Client Alert – December 2018

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Work-related tax deductions down for 2018

The ATO has reported a decline in the overall value of work-related deductions for tax time 2018. In his opening statement to Senate Estimates on 24 October 2018, Commissioner Chris Jordan said taxpayers appear to be taking extra care when claiming work-related expenses in their 2017–2018 income tax returns. This follows recent ATO awareness and education efforts to close the income tax gap for individuals.

ATO identifies 26,000 incorrect rental property travel expense claims

The ATO has identified 26,000 taxpayers who have claimed deductions during tax time 2018 for travel to their investment residential rental properties, despite recent changes to tax laws.

From 1 July 2017, investors cannot claim travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property as deductions, subject to certain exceptions. An exclusion does apply for this restriction if the expenditure is necessary for the income-producing purposes of carrying on a business (for example, a rental property business), or if the costs are incurred by an “excluded entity”.

Small business corporate tax rates Bill is now law

The company tax rate for base rate entities will now reduce from 27.5% to 26% in 2020–2021, and then to 25% for 2021–2022 and later income years. This means eligible corporate taxpayers will pay 25% in 2021–2022, rather than from 2026–2027.

The new law also increases the small business income tax offset rate to 13% of the basic income tax liability that relates to small business income for 2020–2021. The offset rate will then increase to 16% for 2021–2022 and later income years.

The maximum available amount of the small business tax offset does not change – it will stay capped at $1,000 per person, per year.

GST reporting: common errors and how to correct them

Some businesses are making simple mistakes reporting their GST. The ATO reminds taxpayers that avoid the following common GST reporting errors:

  • transposition and calculation errors – these mistakes often happen when manually entering amounts, so it’s important to double-check all figures and calculations before submitting your BAS;
  • no tax invoice – you must keep tax invoices to be able to claim GST credits on business-related purchases;
  • transaction classifications – it’s important to check what GST applies for each transaction; for example, transactions involving food may be GST applicable; and
  • errors in accounting systems – a system with one coding error can classify several transactions incorrectly.

Government announces super refinements

The Government has announced it will amend the super tax laws to address some minor but important issues, as part of the ongoing super reforms. The changes include:

  • deferring the start date for the comprehensive income product for retirement (CIPR) framework;
  • adjusting the definition of “life expectancy period” to account for leap years in calculations, and amending the pension transfer balance cap rules to provide credits and debits when these products are paid off in instalments;
  • adjusting the transfer balance cap valuation rules for defined benefit pensions to deal with certain pensions that are permanently reduced after an initial higher payment;
  • correcting a valuation error under the transfer balance cap rules for market-linked pensions where a pension is commuted and rolled over, or involved in a successor fund transfer;
  • making changes to ensure that death benefit rollovers involving insurance proceeds remain tax-free for dependants.

CGT on grant of easement or licence

Taxation Determination TD 2018/15, issued on 31 October 2018, considers the capital gains tax (CGT) consequences of granting an easement, profit à prendre or licence over an asset.

In the ATO’s view, CGT event D1 (creating contractual or other rights) rather than CGT event A1 (disposing of an asset) happens when any of the following rights are granted over an asset:

  • an easement, other than one arising by operation of the law;
  • a right to enter and remove a product or part of the soil from a taxpayer’s land (a profit à prendre); or
  • a licence (which does not confer the exclusive right to possess the land).

First Home Super Saver scheme and downsizer super contributions: ATO guidance

In November 2018, the ATO issued a Super Guidance Note to provide people with general information about how the First Home Super Saver (FHSS) scheme works. The guidance note explains who is eligible to use the scheme, the kind of contributions that can be made and then released from super for buying a first home, how to apply to the ATO for a FHSS determination, and the requirement to purchase a house.

The ATO also issued guidance on the recently enacted downsizer superannuation contribution measures, which allow people aged over 65 to contribute the proceeds from selling certain property into their super.

