Mining, Exploration & Mining Services

Williams + Hughes Earns Recertification in Meritas, the Leading Global Alliance of Independent Business Law Firms

Williams + Hughes is pleased to announce that it has been awarded recertification in Meritas, a global alliance of independent business law firms. Williams + Hughes joined Meritas in 2014 and, as a condition of its membership, is required to successfully complete recertification every three years. 

Meritas is the only law firm alliance with an established and comprehensive means of monitoring the quality of its member firms, a process that saves clients’ time validating law firm credentials and experience. Meritas membership is selective and by invitation only. Firms are regularly assessed and recertified for the breadth of their practice expertise, client satisfaction and high standards of cybersecurity to keep legal information safe. Meritas’ extensive due diligence process ensures that only firms meeting the tenets of Meritas’ unique Quality Assurance Program are allowed to maintain membership. The measurement of the firm’s performance, based on input from clients, is reflected in a Satisfaction Index score, which is available online on the Meritas website.

“Our values of quality service and client satisfaction align with the Meritas mission to provide a safe and responsive global offering to clients,” said Damian Quail, Director. “We’ve successfully collaborated with colleagues in many jurisdictions around the world to solve client issues and help them seize opportunities outside of this market. We look forward to keeping those vital connections through membership in Meritas.”

The recertification process Williams + Hughes completed to maintain its membership status included exacting self-assessment, peer review by other law firms and client feedback.  

“Businesses trust the Meritas alliance of law firms for top-tier quality, convenience, consistency and value,” said Sona Pancholy, president of Meritas. “Williams + Hughes has demonstrated its commitment to world-class legal standards, and therefore has successfully earned its recertification in Meritas.”

For more information about our our membership in Meritas, please see here

About Meritas 

Meritas’ global alliance of independent, market-leading law firms provides borderless legal services to companies looking to effectively capture opportunities and solve issues anywhere in the world. Companies benefit from local knowledge, collective strength and new efficiencies when they work with Meritas law firms. The personal attention and care they experience is part of Meritas’ industry-first commitment to the utmost in quality of service and putting client priorities above all else. Founded in 1990, Meritas has member firms in 259 markets worldwide with more than 7,500 dedicated, collaborative lawyers. To locate a Meritas resource for a specific need or in a certain market, visit Meritas.org or call +1-612-339-8680

Meritas Welcomes DMAW Lawyers, Adelaide, to the Membership

Leading Adelaide commercial Firm, DMAW Lawyers has been selected to be South Australia’s representative firm for Meritas, the premier global alliance of independent law firms.

DMAW Lawyers will become an integral part of the Australia & New Zealand network of firms as well as the worldwide network of 191 law firms located across 96 countries.

This alliance will enhance DMAW Lawyers’ ability to support South Australian business interests both nationally and internationally.

DMAW’s Lawyer’s Managing Director, Mr Leo Walsh said “One of most attractive benefits of belonging to this network was the opportunity for our lawyers to participate in national and global conversations on business and legal issues. Not only does this expand our thinking, and add to our technical skills, but it help our lawyers build trusted, reliable relationships with lawyers in the regions that matter to our clients. Already we’ve participated in meetings with Insolvency experts across the country and with Senior Partners in Shanghai and Tokyo.”

Mr Mike Worsnop, Partner with Martelli McKegg in New Zealand and Co-Chair of Meritas ANZ: “We are delighted to have DMAW Lawyers join our group. Not only was their quality apparent but they’ve been very easy and responsive to deal with during our discussions.  They clearly demonstrated the type of service clients look for when using a firm in a different market.”

“DMAW Lawyers had to meet the rigorous requirements to become members of Meritas, the only law firm alliance with a Quality Assurance Program that ensures clients receive the same high-quality legal work and service from every Meritas firm.”

Meritas membership is extended by invitation only, and firms are regularly assessed for the breadth of their practice expertise and client satisfaction.

Ms Sona Pancholy, Meritas CEO: “In today’s environment having a commitment to a reliable network is more important than ever. Independent law firms, Corporate Counsel, Business Owners and their Commercial Advisors, all choose their portfolio of trusted legal relationships to match the issues and the markets they want to navigate. For 30 years, Meritas has cultivated a group of the best firms for this purpose.”

About DMAW Lawyers

DMAW Lawyers was established in Adelaide in 2002. The firm has ten Principals and a team of 50 staff. DMAW Lawyers focus on three areas of specialization being Corporate, Transactions, and Disputes for Business Clients.

Website: DMAW Lawyers

About Meritas

Founded in 1990, Meritas is the premier global alliance of independent law firms. As an invitation-only alliance, Meritas firms must adhere to uncompromising service standards to retain membership status. With 192 top-ranking law firms spanning 96 countries, Meritas delivers exceptional legal knowledge, personal attention and proven value to clients worldwide.  

