The Perils of Loud Letters of Demand

I thought I would pass on an article written by the solicitor, leading insolvency commentator and author of the Insolvency Bible, Michael Murray.

Source: The perils of loud letters of demand

A creditor being paid its debt following a letter of demand can be a Pyrrhic victory if the debtor ends up in insolvency and the liquidator or trustee demands the payment back from the creditor as an unfair preference.

The liquidator or trustee has to show that the creditor reasonably suspected that the debtor was insolvent for the payment to be recoverable.

Communications by the creditor may be evidence of that suspicion, in particular, if the demand letter is written in CAPITAL letters, and impugns the debtor’s solvency.

In Trenfield v HAG Import Corporation (Australia) Pty Ltd (No.2) [2018] QDC 129, there were email exchanges in standard font, in which the creditor, in fact, wrote that it was

“quite clear … that you have no intention of paying your account as per our trading terms, that is ‘as and when they fell due’ and this raises the issue of your trading position with regard to the Corporations Law (sic)”.

That was then followed by, as the Judge said, an email from the creditor

“in a much larger font, which I suspect is the email equivalent of shouting”.

The debtor “replied (in a standard font size)” with what the Judge said was “the ancient plea for more time”.

The judgment concerned the costs to be paid, in particular, whether indemnity costs should be ordered against the creditor for unduly resisting the liquidator’s claim.

While the capitalised email helped the liquidator’s case, a later email in standard font confirmed the indemnity costs order.  The creditor had emailed saying the debtor

“is unable to meet our overdue account ‘as and when it has fallen due’ and the inescapable consequence is the Robins is actually trading whilst insolvent””.

The lesson

In referring to the ‘ancient plea’, the Judge referred to the Bible, Matthew 18:26:

“Since the man was unable to pay, the master ordered that he be sold to pay his debt, along with his wife and children and everything he owned. Then the servant fell on his knees before him. ‘Have patience with me’, he begged, ‘and I will pay back everything’”.

However, unlike the creditor in this case, the master,

“had compassion on him, forgave his debt, and released him”.

The further lesson

Courts will not necessarily assume a suspicion of insolvency from a creditor’s robust letters of demand, which in some quarters are standard practice.

The potential for the necessary suspicion is raised if supported by other indicia.

But if ‘shouting’ is perhaps not always a giveaway, a creditor who ‘inescapably concludes’ insolvency is.

And writing strong letters of demand can be a two-edged sword, written carefully; but letters impugning the debtor’s solvency are best avoided.

The question why a creditor has to repay the money if it suspects or knows their debtor is insolvent is not clearly explained in insolvency law or policy.  It seems to stem from some sense of morality about the unfairness of a creditor knowingly taking the money resulting in other creditors being worse off.

At the same time, extracting a payment is not in breach of any law.

Keay’s Insolvency (10th ed, 2018, Ch 5) queries the reality of a stated purpose of preference law being to deter ‘the race of diligence’ of creditors to dismember the debtor before bankruptcy …’.

Would a creditor be deterred by the distant and uncertain prospect of a preference recovery?

Fingers crossed

Rather, the position is better stated in Nationwide v Franklins [2001] NSWSC 1120.

“There is nothing compelling a creditor somehow to remain pure by shunning a payment in respect of which there exists some theoretical future possibility of its proving to be preferential.

A normally motivated creditor would be inclined to accept such a payment conscious of any risk of disgorgement, and with fingers crossed to the extent indicated by the circumstances”.


Though it should be noted that creditors subject to model litigant obligations, such as the ATO, may decide not to accept a payment arrangement if the ATO is not satisfied that the debtor’s other creditors are being paid: PS LA 2011/14; and that if a demand for payment of a preference is made, the ATO may decide to repay under settled criteria.

Read more by Michael Murray: Demands by Liquidators – Trying their luck

Company Liquidation

Defending Unfair Preference Claims

In every liquidation, Liquidators seek to identify and recover monies paid to creditors where it can be shown the recipient knew or suspected a Company was insolvent at the time payment was made.

The primary purpose of the law of Unfair Preference Claims is to ensure that no one creditor should receive more than others in terms of a cents in the dollar return from a winding up.