ATO scam alert: fake demands for tax payments

Although tax time 2018 is over, the ATO has warned taxpayers and their agents to remain on high alert for tax scams. Scammers are growing increasingly sophisticated and hope to exploit vulnerable people, often using aggressive tactics to swindle people out of their money or personal information.

Be wary if anyone contacts you demanding payment of a tax debt that you didn’t know about. The ATO will never ask you to make a payment into an ATM or using gift or pre-paid cards such as iTunes and Visa cards, and will never you to deposit funds into a personal bank account.

Government to establish $2 billion fund for small business lending

The Government has announced that it will establish a $2 billion Australian Business Securitisation Fund and an Australian Business Growth Fund to provide longer-term equity funding for small businesses.

Treasurer Josh Frydenberg has said some small businesses currently find it difficult to obtain finance on competitive terms unless it is secured against real estate. To overcome this, the proposed Australian Business Securitisation Fund will invest up to $2 billion in the securitisation market, providing additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.

ATO information-sharing: super assets in family law proceedings

Superannuation is often the most significant asset in a separated couple’s property pool, particularly for low-income households with few assets. Parties to family law proceedings are already legally required to disclose all of their assets to the court, including superannuation, but in practice parties may forget, or deliberately withhold, information about their super assets.

The Government has announced an electronic information-sharing mechanism to be established between the ATO and the Family Law Courts to allow superannuation assets held by relevant parties during family law proceedings to be identified swiftly and more accurately from 2020. This measure was included as part of a broader financial support package for women announced on in November.

 

Guidance on Superannuation measure for downsizer contributions

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The ATO has released a ruling and a guidance note on the measure allowing downsizer contributions to be made into superannuation funds.

The ruling discusses these contributions and how the measure interacts with other income tax and superannuation concepts including:

  • contribution caps
  • superannuation fund acceptance rules, and
  • capital gains tax (CGT).

Generally, a personal contribution that an individual makes on their own behalf is treated as a non-concessional contribution unless a deduction has been claimed for it, or it is subject to an exclusion from treatment as a non-concessional contribution. Downsizer contributions are excluded from the definition of a non-concessional contribution and if an election is made to treat a contribution as a downsizer contribution, and it is reported as such, a deduction cannot be claimed for it.

For a contribution made to a complying superannuation plan to be a downsizer contribution, the following conditions must be satisfied:

  • the individual must be aged 65 years or older at the time the contribution is made
  • the contribution must be an amount equal to all or part of the capital proceeds received from the disposal of an interest in a qualifying dwelling in Australia held by the individual or their spouse just before the disposal
  • the 10-year ownership condition
  • any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part
  • the contribution must have been made within 90 days of disposing of the dwelling, or such longer time as allowed by the Commissioner
  • a choice is made to treat the contribution as a downsizer contribution, and the complying superannuation plan provider is notified in the approved form of this choice at or before the time the contribution is made
  • the individual has not previously made downsizer contributions, or had one made on their behalf, in relation to an earlier disposal, and
  • the maximum amount of the contributions is the lesser of either $300,000, or the proceeds from the sale of the interests in the dwelling.

Individuals are not required to purchase another dwelling following the sale of the relevant dwelling interest to be eligible to make a downsizer contribution. A contribution can only be a downsizer contribution where the contract for the disposal of the relevant dwelling interest is entered into on or after 1 July 2018.

A downsizer contribution is neither a concessional nor a non-concessional contribution and therefore is not counted towards the respective contribution caps. The total superannuation balance of the individual will not affect their eligibility to make a downsizer contribution. Note, however, that any downsizer contribution amount will still be counted towards their total superannuation balance.

ATO’s Use Of Real-Time Data For SG Compliance

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As technology improves, there’s a continual move towards real-time data for enhanced and timely administration of the tax system, particularly in the superannuation sector.

The ATO is leveraging this real-time data and event-based reporting to make inroads in ensuring employees receive their full super guarantee (SG) entitlements.

