Litigation & Dispute Resolution

Covid 19- an overview of the JobKeeper wage subsidy scheme

The core component of the Federal Government’s business support package in response to the Covid-19 pandemic is the JobKeeper scheme. This scheme is intended to help employers retain employees on their books, with the objective of ensuring money continues to circulate in the economy during these challenging times.

The JobKeeper legislation was passed by the Federal Parliament on 8 April 2020.  Rules dealing with administering the scheme were made by the Treasurer on 9 April 2020.

The JobKeeper payment is, in a nutshell, a AUD$1,500 per fortnight per employee wage subsidy paid by the Federal Government to employers until 27 September 2020. 

The estimated cost of this measure is AUD $130 billion. The Government has stated that $1,500 per fortnight is the equivalent of about 70% of the median Australian wage and represents about 100% of the median Australian wage in some of the most heavily affected sectors, such as retail, hospitality and tourism.

The scheme operates via a reimbursement system. Participating employers make wages payments to their employees and are then reimbursed in arrears $1,500 by the Government per eligible employee per fortnight. The Government does not pay employees direct. The JobKeeper payment cannot be claimed in advance. The first payments to eligible employers will commence in the first week of May 2020.The first payment is for the fortnight of 30 March - 12 April 2020 i.e. the scheme commences from that date.

Employers who wish to participate in the scheme must register their interest through the Australian Taxation Office website here by 31 May  2020.

Key Eligibility Requirements

• The employer must be an "eligible employer"

The employer must pursue their objectives principally in Australia.

An employer is not eligible for the JobKeeper payment if any of the following apply:

• the Major Bank Levy was imposed on the employer or a member of its consolidated group for any quarter before 1 March 2020
• the entity is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997)
• the entity is a local governing body i.e. a local government council
• the entity is wholly owned by an Australian government agency or local governing body
• the entity is a sovereign entity
• the entity is a company in liquidation
• the entity is an individual who has entered bankruptcy.

The effect of the second and third exceptions listed above is that employees of State and local Governments are excluded from benefiting from the JobKeeper scheme.

The scheme is not limited to companies. Partnerships, trusts, not for profit organisations, sole traders and other legal entities are eligible to participate in the scheme. Special rules apply to payments to business owners and directors. 

• Most employers will be eligible if their business turnover falls by 30% 

In order to be eligible for JobKeeper payments, the projected turnover of the employer's business must fall by 30% as compared to the same period last year. In order to register for the scheme, a business must self assess that it has had or will have the necessary decline in turnover.  

A 50% turnover decline is required for businesses with revenue of AUD$1 billion or more.

Charities need suffer only a 15% decline in order to be eligible.

The turnover calculation is based on GST turnover, even if the employer is not registered for GST. The ATO has released detailed rules about calculations that must be made, and what documents and supporting evidence is needed.

• Employees need to have been engaged by the employer as at 1 March 2020. This includes full-time and part-time employees. Casual employees are only eligible if they had been employed on a regular basis for at least 12 months prior to 1 March 2020.

Eligible employees must be currently employed by the employer for the fortnights it claims for (including those employees who are stood down or re-hired). The subsidy cannot be claimed for employees who left employment before 1 March 2020.

Employees are only eligible if they are older than 16 and were Australian residents on 1 March 2020.

Many employers in the "gig economy" who are casual employees - including in hospitality, food services, retail and tourism - will be unable to benefit from the scheme if they are "recent hires" i.e. have been employed as casuals for less than 12 months as at 30 March 2020. 

Key legal obligations for participating employers

• Each employee must be paid at least AUD $1,500 per fortnight before tax.

Each employee in respect of whom an employer receives a JobKeeper payment must be paid at least $1,500 per fortnight before tax by the employer. This is the case even if the employee would normally receive less than $1,500 per fortnight.  The employer cannot keep the difference between the JobKeeper subsidy and the employee's usual wages. In effect, the wages of employees who usually earn below $1,500 per fortnight are increased to $1,500. 

It can be seen that for employees who earn less than $1,500 per fortnight, their continued employment through to 27 September 2020 essentially comes at no cost to the employer.

If an employer does not continue to pay their employees for each pay period, they will cease to qualify for the JobKeeper payments. For the first two fortnights (30 March – 12 April, 13 April – 26 April) wages can be paid late, provided they are paid by the employer by the end of April 2020.

• The JobKeeper payment can only be received by one employer for an individual

Only one employer can claim the JobKeeper payment in respect of a person. Where a person works multiple jobs, a choice will need to be made as to which employer receives the subsidy. The employee makes the choice. An employer cannot claim the JobKeeper subsidy without an employee's consent.  

If an employee is a long-term casual and has other permanent employment, they must choose the permanent employer.

• An "one in, all in" principle applies

If an employer decides to participate in the JobKeeper scheme, it must nominate all of its eligible employees. The employer cannot choose to nominate only some eligible employees. However, individual eligible employees can choose not to participate.

• Tax must still be deducted on employee's wages

No deduction for JobKeeper payments received is made when calculating and deducting PAYG tax payments on employee's wages.

• Superannuation is not payable on "top up" payments 

New rules are being introduced by the Government with the intention to not require the superannuation guarantee to be paid on additional payments that are made to employees as a result of JobKeeper payments.