While the intent of the law is to ensure everyone receives their fair share of whatever remains of an insolvent company, the consequence can be a creditor may be punished for their diligent, efficient and persistent approach to business in favour of other creditors who may not have been as industrious.

However, just because your client receives a demand to repay an unfair preference does not mean all is lost. There are effective ways to respond and retain the benefit of the funds collected.

The Law

Section 588FA of the Corporations Act 2001 says a transaction is an unfair preference, given by a company to a creditor, if the Liquidator (who bears the onus of proof) can show:

  1. The company and the creditor were parties to the transaction;
  2. The transaction results in the creditor receiving, in respect of an unsecured debt, more from the company than it would have received from the company if the transaction were set aside and the creditor were to prove for its debt in the liquidation process;
  3. The company was insolvent at the time of the transaction or became insolvent as a result of the transaction; and
  4. The transaction was entered into during the 6 month relation back period preceding the winding up (If Liquidation followed Voluntary Administration, the relation back date is the date upon which the administrators were first appointed to the company).

What the Liquidator needs to prove.

To succeed, a Liquidator must be able to demonstrate:

  1. The Company was insolvent at the time of the transaction(s); and
  1. The creditor knew or ought to have had some knowledge or suspicion the company may have been insolvent and that it could not pay its debts as and when they were due and payable. This is based on an objective or “reasonable person” test.

What the Liquidator looks for.

The Liquidator looks for evidence to prove a creditor knew or ought to have known the company was insolvent at the time of obtaining payment. In this regard, the Liquidator will focus on evidence such as:

  • Poor payment history.
  • Late payments made well outside of normal trading terms (date of payment -v- the date on the invoice
  • Payment arrangements entered into or unilaterally imposed by the creditor.
  • Failed payment agreements.
  • Dishonoured payments or cheques.
  • Threats to cease work or supply.
  • Accounts placed on stop credit.
  • Other changes to credit terms such as placing the Company on COD plus requiring additional payments to discharging the old debt.
  • Seeking a Deed of Acknowledgment or Personal Guarantees before continuing to supply.
  • Actual refusal to supply until debt paid.
  • Rounded payments not referable to any specific invoice.
  • Demands made by the creditor, debt collectors and solicitors.
  • Threats to issue a Statutory Demand.
  • Issuing a Winding up application.

The Liquidator tries to obtain this evidence from the books of the Company and also a review of all emails and other correspondence from the Company’s IT systems. Often, this information is volunteered to a Liquidator by comments made by the creditor.

Defending an Unfair Preference claim

Firstly, a creditor who receives such a demand should immediately engage a lawyer and avoid any discussion or correspondence with a Liquidator that will (and often does) weaken their position.

A competent lawyer will be aware of the defences available and will draft a response that may result in the creditor retaining all or part of the benefit of the payment obtained by addressing the:

  1. Running account defence.
  2. Good Faith defence.
  3. Set-Off defence.

*Secured creditors (including creditors who hold PPSR) are generally not subject to unfair preference claims.

Running Account Defence

Section 588FA(3) of the Act states that where:

  1. A transaction is an integral part of a continuing business relationship (for example, a running account) between a company and creditor, and
  1. In the course of the relationship the level of the company’s net indebtedness to the creditor increased and reduced from time to time as a result of a series of transactions;
  • Then all the transactions are taken to be a single transaction for the purposes of establishing whether there was an unfair preference.
  • In such a ‘continuing business relationship’ while a creditor may have recovered payments totalling say, $50,000 in the 6 month relation back period immediately before liquidation, and at the same time they continued to supply $60,000 in the same period.
  • There would be no net reduction from the peak indebtedness, and therefore, no preference would exist.

Good Faith, No Knowledge and Valuable Consideration

Section 588FG(2) of the Act states that a Court shall not make an order for a preference or voidable transaction if the creditor can prove that:

  1. The person received no benefit because of the transaction.
  1. The person acted in good faith,
  1. At the time, when the benefit was received:
      1. the person had no reasonable grounds for suspecting that the company was insolvent or would become insolvent, and

(b) A reasonable person in the creditors position would have had no such grounds for suspecting insolvency, and

  1. The person provided valuable consideration for the payment.

While a liquidator may assert a preference has been paid, it is up to the creditor who received the payment to prove their defence if a preference is to be avoided.