In the 2017-18 year, the ATO received 31,000 employee notifications regarding SG entitlements and contacted around 24,000 employers. It completed 19,000 SG entitlements cases which were initiated by employees and a further 13,000 SG audits and reviews based on risk modelling. Total liabilities raised by the cases were approximately $850m.

On the back of that success, the ATO has continued to undertake additional SG casework through the current year financial year using funding from the SG taskforce. Thus far, it has completed around 537 cases and raised around $22.8m in liabilities including $3m in penalties. Most of the cases completed (65%) were from either NSW or Victoria. According to the ATO, it is on track to close over 2,600 cases from 1 July 2018 to 30 June 2019, raising around $130m in liabilities.

As event-based reporting from large APRA funds improves – the ATO is currently receiving data for 55% of APRA fund members which equates to 17.47m members – ensuring employer compliance with SG obligations as well as monitoring whether super contributions caps are exceeded will become progressively easier and more timely.

Currently, event-based reporting through the ATO member account attributable service (MAAS) platform, includes information such as member’s name, address, TFN, and date of birth. Changes to such details are reported to the ATO within 5 business days of the event. The ATO has also started to receive information from a few funds through the ATO member account transactions service platform, which includes details on employer contributions, non-employer transactions, retirement-phase events and notice of intent. Any changes to these details will usually be reported to the ATO within 10 business days of the event.

What this means for you is that for the first-time, there will be event-based reporting on things such as employer contributions, employer SG, award payments, salary sacrifice, voluntary employer contributions, as well as details of the employer and the period of payments. By extension, the ATO will also know who has not received an SG payment from their employer.

This will be an enormous help for younger people that increasingly work in more transient industries and/or roles, who often don’t find out that their employer has not been contributing to their super until years later or when the company collapses. It is envisaged the complete transition to event-based reporting will be completed by mid-2019 which will better enable the ATO to protect employees and ensure super caps and other changes to superannuation are attended to in a timely manner.

Do you have an SG entitlement issue?

If you think your employer hasn’t been paying the correct amount of super guarantee, or if you just want to find out whether you’re doing the right thing by your employees, we can help you get everything in order. Contact us today.

 

Director Identification Numbers Coming Soon

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Being a director of a company comes with many responsibilities, this could soon increase with a government proposal to introduce a “director identification number” (DIN), a unique identifier for each person who consents to being a director. The DIN will permanently be associated with a particular individual even if the directorship with a particular company ceases. Regulators will use the DIN to trace a director’s relationships across companies which will make investigating a director’s potential involvement in repeated unlawful activity easier.

Although this initiative was conceived as a part of the anti-phoenixing measures, the introduction of the DIN will also provide other benefits. For example, under the current system, only directors’ details are required to be lodged with ASIC and no verification of identify of directors are carried out. The DIN will improve data integrity and security, as well as improving efficiency in any insolvency process.

At this stage, it is proposed that any individual appointed as a director of a registered body (i.e. a company, registered foreign company, registered Australian body, or an Aboriginal and Torres Strait Islander corporation) under the Corporations Act (or the CATSI Act) must apply to the registrar for a DIN within 28 days from the date they are appointed.

Existing directors have 15 months to apply for DINs from the date the new requirement starts. Directors that fail to apply for a DIN within the applicable time frame will be liable for civil and criminal penalties.

In addition to the penalties for failing to apply for a DIN, there are also civil and criminal penalties which apply to conduct that undermines the requirement. For example, criminal penalties apply for deliberately providing false identity information to the registrar, intentionally providing a false DIN to a government body or relevant body corporate, or internationally applying for multiple DINs.

The proposal initially applies only to appointed directors and acting alternate directors, it does not extend to de facto or shadow directors. However, the definition of “eligible officer” may be extended by regulation to any other officers of a registered body as appropriate. This will provide the flexibility to ensure the DIN’s effectiveness going forward. Just as the definition of eligible officer may be extended, the registrar also has the power to exempt an individual from being an eligible officer to avoid unintended consequences.