JobKeeper Enabling Directions

The JobKeeper scheme gives eligible employers the authority to make what are described as "JobKeeper Enabling Directions" in respect of eligible employees. These directions are designed to provide greater flexibiliity to employers to manage the hours, duties and location of their workforce in the face of the significant Covid-19 related challenges.

JobKeeper Enabling Directions available to eligible employers include: 

• standing down employees (including reducing days and hours)
• changing the duties performed by the employee
• changing the employee’s location of work.

If you need legal assistance in relation to the JobKeeper scheme, please contact Damian Quail in our office.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Need a new will ? Witnessing wills during Covid-19 in Western Australia

In Western Australia for a Will to be valid:

• the Will must be in writing
• the person making the Will must have "testamentary capacity"
• the Will must be signed by at least two witnesses in the presence of the person making the Will.

The last requirement may be difficult to satisfy during the Covid-19 emergency period, particularly in places where there are prohibitions on people leaving their homes i.e. lockdowns.

In some jurisdictions, emergency Regulations have been quickly introduced by Governments to get around the difficulty in achieving face to face witnessing. For more details of the approaches taken in New South Wales, Queensland and New Zealand, our associate firms Swaab, Bennett & Philp and Martelli McKegg have written interesting articles on the subject. Click on their names for more details.

There are no new emergency laws in Western Australia dealing with witnessing of Wills - yet- and so the third requirement still applies. Execution of a Will in Western Australia cannot be witnessed remotely e.g. via videoconference. Similarly, digital signing of a Will is unlikely to be legally effective, and is certainly not advisable.

However, the WA Attorney General the Hon John Quigley MLA has acknowledged the important work of the legal profession, saying in correspondence to the Law Society of Western Australia “I have no doubt that Law Society members are providing essential services to the community during this difficult time.” (more details are here). Further, the West Australian Government’s Prohibition on Regional Travel Directions provides that people performing an "essential service" includes those with specialist skills “required for industry or business continuity and maintenance of competitive operation, where the service is time-critical”.

Our view is that preparing and witnessing Wills is an essential, time critical service, particularly for those concerned about Covid-19. This means that you are able to meet with a solicitor in-person for the purposes of executing a Will. Moreover, in Western Australia strict lockdowns have not been implemented, and so attending your solicitor's office is generally not prohibited. 

Our Perth and Geraldton offices are open for business. Some of our staff are working remotely, and the remainder are working in our offices as usual.

We generally prefer videoconference meetings, for the moment, to take Will instructions. We can organise Skype, Zoom, Blue Jeans, Microsoft Teams, Facetime, Webex or other online meetings as needed. Please note that we cannot take instructions to prepare a Will from a person who is not the person making the Will (the testator), so we must be able to speak with them directly, and preferably alone. We must be able to satisfy ourselves that they are speaking without any pressure or undue influence from someone else. We must also satisfy ourselves that they have sufficient mental capacity to give us Will instructions.

For witnessing Wills, we will work with our clients to satisfy the legal requirement to witness signing of a Will. In this regard, we are complying with the Department of Health's recommended measures to reduce the risk of Covid-19 transmission. These guidelines are being regularly updated as the circumstances evolve, and include practising good hygiene and social distancing.

In some cases, these guidelines will prevent us from being able to witness execution of Wills. In other cases, we can arrange in person witnessing. It is not legally necessary that all signatories use the same pen. It is also not legally necessary that all signatories be physically close to each other - witnessing is valid provided all signatories can see each other sign.  

Of course, anyone required to socially isolate - including those diagnosed with COVID-19, awaiting test results for COVID-19, who have been in close contact with a confirmed case of COVID-19, or who have arrived in Australia after midnight on 15 March 2020 - will not be able to attend our office.

At the time of witnessing a Will, we always need to ensure that a person signing the Will understands what they are signing and are signing of their own free will. This is a legal requirement. 

If a Will cannot be witnessed in compliance with the above legal requirements, it may still be possible to establish the validity of the Will via a Court process.

For further information or to arrange a new Will please contact Michelle Hankey or Cassandra Bailey in our office.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Covid-19 relief for commercial tenants in Western Australia

The State and Commonwealth Governments are in the process of enacting legislation to provide relief to commercial tenants affected by Covid-19. 

The West Australian State Government has recently passed legislation that limits the ability of a landlord to take certain action against tenants under a "small commercial lease" during the "emergency period" (the Commercial Tenancies (COVID-19 Responses) Act 2020).

The emergency period roughly aligns with the Commonwealth Government's Jobkeeper payment period, being 30 March – 29 September 2020, unless another end date is specified. This new State legislation is not yet in force, but it should be very soon.

The relief provided by the new Act operates in favour of tenants under "small commercial leases". A small commercial lease means:

• a retail shop lease as defined in the Commercial Tenancy (Retail Shops) Agreements Act 1985
• a lease where the tenant is a small business as defined in the Small Business Development Corporation Act 1983
• a lease where the tenant is an incorporated association as defined in the Associations Incorporation Act 2015
• another type of lease as prescribed in Regulations to the new Act (yet to be determined). 

During the emergency period protections in the new Act include:

• A six-month moratorium on evictions due to non-payment of rent
• A freeze on rent increases
• A restriction on penalties for tenants who do not trade or reduce their trading hours
• A prohibition on landlords making a claim on any form of security (e.g. a bank guarantee or security deposit) for the performance of the tenant’s obligations under the lease
• A prohibition on landlords progressing action against a tenant for a breach that occurred after 30 March 2020, but before commencement of the new Act
• A resolution mechanism for disputes arising out of, or in relation to, the operation of the legislation or a proposed new Code of Conduct (see below), including a mechanism to protect landlords where tenants are refusing to pay rent despite the capacity to do so.

