Jul 292011


Want to make a submission regarding the Government’s important options paper on insolvency reform, titled “A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”?  Use my free template, available for download HERE.

This  simple table template, written with MS Office Word, lists the 135 discussion questions being raised in the options paper and provides space beside each question for your comments/opinions.  Just save the document to your computer,  fill it in and email it to the Treasury Department at insolvency@treasury.gov.auClosing date for submissions is 29 July 2011, but submissions soon after that date are likely to be accepted.

NOTE: submissions will be made public unless marked Confidential or Not for Publication.

The options paper in available at the Treasury website.

Unauthorised amendment of receiver’s BAS gets through ATO

 BAS, GST, Insolvency practices, Returns, Taxation Issues  Comments Off on Unauthorised amendment of receiver’s BAS gets through ATO
Jul 222011

The Australian Taxation Office has been asked to explain how it is possible for a BAS lodged by a representative of an incapacitated entity (receivers and managers) to be later amended  by another entity without authorisation. In the actual case that gave rise to the question, a GST refund of approximately $650,000 was paid out to the receivers as a result of the unauthorised amendment. The case concerned sale of  real property by the receivers.

The Tax Institute brought this matter to the ATO’s attention in March 2011  at a meeting of one of the ATO’s community consultation forums, the GST Sub-committee of the National Tax Liaison Group.

Minutes of the Meeting, recently published on the ATO website, are reproduced in full below.  It appears that changes to ATO procedures may have already been made.


GST Minutes, March 2011

Agenda item 19 – Amendments of BAS lodged by representatives of an incapacitated entity.  Issue 13.40 raised by the Tax Institute.

The Taxation Institute requests an explanation as to how it is possible for BAS lodged by a representative of an incapacitated entity (receivers and managers) to be later amended by another entity. Are there any checks in the BAS lodgment system for these unauthorised amendments to be stopped?

The facts relevant to this issue are that two individuals (partners in an accounting firm) were appointed as receivers and managers to sell certain new residential premises owned by a property developer that had defaulted on its repayments to a bank. The receivers had been appointed by the bank.

At the time of lodging the BAS as representatives of the incapacitated entity, the receivers were not satisfied on the basis of the information made available that they could pay GST under the margin scheme and instead paid GST under the basic rules, in respect of all sales of property. The sales proceeds were all paid to the bank.

After their appointment as receivers concluded, the property developer amended the BAS lodged by the receivers (through the business or tax agent portal). A refund of approximately $650,000 was processed without the ATO apparently doing any verification or other analysis (including as to section105-65 of Schedule 1 to the TAA). That refund was paid into the bank account of the receivers and managers (as this was still current with the ATO). This was the first time the receivers became aware that their BAS had been amended.

The matter now involves an ATO investigation of various issues, including the margin scheme valuation. The only issue for the purpose of this request is whether the ATO has any checks in its systems for such unauthorised amendments.

ATO response

Representatives of insolvent or incapacitated entities must be registered, as identified in section 58-20 of the GST Act. The ATO’s practice is to register representatives under a separate Client Account Centre (CAC), but under the same ABN as the incapacitated entity. This enables transactions attributable to the period of receivership/ administration to be recorded separately to those undertaken by the entity prior to and post the period of receivership/ administration.

Authorised contact persons, as nominated by the representatives, are listed against the separate role for the representative. Although the CAC appears on the account of the incapacitated entity, the representative is effectively treated as a separate entity. As a result, only the authorised person is allowed to lodge GST returns and amendments and make changes affecting the representative’s CAC.

Accordingly, a GST return lodged by a representative of an incapacitated entity should not be amended by a person associated with the incapacitated entity itself where that person is not authorised by the representative.

However, it is possible for someone, even where not authorised, to lodge a GST return or amendment. This could be done, for example, in paper form or through the business portal. Where someone has access to the portal in respect of the relevant ABN, that access is not restricted to specific CACs. It should be noted that the portal is a safe environment; it is password protected and encrypted, however this does not prevent unauthorised action being taken by those with access to the portal. If, for example, a person authorised by the company seeks to lodge an amendment in respect of a period the company was in receivership, the fact that the amendment request is not authorised may by identified by our systems and if so the amendment would not be processed. However, this will not occur in every case. Note that all transactions in the portal are logged; identifying the specific user taking the actions, and thus even if the amendment is processed, the fact the amendment request is unauthorised could later be identified.

