deterrent to employers want to work employees on weekends. The rates were set to compensate for the disturbance to family and social life as well as religious observance.

But are the “norms” of life almost a century ago applicable to the reality of a modern, global economy?

Many people prefer to work on weekends or at least, have the flexibility to choose as it suits their lives and families to do so.

On the other hand, should employers who campaigned and won extended trading hours in exchange for the introduction of penalty rates, now be able to drop those rates?

Labour Costs & Business Viability

The purpose of business may be to produce something, to serve the community and to provide employment, however the ultimate motivation is to make profit for its owners. If a business fails in this endeavour, it must change or inevitably close.

Whilst ever a business remains under the control of the directors, they have options and alternatives to effect change. In this regard, they may pursue increases in revenues, or the reduction of expenses – but at present, there is little they can do to control the costs associated with the imposition of crippling penalty rates.

Where a cost structure is imposed and revenues limited, business may choose to either:

  • trade as is and incur ongoing losses as long as they can be sustained
  • remain closed at times when trading is not viable
  • increase the price of goods or services if customers will bear it
  • reduce the level or quality of the goods or service

Each of these options has the potential to harm the stakeholders

Liquidation & Bankruptcy

Not one of the stakeholders in this debate would advocate the total removal of penalty rates to exploit vulnerable workers, but without some modernisation and flexibility, there is an argument that jobs and companies will be lost.

Companies burdened with unrealistic wage costs may either remain closed when conditions make trading unviable or, if they choose to remain open and trade unprofitably, they could eventually fail and enter company liquidation.

By the same token, if individuals are not allowed to sell their time below a certain rate, shifts will be lost and overall earnings reduced. This loss of income could then lead to reduced economic activity, a reduction in spending, which in turn would see a further deterioration in employment. It could lead all to a downward spiral of more liquidation and bankruptcy administrations.

What’s your view?

The Reserve Bank is meeting today to discuss the prospect of further interest rate cuts to historic low levels. There is a major concern that further rate cuts will do little to stimulate the economy. Is the issue of penalty rates just one of a host of issues that need to be addressed? Do we have a structural problem? Is it a confidence issue? What exactly is the problem?

If at any time you are facing financial difficulties, call The Insolvency Experts for help and all your options.

Source:  Penalty Rates Hit Hospitality – news.com CCH Research Penalty Rates rethink – smh.com.au


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.