The West Australian Government will soon pass Regulations to operate in conjunction with the new Act. These Regulations will deal with specific points not set out in the Act. For example, the Regulations might exclude certain small businesses from the protection that is given by the Act.  

The Regulations will also set out a new Code of Conduct equivalent to the National Cabinet Mandatory Code of Conduct  – Small to Medium (SME) Commercial Leasing Principles during COVID. This is the Code of Conduct developed by the Commonwealth Government and released on 7 April 2020 to regulate how a landlord must negotiate with tenants who have suffered Covid-19 related downturns. 

Of note, the Code of Conduct requires that landlords must offer tenants proportionate reductions in rent payable in the form of waivers (i.e. a reduction in rent that will not be recovered by the landlord) and deferrals (i.e. a delay in payment of part of the rent which will be recovered) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the Covid-19 pandemic period and a subsequent reasonable recovery period. 

So, if a tenant's turnover is affected by Covid-19, it may be able to rely on the new Act and the Code of Conduct to negotiate a rent reduction and waiver with their landlord. 

The Regulations may impact on the matters outlined above. Specific advice is needed on a case by case basis. However, many small businesses should take some comfort that if they suffer a Covid-19 related decline in turnover, protection from adverse action by their landlord may be available. 

Other legislation is also currently before the West Australian Parliament which, if passed, is expected to allow tenants to request a termination of their lease if their business will not recover from a Covid-19 related decline in turnover. If passed, this legislation may limit a tenant's liability if they have to terminate their lease early for that reason. 

Please contact Amy Knight for further advice.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

What tax risks do I take on when I become a company director? (updated)

This is a question often asked of lawyers. There are many risks a person is exposed to when they agree to become a company director. 

Below is an extract from a paper I presented at a Legalwise Seminar "Business Clients: 20 Answers To Their Most Asked Questions" in Perth on 21 November 2019. 

1. Risk of breaching directors duties if taxes are not paid

Directors have an obligation to act in good faith and in the best interests of the Company and to act with reasonable care and diligence. This includes ensuring the company’s tax affairs and tax compliance matters are managed diligently.

Accordingly, a director must ensure that a company of which he or she is a director complies with its tax payment obligations. Failure to do so can result in the director being in breach of his or her legal duties as a director, which may attract penalties under the Corporations Act 2001. This could include civil penalties, compensation proceedings and criminal charges. Seek our advice as needed.

2. Risk of personal liability under Director Penalty Notices

Division 269 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (the TAA) sets out the Director Penalty Notice (DPN) regime. Under Division 269 directors are required to ensure that the company complies with its Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) obligations. If a director fails to ensure compliance, the Commissioner of Taxation can recover personally from the director a penalty equal to the company’s outstanding PAYG and SGC obligations. 

What is PAYG withholding? 

By law a company must withhold tax from salary, wages, commission, bonuses or other allowances the company pays to an individual as an employee.  Tax legislation also requires a company to withhold tax in other scenarios, including:

• payments to company directors and officer holders;
• payments to workers under a labour-hire agreement; 
• payments under certain voluntary agreements; and
• payments to suppliers where an ABN has not been quoted in relation to a supply.

Broadly, these laws are known as the PAYG withholding regime. Withheld tax amounts must be paid to the ATO.

What are SGC obligations?

By law a company must also pay compulsory superannuation guarantee amounts to its employees. The Superannuation Guarantee (Administration) Act 1992 (SGAA) requires that employers pay a fixed percentage of an employee’s earnings into the employee’s superannuation fund. This is the superannuation guarantee (SG) amount. A Superannuation Guarantee Charge (SGC) is imposed on employers who fail to pay the required SG amount i.e. the SGC is the shortfall plus interest (usually 10% per annum) and administration costs (usually $20 per employee per period). The SGC must be paid by the employer to the ATO each quarter. 

Personal liability under Director Penalty Notices 

The DPN regime allows the ATO to impose a personal penalty on directors who fail to ensure a company complies with its PAYG withholding and SGC obligations.

In summary, if a company has an outstanding PAYG withholding or SGC debt then the ATO can send a DPN to a director giving that director 21 days to:

• cause the company to pay the debt; or
• put the company into liquidation; or
• put the company into voluntary administration; or
• come to a payment arrangement with the ATO.  

Requirements for a valid DPN

Section 269-25 of the TAA sets out the requirements for a DPN to be valid. The DPN must:

• set out what the ATO thinks is the unpaid amount of the company’s PAYG withholding or SGC liability; 
• state that the director is liable to pay to the ATO, by way of penalty, an amount equal to that unpaid amount because of an obligation the director has or had under Division 269 of Schedule 1 of the TAA; and
• explain the main circumstances in which the penalty will be remitted.

Notably, the DPN does not have to be physically received by a director for it to be valid, as long as there was effective delivery as defined in the TAA.

Avoiding personal liability under a DPN

After a DPN is issued, the ability of the director to avoid paying the penalty personally is relatively limited. If the unpaid PAYG withholding or SGC amount was reported to the ATO within three months of the due date, then the personal penalty can be remitted (cancelled) if: 

• the company pays the outstanding debts; 
• an administrator is appointed; or 
• the company commenced being wound up,

within 21 days of the DPN being given.