Recently, there have been cases in the media where individuals have unknowingly or unwittingly become directors of sham companies for various nefarious purposes. The DIN proposal inserts a defence for directors appointed without their knowledge, due to either identify theft or forgery. However, it notes that the defendant will carry the evidential burden to adduce or point to evidence that suggests a reasonable possibility that the defence exists, and once that’s done the prosecution bears the burden of proof. The government notes that the evidential burden has been reversed because it is significantly more costly for the prosecution to disprove than for the defence to establish.

Where to now?

Apart from ensuring that your identity is safe, we can help if you think you may inadvertently be a director of a company and no longer wish to be. Otherwise, if you’re the director and want to understand more about this potential change including the timeline, contact us today.

 

World Congress of Accountants – Audit

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The World Congress of Accountants was a chance for leading experts to respond to thought-provoking and stimulating questions from tax regulations to tech disruption and provide some much-needed clarity on their future impact.

A significant area that was explored over the course of the four days was what exactly the term ‘audit’ means in today’s modern business environment and how auditors can continue to meet stakeholder expectations.

Stakeholder expectations on audit are based on the fact that a range of detailed audit procedures be applied by skilled individuals and the auditor be independent of financial statement preparers.

Little of an auditor’s work is directly visible to investors. It is the audit committee, as shareholder representatives and independent directors, who see and assess the behaviour and professional scepticism of the auditors. A recent Financial Reporting Council survey found that Audit Committee Chairs have been very satisfied with the quality of their external auditor with 92 per cent rating them excellent or above average.

Australia in particular has a strong foundation of stakeholder confidence in our businesses, based on open accountability, transparency and fair presentation of business results. These in turn rely on the judgement of management and directors on how they apply accounting standards.

The role of an auditor is to judge whether appropriate accounting standards have been applied by management and directors, and whether the view presented as a whole is consistent with auditor’s knowledge of the business.

This role is one in a series of measures that contribute to stakeholder confidence, including:

  • a work culture that instills the importance of independent thought and professional skepticism with partners and staff;
  • skilled and competent people;
  • effective audit processes and methodologies;
  • support from management and audit committees and others in the reporting framework; and
  • commitment and structures to support partners and staff undertaking robust work.

A key measure that is often forgotten from this list is courage.

Courage from the board to speak honestly to their investors, courage from investors to make informed decisions based on the information available to them, courage from government, regulators and standard setters to keep the focus on maintaining a strong capital market; and courage of auditors to have candid and open communication with management and audit committees.

The global profession needs to continue the discussion on the purpose of audit so we can continually evolve to meet modern stakeholder expectations.

 

Tax Consequences Of Compensation From Financial Institutions

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The Royal Commission into misconduct tin the banking, superannuation and financial services industry has revealed some major deficiencies in terms of financial advice provided to consumers. Even though the Commission itself cannot fix or award compensation or make orders to require parties to a dispute to take or not take any action, the media exposure from the hearings have spurred many financial institutions to compensate their customers who received less than stellar treatment.

The tax treatment of this compensation depends on what the compensation is being paid for and how the investment was held. 

A compensation amount from a financial institution could include a combination of loss on an investment, refund or reimbursement of fees, and/or interest.  Compensation may also relate to multiple investments, with different amounts granted against each one. Therefore, if you receive compensation in this form, the tax consequences of each amount must be carefully considered.

If you receive compensation for loss on an investment (i.e. the value of your investments is lower than it would have been if you had received appropriate advice) and you have subsequently disposed of the relevant investment. The compensation received will most likely be treated as additional capital proceeds related to disposing the investments if you held the investment on capital account.