Set Off – Section 553C

In a recent Federal Court matter, Stone v Melrose Cranes & Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) (CPS)(No 2) [2018] FCA 530, where a creditor has no actual notice of facts that would have indicated to a reasonable person in its position that the debtor company was insolvent, they may be able to offset payments received, that may otherwise be preferential, against their outstanding debt remaining unpaid upon liquidation.

For example, where a creditor was owed $100,000 and was paid $40,000 by preference payments, and the creditor has no actual notice of facts that would disclose the company lacked the ability to pay its debts when they fall due, within the meaning of section 95 of the Act, the creditor could set-off its outstanding debt of $60,000 against the $40,000 preference and not have to disgorge any amount to the liquidator.

Certain Industry Standard Practices

It is possible to defend claims for preferential payments on the basis of standard practice in certain industries. For example, in the building industry it is commonplace for payments to be made well outside of the creditors’ normal credit terms.

It is also possible to argue that the debtor and creditor relationship was such that there was a history and an agreement, although unwritten, that payments were often made very late.

If you need help with Insolvency, Liquidation or preferential payments, call The Insolvency Experts anytime, 24 hours including weekends, on 1300 767 525.



Replacing a Liquidator – It Ain’t Easy!

Recent reforms under the Insolvency Law Reform Act intended to make the replacement of an External Administrator/Liquidator easier for creditors to achieve but in reality, it may have had the opposite effect.

In the past, liquidations instigated by the directors/shareholders required the appointee take the lead and put a resolution to creditors within 18 days of appointment that would allow either to confirm the liquidator or enable creditors to nominate and select an alternate.

Now, in the early stages, a liquidator is under no obligation to convene a meeting of creditors or to put a resolution regarding a replacement liquidator unless specifically directed by a sufficient percentage of creditors who know their rights, are proactive and understand the process.

It is true the reforms make replacement of a liquidator possible at any time during the winding up. However, while that may be useful where dissatisfaction with an incumbent liquidator’s performance exists, in reality, a replacement will rarely occur as the process and its associated costs are onerous and creditor interest tends to wane over time.

Assuming creditors know their rights, it is possible to replace a liquidator in the early stages of a liquidation – but it is a process that can be denied.

  1. If within the first 20 days after the resolution to liquidate is passed, less than 25%, but more than 5% in value of the creditors, in writing, direct the External Administrator to do so, the incumbent liquidator must convene a meeting of creditors.
  1. However, the External Administrator, acting in good faith, may form an opinion the request is unreasonable if:
  • Complying would substantially prejudice the interests of one or more creditors or a third party and that prejudice would outweigh the benefits of complying.
  • There is not sufficient available property (funds/assets) to comply.
  • A meeting dealing with the same matter has already been held or would be held within 15 business days after the direction is made.
  • The direction is vexatious.
  1. However, the incumbent forming that opinion cannot maintain that view as a request may become reasonable where:
  • Directing creditors agree to bear the cost of complying with the direction;
  • Directing creditors provide security for the cost of complying before the meeting is convened.

If creditors are sufficiently interested to overcome these hurdles, they will need to obtain and provide with their written direction

a) A Consent to Act; and

b) A Declaration of Independence, Relevant Relationships and Indemnities from the proposed alternate liquidator who may need to be satisfied as to how his fees and costs will be met in circumstances where there are limited funds available in the liquidation.

But fear not, if creditors fail to act in the first 20 business days after liquidation, they may still direct the incumbent to convene a meeting for the purpose of replacing the liquidator if;

  • At least 25% in value of creditors direct so in writing; or
  • Less than 25%, but more than 10% in value of creditors direct, and they provide security for the cost of holding the meeting before the meeting is convened.

Now if creditors get that far, they only need to worry about passing the resolution that requires 50% in number and 50% in value to vote in favour of the replacement.