Importantly, the penalty on the director may not be remitted if instead a payment arrangement is agreed with the ATO (as referred to above). The ATO can commence proceedings against the director at the end of the 21 day period.  

So, a DPN cannot be ignored and must be dealt with promptly. To be clear, the 21 days runs from the date of issue, not the date of receipt.

Prior to 2012 it was sometimes possible to wind up a company at any time to avoid paying the penalty in a DPN. Amendments to the TAA in 2012 removed this ability. Essentially, the 2012 amendments make directors automatically personally liable for PAYG withholding and SGC amounts that remain unpaid and unreported three months after the due date for lodging a tax return. A DPN issued in relation to such debts is a so-called “Lock down DPN”. A director who receives a Lock down DPN cannot cause the DPN penalties to be remitted by placing the company into voluntary administration or liquidation.

So, directors must be diligent in ensuring a company keeps it tax returns up to date and lodged. Adopting a tactic of failing to lodge returns will not work. Even if the company cannot pay a PAYG withholding or SGC debt, directors must still lodge the return anyway. If they do not do so, automatic personal liability will be imposed and that liability will not be able to be remitted if a Lock down DPN is issued.

Defences to liability under a DPN

A director may avoid personal liability under a DPN if a statutory defence is applicable.  Broadly, a director may avoid personal liability if the director can show that:

• because of illness or some other good reason, the director did not take part in the management of the company at the time when the company incurred the PAYG withholding or SGC or obligation;  or
• the director took all reasonable steps to ensure the company complied with its PAYG withholding or SGC obligation, by ensuring one of the following things happened:
  • the company paid the amount outstanding;
  • an administrator was appointed to the company; 
  • the directors began winding up the company; or
  • in the case of an unpaid SGC liability – the company treated the SGAA as applying in a way that could be reasonably argued was in accordance with the law, and took reasonable care in applying that Act. 

The TAA allows for defences to be raised within 60 days from notification – that is, 60 days from when the DPN is issued.  Again, a DPN cannot be ignored and must be dealt with promptly.

A DPN defence must be submitted to the ATO in writing, clearly articulating which defence the director is seeking to rely on. It should provide all the necessary information and supporting documentation to substantiate the defence. We can assist in this regard.

Illness defence

The illness defence mentioned above has a number of limbs that must be satisfied. These are discussed in the case of Deputy Commissioner of Taxation v Snell [2019] NSWDC 159. A detailed discussion is beyond the scope of this article. For present purposes, it is sufficient to observe that it can be difficult to substantiate the defence, as there must not be any evidence that the director took part in any aspect of the management of the company at any time during the relevant period. It is not enough to show that the director did not take part in managing the tax affairs of the company.

Also, medical evidence will be required in support of the proposition that the director could not have reasonably been expected to take part in the management of the company due to the illness.

Reasonable Steps Defence

Section 269-35(2) of the TAA provides that a director is not liable for the penalty in a DPN if the director took all reasonable steps to ensure that one of the outcomes referred to above happened.

In determining what reasonable steps could have been taken, regard must be had to when, and for how long, the director took part in the management of the company as well as all other relevant circumstances.  The ATO will consider what a reasonable director in that position during the time the director was subject to the obligation would have done. The assessment is an objective one.  Directors who are “too busy” or simply devote their attention elsewhere will not be able to rely on the defence. A lack of attention to details or ignorance of the company’s financial position will also not be enough to establish the defence.

Liability of new directors versus previous directors under a DPN

Directors recently appointed to the position are given a grace period to comply with their obligations under section 269-15 of the TAA. A director who is appointed after the due date for a PAYG withholding or SGC liability can become personally liable for the amount if after 30 days the liabilities remain unpaid.

This means that as soon as a director is appointed, they should review the company’s PAYG withholding and SGC liabilities, and ensure any amounts which remain unpaid are paid within the 30 day period. They should also check to ensure all outstanding tax returns have been lodged. If they find outstanding PAYG withholding or SGC liabilities or returns, they should seriously consider resigning.

A retired or former director can also be given a DPN. Resigning as a director does not allow a director to escape liability. The courts have confirmed that the ATO can impose liability on persons who were directors at the relevant time when the PAYG withholding or SGC obligation accrued.  There is a continuing obligation on directors to ensure the company complies with withholding tax obligations, and this obligation can persist despite the director ceasing to act in the role.  Specialist tax advice should be sought by directors in such situations.

3. Risk of personal liability for unpaid GST

Updated: 10 February 2020

New legislation recently passed exposes directors to personal liability for unpaid GST.  The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 was passed by both Houses of Parliament on 5 February 2020. Once Royal Assent is given- which should take a few weeks, at most - the ATO will be able to collect estimates of anticipated GST liabilities from company directors personally via DPN's, in certain circumstances.  The new law will allow the ATO to collect unpaid GST from directors in the same way as PAYG withholding and SGC can be recovered via DPN's, as discussed above. The new law is expected to take effect from 1 April 2020. 

4. Risk of personal liability for tax debts incurred while insolvent

Directors can be personally liable for debts incurred by a company where the company trades while insolvent. This is because one of the fundamental duties of a director is to ensure that the company does not trade while it is insolvent.  If a company is unable to pay its debts as and when they fall due the company is insolvent.