For example, if you dispose of an investment, CGT event A1 occurs and any capital gains or losses are reported in the financial year you disposed of the asset. If you’re an Australian resident and have held the investment for at least 12 months, remember you may be entitled to the 50% CGT discount if you disposed of your investments for a capital gain. Where the compensation amount relates to more than one investment, you will need to apportion the additional capital proceeds to each disposal. An amendment to a prior year tax return may need to be requested where the disposal of investment and receipt of compensation happens in different financial years.

In relation to compensation for existing investments that you have not sold, you may need to reduce the cost base of the investment by the compensation amount you receive (for investments held on capital account). Again, apportionment is required where the compensation relates to more than one investment.

The compensation payment received may include an amount that is a refund or reimbursement of adviser fees, the tax treatment of which depends on whether you claimed a deduction for the adviser fees in your tax return. If you claimed a deduction for adviser fees, the refund or reimbursement will be assessable income in the year you receive it. If you did not claim a deduction for the adviser fees, you do not need to include the amount as your assessable income. However, if you included the adviser fees in the cost base of the investment, that must be reduced accordingly.

If you receive compensation which has an interest component, it is assessable as ordinary income and should be included in your tax return in the financial year it is received. Note that the tax treatment of compensation may differ if you held investments on revenue account, on trust, or the compensation relates to a superannuation account or a SMSF account.

Need more guidance?

Have you received a compensation amount and don’t know how to dissect it into the relevant parts? Or perhaps the compensation amount received relates to investments that were not held on capital account (i.e. revenue, on trust, or superannuation related)? Whatever your issue may be, we have the expertise to help, contact us today.

 

Government Debts And Your Travel Plans

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Departure Prohibition Orders (DPOs) have long been used as a tool by the government as a way to stop those who owe debts from leaving the country before they pay their debts, even if they are just going on a holiday. It has been used successfully for more than a decade in the enforcement of child support payments, and by the ATO as well.

Now the government has started applying DPOs to prevent former welfare recipients from leaving the country over debts as small as $10,000.

So far, more than 20 DPOs have been issued and the Department of Human Services is looking to increase the use of DPOs to help recover more than $800m owed by more than 150,000 who are no longer in the welfare system. Those that are currently receiving a welfare benefit will not be caught under this measure and those that are experiencing genuine hardship can have their repayments deferred.

The Department has made it clear that they will only issue DPOs in cases where the individual has consistently refused to repay their debts and have ignored multiple warnings. In addition, those who are subject to a DPO will also continue to have interest charged on their debt until they take action to repay the money they owe. The real question is whether this increased used of DPOs as a way to exert pressure on individuals to pay their debts will spread to other areas such as ATO debts.

The ATO guidelines on DPO indicate that the Commissioner can issue a DPO where an individual has a tax liability and the Commissioner believes on reasonable grounds that it is desirable to issue a DPO to ensure that the individual does not depart Australia without wholly discharging the tax liability or making arrangements for the tax liability to be discharged. This is regardless of whether the individual intends to return. In addition, DPOs can apply to both Australian citizens and foreign nationals who are liable to pay Australian tax.

In deciding whether to issue a DPO, the ATO will take into account all relevant facts and circumstances, including whether: the debt can be recovered; disposal of assets had occurred; information to suggest concealment of assets exists (e.g. AUSTRAC reports); the individual has sufficient assets overseas to maintain a comfortable lifestyle; transfer of any assets overseas; the actual need for travel; recovery proceedings or audit activity in progress; and involvement in criminal activity.

It should be noted that the issuing of DPOs will only be pursued after initial collection activity which involves issuing a notice calling for payment and then having the debt referred for collection activity. While the ATO acknowledges that a DPO imposes significant restrictions on normal rights of individuals and deprives them of their liberty, it needs to be balanced with the protection of revenue.

Therefore, the Commissioner already has a wide remit to issue DPOs in circumstances he considers to be appropriate. Data from past years indicate that the majority of DPOs were issued in relation to tax fraud/evasion on an international scale, related to wealthy or high-net-worth individuals or their related entities. Even then, the fact that the ATO has issued relatively few DPOs in the past few years may be an indication that it will not be applying this method to pressure individuals with smaller tax debts.