  • If both are not achieved, the resolution will fail; and
  • There is no requirement that the incumbent use the casting vote

So, replacing a liquidator is possible, but it certainly ain’t easy!

Money Management

Managing Accounts Receivable in a Declining Market

Insufficient or declining sales is something that every proprietor or company director will experience at some point in the lifecycle of the business.

When sales begin to slide, you may find that you are no longer in a position to cover fixed costs. Without foresight and forward planning, many businesses panic and make reckless business decisions.

No one is immune to a declining market. The surge of online alternatives to traditional business has exposed all business to risks, including risks of liquidation they never thought they would encounter.

Some industries have changed beyond all recognition in the last ten years alone. Think of the challenges now facing traditional bookstores, newspapers, many printing supply companies.

Inability to control expenses coupled with operational inefficiencies can have an almost immediate impact on the tight margins that many businesses now operates within.

A business with comparatively high rent, labour and material costs will often struggle to compete and survive with many of the newer models forming in digital business.

The tips that follow are aimed to address those in business who are in – or likely to find themselves in – this position.

Unfortunately, many businesses will be fatally wounded by declining or transforming markets and forced to liquidate.

Others, those with a model that allows for quick change and flexibility, however, can move with the times and adjust their financial management systems to meet the challenge.

Handling Your Accounts Receivable

While much of the problem lies in the markets themselves, there are plenty of things that small business can do to mitigate the effects.

One of those has to do with the management of accounts receivables, also known as the debtor’s ledger. Getting paid for the supply of goods or services when they’ve been fairly provided is a perfectly reasonable expectation.

But the truth is some people will always find fault or make excuses to avoid paying up.

Offering Terms of Credit

If you’re going to offer credit terms, you need to do whatever you can to protect yourself and improve your prospects of debt recovery and therefore business survival.

Most accountants will recommend you have your lawyer prepare credit applications and other forms to ensure that they are drafted in your favour.

Kym Butler of Butlers Business and Law writes in, “Profit Boosters for Business”,

“If a business is dealing with the same type of transaction, generally at low cost, it may be sufficient to issue the same agreement with the same terms of trade to every customer.

When it comes to more valuable transactions, however, failure to be

cautious when entering into supply relationships can result in disastrous consequences if you unknowingly agree to unfavourable contractual terms.”

Your credit application forms should (at a minimum)  include:

  • A personal guarantee of the director requesting the credit
  • A charging clause that would give you the right to lodge a caveat on the personal property of that director, and,
  • A properly drafted and registered retention of title clause that would enable the collection of your stock in the event you are not paid.

Apart from this, and before doing any business whatsoever, you need to do your own due diligence on each trading partner you are thinking of doing business with.

You and you alone should decide who is worthy of your credit and therefore it is you who is responsible for:

It’s important to undertake credit checks using directorship searches through ASIC or through commercial credit agencies so that you have a complete history of those you are working with.

There may even be occasions when you need to conduct property searches of the company directors to determine who owns the assets so you can develop a credit application to suit those particular circumstances.

There are occasions where no matter how diligent you are, You will learn that there are no available assets and that you will be taking a commercial risk if you offer that client any credit.

When periods of downtime come in your market or periods of decline in your industry, you need to have in place credit limits and procedures to deal with these kinds of accounts in order to diminish the influence of the downturn in your market.

Having your financial procedures and records in place using good financial software is far and away the best mean of keeping track of these transactions.

There are no doubt many other ways you can manage periods of decline in your industry.

But, in order to ride them out, having a procedure in place for your accounts receivable, one that is able to deal effectively with debtors, will go a long way to ensuring your business remains afloat.

Money Management

Using Short Term Business Loans for a New Small Business

All business being large or small rely on their cash flow undoubtedly the lifeblood of their long-term success.

However, there are periods during the year where cash flow is problematic due to many reasons which are either or not in control of the business owner.\

Unexpected expenses or financial losses due to bad decisions; far too quick rapid expansion; staff commitments and ATO debt are all contributing factors which will affect any business cash flow.

Business debt needs to be met with cash flow, or this can quickly spiral out of control seriously crippling any business.