Common signs of insolvency include:

• suppliers refusing to extend credit to the company;
• minimal or insufficient cash flow;
• problems paying suppliers and other creditors on time; 
• difficulty in meeting loan repayments on time; 
• difficulty in keeping within bank overdraft limits; and
• legal action being taken, or threatened, by creditors over money owed to them.

In certain circumstances, directors may be liable for debts incurred by a company when it is insolvent. This could include tax liabilities incurred by the company while trading insolvent. There are various penalties and consequences of insolvent trading, including civil penalties, compensation proceedings and criminal charges. A detailed consideration of these issues is beyond the scope of this article. Seek specialist advice from us as needed.

5. Risk of personal liability as a Public Officer

A company carrying on business in Australia is obliged to appoint a “public officer” to act as the company’s representative and official point of contact for the ATO.

A public officer must be appointed by the company within three months of the company commencing business in Australia or deriving income from property in Australia.  It is an offence to fail to appoint a Public Officer. There must always be a person who holds the position of public officer.

Generally, the board of directors will choose who is appointed as a public officer. The power will normally be contained in the company’s constitution. 

The public officer must ensure that the company meets its obligations under the ITAA, and they can be held liable for penalties which are imposed on the company for failing to comply with the ITAA.  Similar provisions are found in the SGAA.

As can be seen from the above, there are many tax risk involved when accepting an appointment as a company director. Diligence on the part of the director is required if personal liability is to be avoided.

For further information and advice please contact me, Damian Quail.  

Thank you to Michelle Hankey and Cassandra Bailey for their assistance in preparing the original paper I presented.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Clarifying the ability of trustees to expand their powers: the decision in Re Application of Country Road Services Pty Ltd

In this article (published in the December 2019 edition of the Law Society Brief magazine) Jonathan Haeusler, Special Counsel, and Michelle Hankey, Solicitor, discuss the court’s decision in Re Application of Country Road Services Pty Ltd [2019] NSWSC 779 regarding a trustee’s role and their ability to expand their powers as trustee. 

The trust instrument that created a trust is the primary source of the trustee’s duties, obligations and powers.  A trustee’s primary duty is to administer the trust in accordance with the terms of the trust instrument.  If a trustee acts outside the terms of the trust instrument, the trustee’s acts will be "ultra vires" i.e. invalid.  In certain circumstances, a trustee may apply to the court for, among other things, an order conferring additional powers on the trustee where it would be “expedient in the management and administration” of the trust property to do so.

However, a trustee cannot seek additional and new powers so that it might administer the trust in a different way from that contemplated in the trust instrument. The trustee should not seek to question the terms of the trust or seek to improve them.

The court’s decision in Re Application of Country Road Services Pty Ltd serves to remind us of the trustee’s function in making applications to the court for orders conferring additional powers on trustees.  In particular, the court’s observations remind us that the trustee’s role is to administer the trust in accordance with the terms of the trust instrument, not to seek to change the trust instrument.  Further, that the usual role of a trustee should be one of neutrality.  

The key take-aways from the court’s decision are set out in Jonathan’s article, which is available here.  

If you have any queries regarding trust administration, please contact Jonathan Haeusler or Michelle Hankey of our office. 

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Superannuation guarantee amnesty: one last chance to pay compulsory superannuation for non-complying employers who employ "contractors"

Employee versus contractor? Are you sure?

Over the past decade many Australian companies have retained the services of people who claim they are "contractors" not employees. Usually the "contractor" wants to be paid a gross fee/remuneration, stating that they will take care of income tax, superannuation and other payments. 

The attraction for the employer is a lower total cost of retaining the person as compared to bringing them on as an employee, as well as perceived flexibility in options for ending the relationship as compared to traditional employment (the thinking is that no redundancy or leave entitlements need to be paid and no notice period applies).

Such practices were common in the IT, marketing, construction and other industries, particularly so called “digital industries”. The “gig economy” has seen the practice gain pace.

The legal reality is that many "contractors" are actually employees, particularly where they turn up to work at the same place each day, take their instructions from "a boss" at the company, are paid by the hour rather than for delivering an end product, and don't have to redo their work at their cost if the deliverable is not done to the required standard.

In such cases, income tax and compulsory superannuation guarantee payments must be paid by the employer for "contractors" who are, legally, employees. If the payments are not made, significant penalties accrue over time and must be paid to the Australian Tax Office (ATO).

Often this superannuation liability only hits home when the employer tries to sell their company and the buyer's due diligence experts point out the problem. Significant superannuation shortfall payments and ATO penalties loom large for the seller, as well as a reduction in the sale price, or at least a significant escrow sum demanded by the buyer.

A superannuation guarantee amnesty is potentially available.

Legislation has been reintroduced to Parliament providing an amnesty for employers who have not paid superannuation guarantee (SG) payments. The proposed amnesty will allow fines to be avoided, provided the SG payments are made.

The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (the Bill) was re-introduced into the House of Representatives on 18 September 2019. The Bill was then referred to the Economics Legislation Committee for further inquiry. The Committee released its report recently - available here.

The Bill provides employers who have previously failed to pay SG contributions and failed to disclose the shortfall to the ATO with a “second chance” to self-correct any historical non-compliance. 