Need help with a tax debt?

Even though the ATO is unlikely to stop you from going on holidays because you have a tax debt, it may still be prudent to take care of any debt you may have outstanding with the ATO, even if it’s a small one. We can save you money in interest charges and potentially get penalties remitted. Contact us today.

 

Super Transfer Balance Cap: Reporting Events

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With the introduction of the transfer balance cap of $1.6m designed to limit the amount of capital that can be transferred into the tax-exempt retirement phase, certain events that track the movement of capital in and out of retirement phase, as well as other events now must be reported to the ATO to ensure the correct amount is in the transfer balance account.

Pre-existing pensions that members were receiving before 1 July 2017 that they have continued to receive and which are in retirement phase on or after 1 July 2017 should have already been reported to the ATO. In addition, the following common events must now also be reported:

  • start of new pensions, which began to be in retirement phase on or after 1 July 2017;
  • full and partial commutation of a pension on or after 1 July 2017 regardless of whether or not the commutation was paid out as a lump sum, retained in accumulation phase or rolled over to another super fund;
  • certain limited recourse borrowing arrangement (LRBA) payments that result in an increase in value of the interest that supports a member’s pension where the LRBA was entered into on or after 1 July 2017;
  • commutations in compliance with a commutation authority issued by the Commissioner; and
  • structured settlement contributions.

For those who are beneficiaries of capped defined-benefit income streams, a different approach is taken for reporting commutations and new pensions. If an individual had a capped defined-benefit income stream before 1 July 2017, commuted it in full and started a new market-linked pension, they may exceed their transfer balance cap unintentionally. Therefore, the ATO will not be taking any compliance action if a fund doesn’t report the commutation of the original pension or the start of a new market-linked pension for a limited time. However, the fund is still required to report the pre-existing capped defined-benefit income stream.

So now that you know what needs to be reported, the next question is when or how often you need to report these events to the ATO. This depends on whether your SMSF is on an annual or quarterly cycle and is determined by when the SMSF first starts to have a pension in the retirement phase.

Where each member’s total super balance is under $1m, the SMSF must report transfer balance events annually, usually when the SMSF annual return is due.

If any member has a total super balance of $1m or more, the SMSF must report transfer balance events 28 days after the end of the quarter in which the event occurs by lodging a transfer balance account report. Note, the report only needs to be lodged if there is an event to report, if there isn’t an event, the SMSF isn’t required to lodge a transfer balance account report.

However, if a member has exceeded their transfer balance cap, the trustee must report any commutations earlier (either 10 business days after the end of the month or by a specific date denoted on the commutation authority). In addition, if you’re rolling your pension from an SMSF to an APRA fund, the commutation should be reported as soon as possible to prevent duplication due to different reporting times between APRA and SMSFs.

Do you need a hand?

Running your own SMSF can be a tricky exercise particularly with these new reporting rules. If you are confused or you need someone to help you look over your fund and make sure everything is above board, contact us today.

 

 

ATO warns on minimum pension payments

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The Australian Taxation Office has issued a warning to trustees of self-managed super funds that lump sums, or partial commutations, no longer count towards a minimum annual pension payment.

The ATO says that if the minimum pension standards are not met in a financial year, none of the payments made during the year can be treated as super income stream benefits.

“Failing to meet the minimum pension payment standards now not only means that fund loses exempt current pension income for the year, there are also transfer balance account consequences,” the ATO says in an SMSF alert issued last week.

Under the account-based pension rules, trustees must meet minimum pension payment requirements. Income equivalent to a percentage of the account balance must be paid out each year, with the percentage changing with age.

The percentage factors are:

  • Under age 65, the minimum pension payment is 4 per cent a year;
  • Between 65 and 74, the minimum is 5 per cent a year;
  • Between 75 and 79, the minimum is 6 per cent;
  • Between 80 and 84, the minimum of 7 per cent;
  • Between 85 and 89, the minimum of 9 per cent;
  • Between 90 and 94, the minimum of 11 percent; and
  • For people aged 95 and over, the minimum is 14 per cent.