Website:  Meritas 

In Australia and New Zealand, Meritas is represented by leading independent commercial law firms in each of these six major capital cities:

In Australia

Adelaide DMAW Lawyers

Brisbane Bennett & Philp

Melbourne Madgwicks Lawyers

Perth Williams+Hughes

Sydney Swaab  

In New Zealand

Auckland Martelli McKegg

Privacy policies and procedures: Australian businesses may have to comply with European GDPR laws

On Friday 25 May 2018 the EU General Data Protection Regulation (GDPR) came into effect, giving residents of the EU increased control over their personal data. Importantly, GDPR extends far beyond the boundaries of Europe.

Here we have summarized what this means for Australian businesses.

Does it apply to my Australian business?

GDPR can apply to businesses incorporated outside of the EU, regardless of their size.

GDPR applies to Australian businesses that:

• have an establishment in the EU;
• offer goods or services to EU individuals (including where no payment is required); or
• monitor the behaviour of EU individuals e.g. through the use of website “cookies”.

If an Australian company has an office in the EU, sells goods or services to people in the EU, or processes or handles data relating to EU individuals – even if that data processing occurs only in Australia - that is usually enough to bring the company within the scope of GDPR.

The fact that people in the EU can access a website is not enough to bring the company within GDPR. However, using a European language or currency on your website, or mentioning customers or users who are in the EU, can be considered having an intention to offer services to EU individuals. This will bring any data concerning those EU individuals within GDPR, and so the Australian business will need to comply with GDPR.

Who and what are covered?

The GDPR covers the “personal data” of an “EU individual”. The concept of an “EU individual” extends to EU residents, EU citizens and citizens of other countries who are temporarily in the EU. This could include an Australian resident working temporarily in the EU. The scope of “personal data” is broad - it includes any data set which can identify or single out an individual. It is broader than the definition of personal information under Australian legislation.

Importantly, GDPR focusses on the person to whom the information relates, not where the information handling or processing actually occurs.

So, an Australian company that uses computer servers provided by third parties to process the personal data of an EU individual (e.g. Amazon or Microsoft Azure servers) is bound by GDPR even if those servers are located outside of the EU. GDPR extends far beyond the boundaries of Europe.

If an Australian company has European customers, then they msut comply with GDPR.

We comply with Australian Privacy Laws, isn’t that enough?

Unfortunately it is not that simple. Although the Australian Privacy Act 1988 (Cth) and the GDPR have similar requirements, some requirements of GDPR are stricter than those under Australian privacy law. For example:

• Active, informed, specific consent must be obtained from EU individuals regarding use, collection and storage of their personal information. Companies cannot rely on pre-ticked boxes, opt-out clauses, bundled consents or employment contracts for consent. Privacy and consent cannot be obtained via clause 65 of a privacy policy on your website.
• Companies must notify EU individuals within 72 hours of a data breach occurring. This is a very short timeframe from discovery of a breach. Companies will need to put in place processes to deal with a breach before any breach actually occurs.
• Specific steps must be taken by a company when transferring personal data outside of Europe or to a third party commercial services provider.
• Companies must implement appropriate technical and organisational measures and processes, including data protection policies, to ensure and be able to demonstrate that data processing and retention complies with GDPR. Importantly, there must be “data protection by design and by default”.
• EU Individuals have a “right to be forgotten” under GDPR which does not yet exist under Australian privacy law.

If GDPR applies to your business, you may need to update your privacy policy and procedures to ensure compliance with these rules.

Alternatively, you may need to implement strategies to remove your business from the scope of GDPR. We can assist in this regard. 

Europe's Regulatory Focus- will non-EU companies be fined?

The processing of employee data, such as payroll data, has been identified by EU regulators as a key area for protection. Any Australian business that seriously breaches GDPR in relation to EU employee information could be the subject of enforcement action by EU regulators. In the event of a serious data breach, fines may be imposed. Fines under GDPR can be extremely high - up to €20 million or 4% of annual worldwide turnover, whichever is greater.

Importantly, European regulators are taking action against non-EU companies. The first company to be fined under GDPR by the UK's Information Commissioners Office (ICO) was a Canadian company with apparently no EU presence. The ICO also issued a formal warning under GDPR in November 2018 to the Washington Post over how it was obtaining consent for cookies on its website. The ICO did not take the matter further at the time, and presumably will not in a post-Brexit world. However, it is clear that European regulators may target companies outside of Europe in sufficiently serious cases.

Also, any EU individual whose data has been compromised as a result of an unauthorised disclosure or data breach can take action directly against an Australian company under GDPR.