This amnesty operates as a way for the ATO to encourage employers to disclose unpaid SG amounts for the period during which the amnesty applies - without fear that they will be liable for fines typically associated with non-compliance. 

What are my SG obligations generally?

The Superannuation Guarantee (Administration) Act 1992 (SGAA) requires that employers pay a certain percentage of an employee’s earning into the employee’s superannuation fund. A Superannuation Guarantee Charge (SGC) is imposed on employers who fail to pay the required SG amount i.e. the SGC is the shortfall plus interest and administration costs, and this is payable by the employer to the ATO each quarter. 

Employers can also be liable for penalties for failing or refusing to provide a statement or information as required under the SGAA, which can be up to 200% of the amount of the underlying SG amount (known as Part 7 Penalties). 

How will the proposed amnesty work?

The first step is disclosing unpaid SG to the ATO. An employer who discloses SG non-compliance and pays an employee’s full SG entitlements plus any interest (which may incude nominal interest and a general interest charge (GIC)) will be entitled to the amnesty, and will avoid liability for penalties normally associated with late payment and non-compliance.  

The employer with an outstanding SG liability can either: 

• pay the unpaid SG amounts, GIC and nominal interest directly to the ATO; or 
• pay the unpaid SG and the nominal interest to the employee's superannuation fund, and then elect to offset these amounts against their liability for SGC and GIC (if any).

However, if employers have an existing SGC assessment for a quarter, or are otherwise unable to contribute directly into their employee’s superannuation fund, they will be required to pay the SGC to the Commissioner directly.

If the employer makes a disclosure under the amnesty, the administration charge component of the SGC will be waived (see example 1.1 in the Explanatory Memorandum). 

The amnesty is proposed to extend to all reporting quarters from the quarter commencing 1 July 1992 to the quarter commencing 1 January 2018. 

The disclosure to the ATO must be made in the correct form, and the employer must pay the amount of the disclosed SG to the employee or the SGC to the ATO (see above) within the required period. Failure to pay will mean the employer will not be able to rely on the amnesty and will be subject to the normal penalties imposed. 

It is expected that employers will be given from 24 May 2018 to 6 months after the date the Bill receives Royal Assent to make disclosure and pay the shortfall and interest (the Amnesty Period).  

In summary, in order to benefit from the amnesty the unpaid SGC must: 

• Not have been previously disclosed to the ATO; 
• Have been incurred between 1 July 1992 and 31 March 2018; and 
• Not be under examination by the ATO previously.

The employer must also:

• disclose the shortfall to the ATO within the Amnesty Period; and
• pay the shortfall plus interest within the Amnesty Period. 

If the employer does the above things for eligible SG shortfalls, they will not be liable for Part 7 Penalties. SG amounts paid during the Amnesty Period will be tax deductable. 

If the Bill is passed, employers who have failed to comply with their SG obligations in the past should take advantage of this opportunity to avoid liability for such penalties.

Employers who fail to disclose during the Amnesty Period 

Employers who do not disclose and pay unpaid SG and interest within the Amnesty Period will be subject to higher penalties. Generally, the Commissioner has discretion to remit Part 7 Penalties. However, from the day after the Amnesty Period ends the Commissioner’s ability to remit Part 7 Penalties will be limited. According to the Explanatory Memorandum, the Commissioner will not be able to remit penalties below 100% of the amount of SGC owing by the employer for a quarter covered by the amnesty. The penalty will include interest and an administration fee. 

What does this mean for my business?

The amnesty is a one-off second chance for employers to reduce their exposure to penalites for unpaid SG. Employers who are aware that they have failed to comply with their SGC obligations, or are unsure whether they have fully complied since 1 July 1992, should ensure that they keep informed of the progress of the Bill. 

In particular, employers who have utilised the services of “contractors” who look-and-feel like employees should consider taking advice on whether the persons involved were legally employees for the purposes of tax, superannuation and other legislation.

If you would like further information regarding the new laws or any other issue please contact Damian Quail or Cassandra Bailey.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Disclose the full upfront price or risk breaking the law: new upfront pricing laws apply

It is not uncommon for businesses to advertise a headline price for goods and services to their customers, and to only disclose optional costs in the fine print or in a manner that is not necessarily clear to customers. This is no longer permitted. Some businessess will need to change their pricing practices, particularly businesses selling goods online.

The Treasury Laws Amendment (Australian Consumer Law Review) Bill 2018 amends the Australian Consumer Law contained within the Competition and Consumer Act 2010, and imposes an obligation on businesses operating in Australia to ensure transparent pricing for consumers. As of 26 October 2019, businesses must display the total price for the goods and services including all pre-selected optional items. In other words, if optional components are pre-selected or automatically applied by the seller, these options must be included in the headline price. The customer then has the option to remove the pre-selected options selected in order to pay a lower price.

These new laws will especially affect businesses who sell goods and services online. The Explanatory Memorandum to the new legislation provides some helpful examples in relation to airlines. For example, if an airline fare is $500 and a website pre-selects an optional carbon offset fee of $5, then the headline price must be $505, not $500. However, if the carbon offset fee is not pre-selected or automatically applied, then the ticket can be advertised at $500.  

The same approach is applicable for promotions which display only a portion of the total price. Businesses must ensure that the total price is displayed just as clearly as the fractional price. Essentially, the new laws aim to avoid the situation where headline prices are advertised initially, but once the customer clicks through the website the price is increased to include pre-selected options and charges. 