The SMSF Association’s technical director Peter Hogan says the ATO is concerned that trustees may not have caught up with all the changes to the system that occurred in July 2017.

Hogan says a lump sum used to count towards the minimum pension payment but no longer does.

Speaking at a recent Morningstar Investor Conference, Hogan says: “A pension can only be paid in cash. Cash payments plus commutations used to count towards the minimum but that does not apply anymore.”

If the minimum payment has not been made, the ATO can rule that the pension has ceased. It would then be ruled to have been in accumulation for that period and even before, with tax payments due.

Hogan says there are number of things SMSF trustees must get right when they start a pension.

“To start a pension, all the terms and conditions must be put in writing. For example, this is the time to nominate a reversionary pension recipient. It is difficult to add someone once the pension has started.”

The market value of the account must be reported to the ATO. Hogan says: “You have to be careful about how you do this. For an asset like property, you may need an independent valuation.”

Hogan says this is an appropriate time to review the fund’s investment strategy. “Because you have to make pension payments, it may be suitable to change the investment strategy to hold more cash. You would not want to be in a position where you have to sell assets to pay make pension payments.

“I recommend having 24 months of pension payments in cash, and top that up after each payment.

“Many trustees think they have to report to the ATO each time they make a pension payment, but you don’t.”

Hogan says one common misunderstanding is that the size of the pension balance must always be under the $1.6 million limit. “Pensions can grow. You are not penalised for good investment performance,” he says.

Source : http://www.shedconnect.com

 

Increasing Penalties For White-Collar Crime

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As the Royal Commission into the misconduct in the banking, superannuation and financial services industry rolls on and uncovers more unscrupulous behaviour by the corporate and financial sector, the government is attempting to get on the front foot by addressing the perceived persistent misconduct by proposing to strengthen the penalty framework and enforcement regime available to ASIC to restore community confidence.

The proposal actually stemmed from a review commissioned in 2016 which identified a number of options to strengthen ASIC’s power and regulatory tools which the government has now acted on. Broadly, the government is proposing to:

  • increase maximum imprisonment penalties for certain criminal offences to reflect the seriousness of misconduct;
  • introduce a formula for the calculation of maximum financial penalties;
  • remove imprisonment as a penalty and increasing the financial penalties for all strict and absolute liability offences;
  • modernise and expand the civil penalty regime by increasing financial penalties for contraventions and making a wider range of offences subject to civil penalties;
  • harmonise and expand the infringement notices regime;
  • introduce a new test that applies to all dishonesty offences under the Corporations Act;
  • clarify that the courts are to give priority to compensating victims over ordering the payment of financial penalties.

The proposed changes would apply to individuals, AFSL licence holders, and body corporates. 

For example, the imprisonment penalty for AFSL holders failing to provide assistance to ASIC if requested will increase from 6 months to 2 years and AFSL holders that are aware of a defective financial services guide but do not rectify the defect could be jailed for 5 years (up from 2 years). Similar increases in imprisonment penalty applies to individuals involved in the contravention of certain corporate law.

The other interesting thing about the proposal is that it attempts to ensure that victims who suffer damage as a result of a contravention of a civil penalty provision in the Corporations Act will be compensated before the payment of financial penalties. Currently, only the ASIC Act and Credit Act provide for the compensation of victims in situations where the defendant does not have sufficient financial resources to pay both a financial penalty and compensation.

Under this new proposal, the court can make any order it sees fit to ensure an amount remains available for compensation. Compensation proceedings need not have been commenced for the court to consider the amount that might reasonable be likely to be payable and to make an appropriate amount for compensation available.

Want to find out more?

If you’re a director of a company, these changes could potentially apply to you. To find out more details about the penalties and what could be caught under the new proposal, contact us today.