So what are the solutions when cashflow is unable to meet business debt?

If we concentration on debt funding, most small businesses have traditionally received most of their business finance from banks in the form of a business loan or term business finance facility. These business finance facilities may have short, intermediate, or long-term repayment facilities.

The different lengths of loan term expiry is determined to some degree on how strong or weak a business’s current monthly cash flow is to repay back the loan, and the original purpose for the loan and how it will be used.

So, let’s have a brief look at short-term business loans in Australia.

What Are Short-Term Business Loans?

A short-term business loan is, without doubt, the most popular & common form of business funding, because it achieves the urgent business working capital funding fast and does not stretch a business loan commitment utilising a business’s cash flow over a long period.

Small businesses most often need short term business loans instead of long-term cashflow funding, because it can help you meet an immediate need for financing without requiring you to make a long-term term commitment. These loans are usually anywhere from 90 days to 120 days in loan term.

The advantages of a short term business loan enable readiness, stability and flexibility, so even if you do not expect something to happen within a business, extra cash flow may be a wise choice to be ready in the event of anything unexpected.

Purposes for Short-Term Business Loans

Businesses involved in the industries that are seasonal in nature like retail business, cafes, restaurants and catering services who have to either build up stock for the upcoming holiday season or turn to funding in quiet periods to see them through, a short-term business finance facility is the perfect solution.

Asset Protection

Meeting payroll tax and unexpected business expenses or just to even out monthly cash flow particularly a business that has many cyclical trading months during the year can also be reasons for applying for short-term business funding.

Applying for Short Term Business Loans

How to apply for a short-term business finance is a simple process with minimal paperwork and on many occasions approval and funding within 24 hours.

To start your approval process for a short-term loan product, you will have to present supporting documentation to a specialist business lender, whether it is a bank, a credit union, a mutual bank, or an online short-term business loans’ lender which are usually the fastest option for funding when time is of essence and minimal paperwork is at hand.

The lender will want, at least, a record of your business trading account payment history for the last 4-6 months to confirm what your monthly business turnover is and whether you may have any other business commitments currently in place. You should also be prepared to provide any company finances if the lender requests it.

All documentation provided should be presented in a professional manner and should reflect a strong indication of the strengthening of the business.

Your chances for a successful short-term finance approval will be determined solely on the financial position of your business and whether the loan the business can offer to repay the loan balance you have requested or the worst case scenario a lower loan amount.

The convenience of short-term business loans to small businesses is essential for our economy to operate efficiently.

Without short-term financing, small businesses literally cannot function, as they will not buy their stock, cover working capital shortages, expand their customer base or operations, or grow in times of business expansion opportunities.


One Year Bankruptcy is Almost Upon Us

Are you in favour of a one-year Bankruptcy?

In the Media Taxation

Single Touch Payroll Program Lead at Australian Taxation Office

Source: John Shepherd via LinkedIn:

Single Touch Payroll is a game changer for tax and super reporting and the broader economy. It is an exciting digital initiative as it ultimately unlocks real time salary and wage information for all employees in Australia.

For now, it means employers will report payments such as salaries and wages, pay as you go (PAYG) withholding and super information to the ATO directly from their payroll solution at the same time they pay their employees.

For employers with 20 or more employees, Single Touch Payroll reporting starts from 1 July 2018. The first year will be a transition, we are keen to help people make this change and accept that there needs to be a bedding in period while everyone gets used to this new process.

The Australian Government has also announced it intends to expand Single Touch Payroll to include smaller employers with 19 or less employees from 1 July 2019, subject to legislation being passed in parliament.

What will I need to do differently under STP?

Single Touch Payroll is a new way of reporting payroll information to the ATO. As you pay your employees through your own payroll process, you will be sending us their tax and super information at the same time.

This will align your reporting obligations to your usual pay cycle. In other words, you’ll be interacting with the ATO at the point where you pay your employees. This will typically be through your accounting or payroll software and the majority of software developers are already building updates into their payroll products to deliver Single Touch Payroll reporting.