Businesses should ensure that their pricing strategies conform with the new laws. 

If you would like further information regarding the new laws please contact Damian Quail. 
 

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Modern slavery legislation: the clock is ticking for Australian companies to prepare their first Modern Slavery Statement

Modern slavery legislation has been enacted in Australia. Many larger companies are now legally obliged to prepare Modern Slavery Statements and submit these statements to the Australian Federal Government. The Statements will be published on a publicly accessible register.

At its broadest, the term "modern slavery" refers to any situations of exploitation where a person cannot refuse or leave work because of threats, violence, coercion, abuse of power or deception. It encompasses slavery, servitude, deprivation of liberty, the worst forms of child labour, forced labour, human trafficking, debt bondage, slavery like practices, forced marriage and deceptive recruiting for labour or services. Indicators of modern slavery practices may incude unlawful withholding of wages and identity/travel documents through to excessive work hours and restrictions on movement. Other indicators include recruitment agencies deducting excessive fees from worker remuneration, loans to workers with astronomical interest, and similar practices. 

The Walk Free Foundation, which publishes the annual Global Slavery Index, estimates that 30.4 million people are victims of modern slavery in the Asia Pacific region, including within Australia (Walk Free Foundation, Global Slavery Index 2016, www.globalslaveryindex.org). Many Australian companies source workers, products and services from the Asia Pacific region. 

For many of these larger companies, reports will need to be lodged between 1 July 2020 and 31 December 2020. It is crucial that affected companies begin reviewing their internal processes and supply chains and begin collecting data to comply with the new reporting obligations.

What does the Federal legislation require?

The Federal legislation is the Modern Slavery Act 2018 (Cth). It commenced on 1 January 2019.

Key aspects of the Federal legislation are as follows:

• companies incorporated in or operating in Australia are required to submit a report - a Modern Slavery Statement - to the Federal Government if the business in Australia (of the company and its subsidiaries) has a minimum annual consolidated revenue of $100 million. Other entities may report voluntarily.
• Modern Slavery Statements must be lodged with the Home Affairs Minister (currently Peter Dutton).
• the Modern Slavery Statement must report on the risks of modern slavery in the company's operations and supply chains, and actions the company has taken to address those risks. Part 2 of the Commonwealth Act sets out in detail mandatory criteria that Modern Slavery Statements must address. It includes:
  1. the company's structure, operations and supply chains
  2. modern slavery risks in those operations and supply chains
  3. actions taken by the company to assess and address those modern slavery risks, including due diligence and remediation processes
  4. how the company assesses the effectiveness of actions taken
  5. the process of consultation with its subsidiaries in preparing the Modern Slavery Statement
  6. any other relevant information.
• the Act defines modern slavery to incorporate conduct that would constitute an offence under existing human trafficking, slavery and slavery-like offence provisions set out in Divisions 270 and 271 of the Commonwealth Criminal Code, as well as conduct covered under international conventions dealing with child labour and other slavery like practices. The definition encompasses slavery, servitude, deprivation of liberty, the worst forms of child labour, forced labour, human trafficking, debt bondage, slavery like practices, forced marriage and deceptive recruiting for labour or services.
• the first reporting period will be FY2019-2020, and the first report will be due within 6 months of the company's financial year end. For most Australian companies this means that the first Modern Slavery Statement must be given to the Home Affairs Minister between 1 July 2020 and 31 December 2020. Companies with an international financial year may have to report earlier, depending upon the timing of their end of financial year. For example, companies with a 31 March 2020 end of financial year will need to report by 30 September 2020.
• Modern Slavery Statements will be published on a freely accessible public register on the internet - the Modern Slavery Statements Register.
• Joint Modern Slavery Statements are permitted for corporate groups. 
• Modern Slavery Statements must be approved by the Board of Directors of a company. This ensures senior level accountability, leadership and responsibility for modern slavery.
• If a company fails to comply with a reporting requirement, the Minister may seek an explanation from the company and require the company to undertake remedial action in relation to that requirement. If a company fails to comply with the Minister’s request, the Minister may publish information regarding the company’s failure to comply, including the company's name i.e. this failure will become public knowledge. 

No penalties exist in the legislation for not complying with the Act. However, the Government has indicated that if compliance rates are low, the need for penalties will be considered as part of a three year review of the legislation.

Many prominent Australian companies such as Wesfarmers, South 32, Qantas and Fortescue Metals have already published Modern Slavery Statements.

What does the New South Wales legislation require?

The NSW legislation - the Modern Slavery Act 2018 (NSW) - is not yet in force.  It was assented to on 27 June 2018, but it has not yet commenced operation. On 6 August 2019 the NSW Legislative Council Standing Committee on Social Issues announced an inquiry into the NSW Act. The Committee's recommendations are due on 14 February 2020.

Key aspects of the proposed NSW Act are as follows:

• it will apply to companies that have employees in NSW that supply goods and services and have a total annual turnover of not less than $50 million
• financial penalties may be imposed under the Act for failure to comply with the Act. A maximum penalty of $1.1 million is proposed to apply where a company fails to prepare a Modern Slavery Statement, fails to make its Modern Slavery Statement public or provides false or misleading information.
• appointment of an Anti-Slavery Commissioner. The Commissioner’s role will be focused on public awareness, advocacy and advice.