Many countries are following GDPR

Legislation similar to GDPR has already been passed in many jurisdictions outside of Europe. Other non-European countries are currently updating their privacy laws as a response to GDPR. These countries include Argentina, Bahrain, Brazil, China and Hong Kong, Iraq, Israel, Kazakhstan, Norway, Panama, Peru, Russia, Singapore, California and the United Kingdom. Australian companies operating in, or with customers in, these countries will need to be sure they comply with those laws.

What to do now

The message is clear. Many Australian companies holding or processing personal data of an EU individual should:

• Review their current data processing practices to understand what data is collected, processed and retained
• Determine whether current information handling, security and retention practices comply with GDPR
• Update privacy policies, practices and procedures if GDPR is applicable
• Put in place measures to deal with a data breach before one occurs
• Obtain formal contractual guarantees from third party service providers (e.g. who host or process relevant data) that they are compliant with GDPR.

For Australian companies that wish to avoid the cost of dealing with GDPR, there are strategies that can be implemented to remove their business from the scope of GDPR.

If you have any questions about your company’s obligations or need help to comply with GDPR or avoid GDPR, please contact Damian Quail in our Perth 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: Temporary relief for financially distressed individuals, companies and directors

The Australian Federal Government has announced temporary amendments to insolvency and bankruptcy laws, effective from 25 March 2020, to lessen the economic impacts of COVID-19 on individuals and businesses and to allow for business continuity. The legislation passed is called the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (the COVID-19 Legislation).

The new measures are intended to avoid unnecessary bankruptcies and insolvencies by providing:

• a safety net to help businesses to continue to operate during a temporary period of illiquidity, rather than entering voluntary administration or liquidation;  and
• a safety net to individuals to assist them with managing debt and avoiding bankruptcy.

The temporary amendments that will apply for 6 months from 25 March 2020 until 24 September 2020 include:

• increasing the threshold at which creditors can issue a statutory demand against companies from $2,000 to $20,000, and the time for responding to a statutory demand from 21 days to 6 months;
• relief for directors and holding companies from personal liability for new debts incurred during the period the company trades while insolvent (provided that the debt is incurred in the ordinary course of the company’s business);
• providing targeted relief for companies from provisions of the Corporations Act 2001 (Cth) (the Act) to deal with unforeseen events that arise as a result of the COVID-19 health crisis; and 
• a temporary increase in the threshold for a creditor to initiate bankruptcy proceedings from $5,000 to $20,000, and an increase in the time period for debtors to respond to a bankruptcy notice, as well as extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s position (both of which are extended from 21 days to 6 months).

Statutory Demands (companies)

A failure to respond to a statutory demand creates a presumption of insolvency under the Act, and the company may be placed into liquidation.  The Government has temporarily increased the timeframe for a company to respond to a statutory demand from 21 days to 6 months, thereby lessening the threat of actions that could push a business into insolvency.

The amendments will not prevent the right of creditors to enforce debts against companies or individuals through the courts.  However, creditors will not be able to rely upon a failure to pay to commence winding up proceedings until the expiration of the 6 month period, if the statutory demand is served on or after 25 March 2020. 

Insolvent Trading (companies)

The introduction of a new section 588GAAA into the Act provides temporary relief to directors from personal liability for insolvent trading in respect of debts that are incurred by their company if the debt is incurred:

• during the 6 month period from 25 March 2020;
• in the ordinary course of the company’s business;  and
• before any appointment of an administrator or liquidator over the company (during the 6 month period).

According to the Explanatory Memorandum to the COVID-19 Legislation, a director is taken to incur a debt in the “ordinary course of the company’s business” if it is necessary to facilitate the continuation of the business during the 6 month period.  This could include a director taking out a loan to move some of the business operations online or incurring the debt to pay employees during the COVID-19 pandemic.

While the new provision of the Act provides protection during the 6 month period, a person wishing to rely on the temporary safe harbour in a court proceeding in which unlawful insolvent trading is alleged will bear an evidential burden in relation to that matter.  This means producing evidence to support their reliance on the temporary safe harbour.   

A holding company may also rely on the temporary safe harbour provisions for insolvent trading by its subsidiary if it takes reasonable steps to ensure the temporary safe harbour applies to each of the directors of the subsidiary, and to the debt, and if the temporary safe harbour does in fact apply as a matter of law.  The holding company must establish this by producing evidence to support their reliance on the temporary safe harbour.

Bankruptcy Proceedings (Individuals)

To assist individuals, the Government has made a number of changes to the personal insolvency system regulated by the Bankruptcy Act 1966 (Cth). These include:

• the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will temporarily increase from $5,000 to $20,000;
• the time a debtor has to respond to a bankruptcy notice is increased from 21 days to 6 months; and    
• the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition is extended from 21 days to 6 months.  

These temporary measures will apply for 6 months from 25 March 2020 until 24 September 2020.