When the ATO receives the payroll information, they’ll match that to your records, as well as your employees’ records. You won’t need to provide your employees with a payment summary if you have reported their information through Single Touch Payroll. The ATO will provide that to your employees through myGov or through their pre-filled income tax returns.

What’s next?

We’re working closely with our industry partners – including software providers and tax practitioners – to make sure the move to Single Touch Payroll reporting is a smooth one for everyone.

In the next month we’re also writing to employers with 20 or more employees to let them know about their reporting obligations from 1 July 2018 so they can start planning for Single Touch Payroll.

If you’d like more information you can visit

Director Liabilities

Personal Liability for Unpaid GST raised with introduction of Director Identification Number

The Government will soon introduce a unique Director Identification Number (“DIN”) to combat illegal phoenix activity and to curb the activities of pre-insolvency advisors who will also be targeted and potentially held liable for their advice.

As part of the reforms, the Government is consulting on widening the scope of directors personal liability to include GST liabilities as part of the Director Penalty provisions.

It is likely that personal liability for unpaid GST will operate in a similar way to current Director Penalty Notices that currently affect only unpaid PAYG and Superannuation. That is;

  • If a Director does not report by lodging a BAS return within 3 months of the due date for lodgement, there will be an automatic personal liability for a Company’s unpaid GST debt as well as its unpaid PAYG and Super debts.
  • Where a Director does report within the 3 month window, they will be able to avoid personal liability for the various company tax debts provided the Company is placed into liquidation within 21 days of the date on the Director Penalty Notice.

The Government’s consulting on Personal liability for directors with unreported and unpaid Company GST debts is a significant development that all directors must be made aware of.

As we discover more, we will keep you informed.

Media release from The Hon Kelly O’Dwyer MP

(Go here to view complete, unedited release)

A comprehensive package of reforms to address illegal phoenixing

The Turnbull Government is taking action to crack down on illegal phoenixing activity that costs the economy up to $3.2 billion per year to ensure those involved face tougher penalties, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced today.

Phoenixing – the stripping and transfer of assets from one company to another by individuals or entities to avoid paying liabilities – has been a problem for successive governments over many decades. It hurts all Australians, including employees, creditors, competing businesses and taxpayers.

The Government’s comprehensive package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity.

The DIN will identify directors with a unique number but will also interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.

In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers. These include:

  • Specific phoenixing offences to better enable regulators to take decisive action against those who engage in this illegal activity;
  • The establishment of a dedicated phoenix hotline to provide the public with a single point of contact for reporting illegal phoenix activity;
  • The extension of the penalties that apply to those who promote tax avoidance schemes to capture advisers who assist phoenix operators;
  • Stronger powers for the ATO to recover a security deposit from suspected phoenix operators, which can be used to cover outstanding tax liabilities, should they arise;
  • Making directors personally liable for GST liabilities as part of extended director penalty provisions;
  • Preventing directors from backdating their resignations to avoid personal liability or from resigning and leaving a company with no directors; and
  • Prohibiting related entities to the phoenix operator from appointing a liquidator.

The Government will also consult on how best to identify high risk individuals who will be subject to new preventative and early intervention tools, including:

  • a next-cab-off-the-rank system for appointing liquidators;
  • allowing the ATO to retain tax refunds; and
  • allowing the ATO to commence immediate recovery action following the issuance of a Director Penalty Notice.

Consultation on the non-DIN measures will commence in the coming weeks.

These reforms complement and build on other Government action to combat crime and fraud in the economy, including:

  • instituting the Phoenix, Black Economy and Serious Financial Crime Taskforces;
  • strengthening disciplinary rules for insolvency practitioners;
  • legislating to improve information sharing between key regulatory agencies;
  • reviewing and enhancing ASIC’s powers and enforcement tools;
  • consulting on law reform initiatives to curb the excessive drain on the taxpayer funded Fair Entitlement Guarantee scheme, which covers employees’ entitlements left outstanding as a result of failed business enterprises;
  • improving the collection of GST on property transactions from 1 July 2018; and
  • consulting on a register of beneficial ownership of companies to be made available to key regulators for enforcement purposes.