It is not yet certain whether the NSW legislation will operate in addition to the Federal legislation, or whether it will only operate when the Federal legislation does not apply to a particular company.  The proposed NSW Act states that the reporting requirements under the NSW Act will not apply if the organisation is subject to obligations under a law of the Commonwealth or another State or a Territory. So, a possilbe outcome is that companies that file a Modern Slavery Statement under the Federal legislation will not need to report under the NSW Act as well.  However, companies operating in NSW with revenue between $50 and $100 million may need to comply with the NSW Act once it commences operation, as they will be caught by the NSW Act but not the Federal Act.

What does the Western Australian legislation require?

Nothing yet- Western Australia has not yet enacted its own Modern Slavery legislation. However, it seems inevitable that Western Australian legislation will arrive at some point. 

Next steps

It is crucial that companies required to report under the Modern Slavery Legislation begin reviewing their internal processes and supply chains and begin collecting data to comply with the new reporting obligations. This could include: 

• mapping supply chains and undertaking a risk based assessment of where modern slavery risks may arise in those supply chains
• identifying potential modern slavery risks in their internal operations
• reviewing policies and procedures in relation to modern slavery, including supplier codes of conduct and human rights policies
• revise procurement terms and conditions to cover the new obligations
• revise employee codes of conduct and policies to address modern slavery issues
• train employees on modern slavery risks and compliance requirements
• implement procedures to monitor modern slavery risks internally and within supply chains, as well as procedures to look for indicators of potential modern slavery
• make sure supply chain participants are aware of the new obligations
• appointing a senior internal person to take ownership and responsibility for compliance.

For further information on managing your risk and compliance obligations, please contact Damian Quail.  

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Vying for social media engagement: More risk than reward?

The recent Court decision in Voller v Nationwide News Pty Ltd [2019] NSWSC 766 (the Voller case) highlights a danger inherent in using social media - social media publications invite comments from a wide variety of users, with a very real risk that some of those comments may convey a defamatory meaning. Following the decision in Voller, businesses are at risk of being held liable for defamatory comments posted by third party users who engage with social media content.  

Background

In Voller, the Supreme Court of New South Wales (NSWSC) considered a defamation claim commenced by Dylan Voller, a former detainee at the Don Dale Youth Detention Centre. Mr Voller alleged that Fairfax Media Publications Pty Ltd, Nationwide News Pty Ltd and Australian News Channel Pty Ltd (the publishers of the Sydney Morning Herald, The Australian and Sky News Australia/The Bolt Report, respectively) (the Defendants) were responsible for defamatory comments posted by third-party Facebook users on stories published by those Defendants to their Facebook pages.

Liability for Defamation and the issue of “Publication” 

Under Australian law, a person is liable for defamation if the material is published to one or more third parties, the material identifies a person and the material conveys a defamatory meaning.

The NSWSC was principally concerned as to whether the Defendants were the "publishers" of third party comments in response to the Defendant's news stories. 

Decision

The NSWSC found that the Defendants were not mere conduits of the Facebook comments, but rather had encouraged Facebook users to make comments in order to further the Defendant's own commercial interests.  The first time each defamatory comment was published in comprehensible form was as a comment attached to each Defendant’s relevant news story.  Given that the publication carrying the defamatory meaning (being the Facebook comment) was viewed by the public in relation to that news publication, it was the Defendants that were the first and primary publishers of the defamatory comment. 

Reason for Decision

In reaching the decision, Justice Rothman took account of the ability of each Defendant’s Facebook administrator to forbid, filter or hide comments, thereby giving the Defendants the power to control the content of the articles and the comments being published.  The Court found that the administrators held the “final right of approval” before comments were made public. That element of control over the publication demonstrated that the Defendants participated in the broadcast of the defamatory material, in failing to exercise their administrative controls and filter the comments appearing under their publications.  His Honour held that by operating their Facebook pages for a commercial purpose, and inviting user participation without exercising the appropriate controls, the Defendants had promoted the defamatory material by ratifying its presence and publication.  For this reason, the defence of innocent dissemination could not apply.

His Honour also attached importance to the fact that the Defendants could delay publication of user comments and monitor whether any were defamatory before releasing them to the general public. This was considered more important than the counter argument that there was a significant time cost in doing so.  

It was considered irrelevant that social media is used to engage third party users and to invite comment and interaction with posts, rather that to simply disseminate information. It was also no defence that it would be difficult to monitor numerous comments being published by third party users over long periods of time (for example, third party users often comment on posts days after the initial post is published).

What does this mean for public publishers on social media? 

This decision highlights for administrators of public social media pages the implications of inviting public comment on their posts.

Media companies and other businesses that utilise social media to promote their commercial interests should pause to consider how they can limit their liability for third party defamatory comments.

Businesses should also consider implementing moderating procedures, such as reviewing comments for factual accuracy or malicious content before the comments are displayed as a comment under the primary publication.

If preventative strategies are to be implemented, the strategies should account for any content posted within the prior 12 months, given the Limitation Act 2005 (WA) permits a person to commence a defamation action within 12 months of publication of the defamatory material.

Reviewing third party comments on existing publications, as well as monitoring, hiding and blocking defamatory comments on future publications, will be necessary for any businesses with a social media presence, at least pending an appeal of the decision in Voller. 

For further information on defamation and managing your risk, please contract Damian Dinelli on 9481 2040 or at damian.dinelli@whlaw.com.au. 

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.