Temporary Powers given to the Treasurer

The COVID-19 Legislation enables the Treasurer to provide short term regulatory relief to classes of persons that are unable to meet their obligations under the Act or the Corporations Regulations 2001 (Cth) by:

• ordering that specified classes of persons are exempt from specified obligations;  or
• modifying specific obligations under the Act to enable specified classes or persons to comply with their obligations during the COVID-19 crisis.

The Treasurer can exercise this power if they are satisfied that it would not be reasonable to expect the persons in the class to comply with provisions because of the impact of COVID-19, or the exemption or modification is otherwise necessary or appropriate in order to facilitate continuation of business in circumstances relating to COVID-19, or to mitigate the economic impact of COVID-19.

This is a temporary provision to facilitate the continuation of business during the coronavirus.

For specific legal advice regarding the new safe harbour provisions, including regarding issuing or responding to a demand to or from your creditors or debtors, please contact Leanne Allison or Cameron Sutton. 

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- 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.

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.

Handshake deals and transfer duty: you can’t avoid paying duty by not documenting the deal

Sometimes two parties to a deal are tempted to use a "handshake agreement" to try avoid paying stamp duty/ transfer duty. Apart from the obvious legal risks about "no-paperwork deals", taking this approach to try avoid paying transfer duty simply will not work !

When is transfer duty payable? 

Transfer duty is payable in Western Australia (and other Australian jurisdictions) where there is a transfer of dutiable property or a dutiable transaction takes place, whether or not there is a physical document or agreement documenting the transaction. 

The obligation to pay transfer duty arises from the intention to transfer dutiable property or from actually transferring the dutiable property. This means that failing to document a dutiable transaction does not result in no transfer duty liability arising.

Duty is (generally) payable by the purchaser or transferee of the dutiable property.

Dutiable property includes land in Western Australia and business acquisitions involving the transfer of business assets in Western Australia, such as stock, plant and equipment, goodwill and intellectual property. 

Dutiable transactions can include an agreement to transfer dutiable property, a trust acquisition or surrender, amongst other things. 

If a transaction is, or will be, effected by an instrument (for example a business sale agreement), liability for transfer duty arises when the instrument is executed. If the dutiable transaction is not effected by an instrument, and is not going to be effected by an instrument, then the Duties Act 2008 (WA) sets out when transfer duty on a dutiable transaction will arise. For example, if there is an some sort of agreement to transfer dutiable property (maybe a verbal agreement or an informally documented "agreement"), then the liability to pay duty will arise when that agreement is reached between the parties. Even if there is no agreement, an obligation to pay duty arises when dutiable property is actually transferred. 

Therefore, the obligation to pay transfer duty is not avoided by simply not documenting the deal. Transfer duty will arise regardless of whether an agreement of any sort is actually recorded. 

Assessment of Duty – Documents to be lodged

To recap, where parties agree to transfer dutiable property, it is the date of that agreement on which liability to pay duty arises, regardless of whether a formal document is executed between the parties at a later stage. 

What documents are required to be submitted to the Office of State Revenue for the purposes of assessing the duty payable will depend on whether there is hard copy documentation of the transaction. 

If there is hard copy documentation (such as a sale agreement or other contract), then that instrument will need to be lodged for duty assessment.  

If there is no hard copy evidence or record of the transfer or the agreement to transfer, the person who is liable to pay the transfer duty must either lodge: 

• an instrument in hard copy form that evidences the transaction, and if there is more than one instrument, each of them; or
• make a transfer duty statement to provide evidence of the transfer and have the transfer assessed for duty. 

The required documents must be lodged within 2 months after the day on which liability for duty on the transaction arises. This is typically the date on which the parties agreed to transfer the property, not the date on which the formal document is signed. For example, if the base agreement terms are agreed between parties for a business sale, and later the parties agree to formally document the transaction by executing a business sale agreement, the date on which duty arises is the earlier date on which the basic agreement was made.

Reaching a handshake agreement and then "leaving the document to the lawyers to sort out" can be a trap - the obligation to lodge and the two month period starts on the date of the handshake, not the date the documents are finalised (which may be many months later).

Failure to lodge a transaction record within the time period is an offence and can result in fines and penalties and additional duty being payable . 

Summary 

Liability to pay transfer duty will arise regardless of whether hard copy agreements are entered into. Parties who agree to transfer dutiable property should be aware that failing to document the transaction will not avoid the liability to pay duty, and may lead to fines and additional duty liaibility.

Where a transaction is documented "after the fact", always bear in mind that the date on which the parties agreed to transfer the dutiable property is the date from which the lodgement obligation is calculated, not the later date on which the formal document is signed.

For further information regarding transfer duty obligations please contact Damian Quail or Cassandra Bailey 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.