“The Government is committed to ensuring individuals who engage in illegal phoenixing activity are held to account and that the regulators are equipped to take stronger action to both deter and penalise phoenixing activity for the benefit of all Australians,” Minister O’Dwyer said.

Image: Pixabay

Money Management

Thinking Through Super Options for Company Directors

Like everybody else, company directors need to plan for their retirement, often through contributions made into a superannuation fund.

As a business makes their contribution to superannuation on behalf of one of their employees, that contribution becomes a deductible expense of the corporation.

This can also be true of a company owner or director in circumstances where they would qualify as an employee of their own business.

In order for this to be true, the company needs to operate as a separate legal entity. Most often this is a company operating as an independent entity or a trustee of a trust.

In this situation, the company becomes the employer and everybody, including those who own the company, become employees.

What this means is that those contributions that are made on behalf of company owners (directors, etc.) can also be considered tax deductible expenses of the company.

Companies can also borrow money in order to pay any of its legitimate expenses. Those expenses can also include superannuation contributions that might otherwise be unaffordable.

Provided that the finances are properly administered, then, like other company debt, the interest may be tax-deductible.

If the business is successful, then it’s worth investigating to see whether the cost of the interest on the debt can be reduced by the marginal tax rate .

Not only that but the contributions made to superannuation may also reduce the businesses profit which in turn may reduce the amount of tax payable.

Beyond that, here are some further things to keep in mind if you are a company director.

Update Investment options

Keep an eye on your superannuation funds and ocnsiderpdating your investment options if needed.

Sometimes, you may notice that the scheme you invested in may not continue to prosper.

Under such circumstances, withdrawing your funds and investing them in a more beneficial plan is one of several options to explore..

This practice helps you avoid losing your precious earnings. You may be able to increase your funds by more than 60% just by keeping track of market trends.

No matter how many of your friends are investing in a scheme, avoid it if you consider it risky.

Young Company Directors may also find some advantage in participating in the Government’s First Home Super Saver Scheme1. Housing affordability was one of the key platforms of the federal budget this year.

One of the measures taken to improve housing affordability was the introduction of the First Home Super Saver Scheme (FHSSS) which will allow people to use their super as leverage for their home deposit.

Combining Accounts

Some people prefer to keep multiple accounts in their name. It increases the management fee required for each account.

However you may want to consider combining all your funds in a single bank account So that you reduce the amount you are paying in account management fees

Moreover, you can save the time required to keep track of all accounts.

Start Investing Early

The earlier you start planning for and investing in superannuation, the more you can save for old age.

You may find it difficult to take out some amount from your earnings every month, but it can save you from trouble. Set targets and try to achieve them within time.

The more thought and planning you put into your current investment, the more you are likely to benefit in retirement.

General Advice (Tax) Warning

This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.


In the Media

Why Ignoring the Unlawful Conduct of Clients is a Bad Idea

Advisors who ignore unlawful conduct of clients may be exposed to penalties.

In a recent case, Fair Work Ombudsman v Blue Impression Pty Ltd & Ors [2017] FCCA 810, it was found that the external accountant knew of, but ignored, the underpayment of wages by their client. Consequently, the advisor was found to be an accessory to breaches of Section 550 of the Fair Work Act and now faces a potential liability of $378,000.

The problem involved a Fair Work audit of a restaurant business that found significant underpayments to employees.

The restaurant sought assistance from its accountant who calculated the correct pay rates, but the client did not update their systems with the correct rates.

A subsequent audit of the same business found the restaurant had not rectified the situation and had actually made further underpayments of wages, loadings, penalty rates, and allowances to its international workers.

As a result, Fair Work commenced legal action against the restaurant and its accountant on the basis that any third party involved in a contravention of the Fair Work Act, can also be taken to have breached the Act.

Naturally, the accountant claimed its role was that of a service provider processing payments in accordance with instructions and further, that it had no knowledge of employee duties or award rates that should be applied.

However, the Court determined that the accountant, with knowledge of the breach from the earlier audit, chose to ignore the underpayment and this was sufficient to be found an accessory to breaches of section 550. Doing nothing when you have knowledge of a client’s unlawful conduct is not a defence.