The ATO take a risk based approach to reviewing lodgments, including amendments. This includes pre and post issue checks to identify fraudulent behaviour.

In light of the question that has been raised, we are considering whether further steps can be taken to reduce the risk of unauthorised amendments in these circumstances.

Meeting discussion

The ATO acknowledged that the situation as highlighted in the submission can occur on the portal. This issue has initiated action by the ATO to put in place steps to stop unauthorised amendments to BAS especially in these circumstances. The ATO considers this as a risk that requires further investigation and management to mitigate.

It was suggested by members that during the period that an entity was in insolvency, the ATO should incorporate steps to close off the incapacitated entity’s registration. The ATO is exploring ways for locking down those periods when administrators have been appointed or to trigger a review for amendments made to the BAS in those periods. The ATO is investigating the matter and how processes can be changed so that there is no reoccurrence.

The ATO also noted that access to the portal is logged, so unauthorised access in these cases can be identified. The ATO confirmed that if the representative entity has not made the relevant amendment (it has been made without authorisation by the formerly incapacitated entity), the representative entity would not be liable for a penalty if the amendment is a false or misleading statement.

Action item 2011.03.15
Amendments of BAS lodged by representatives of incapacitated entity
Description The ATO will provide an update out of session or at the next meeting on the progress made to have further controls in place so that BAS cannot be amended for periods in the past when an entity was incapacitated.
Responsibility ATO
Due date 15 June 2011
Jul 142011

Draft Australian tax laws intended “to better protect workers’ entitlements to superannuation, strengthen director obligations and enhance deterrence of fraudulent phoenix activity” were released on 5 July 2011 for public consultation. Treasury states that: 

” The main aspects of these amendments involve:

  • extending the director penalty regime beyond its current application to Pay As You Go (PAYG) withholding to make directors personally liable for their company’s unpaid superannuation guarantee amounts;

  • allowing the Commissioner of Taxation (the Commissioner) to immediately commence recovery of all director penalties when the company’s unpaid liability remains unpaid and unreported three months after the due day, regardless of the character of the company’s underlying liability; and

  • providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has failed to pay amounts withheld to the Commissioner.”

To see the Explanatory Memorandum and/or the Exposure Draft Legislation CLICK HERE.

Closing date for submissions: Monday, 1 August 2011

I intend to write more about this soon.

Jul 012011

The Personal Properties Securities (PPS) Register in Australia is scheduled to open for business on 31 October 2011.  The PPS Register will be an electronic data file stored on government computers and accessible via the internet.  (Access and usage conditions and fees will apply.)

Aust Gov PPSR logo

A personal property security exists when a company, individual or other entity takes an interest in personal property as security for a loan or other obligation, or enters into a transaction that involves the supply of secured finance.   This can include individuals or companies who are involved in: taking fixed and floating charges; long term and finance leases; chattel mortgages; retention of title arrangements; commercial consignments, and factoring. 

Personal property is any form of property other than land, buildings or fixtures which form a part of that land.  It can include tangibles such as cars, art, machinery and crops; as well as intangibles such as intellectual property and contract rights.  (In PPS parlance an item of personal property that is pledged by its owner as security for repayment of a liability is sometimes called “collateral”.)

The individual or other entity who has an interest in personal property as security is referred to as a secured party.  A secured party may enter certain identifying information about the personal property on the PPS Register.  Through entering this information on the PPS Register, the secured party records and gives notice for all to see that it has a legal right, entitlement, interest or power in relation to the property. 

Where there are multiple, competing or conflicting claims over personal property, the default and specific priority rules set out in the PPS Act come into play.  These are complex.  But in many cases the timing of the registration on the PPS Register will affect the order of priority, or ranking, of a claim.

Many of the existing registers maintained by state and territory governments and the Australian Government will be closed.  These include ASIC’s Register of Company Charges, motor vehicle securities and bills of sale registers.  The interests of secured parties recorded in such registers will be moved automatically across to the PPS Register, without the secured party having to do anything.

A secured party’s rights under existing fixed and floating charges will be maintained under the PPS system. A number of existing concepts will be replaced.  For example, the concept of fixed and floating charges will be replaced by new concepts of security interests known as non-circulating and circulating assets respectively.

There is no need to register existing security interests immediately after the PPS Register opens. The PPS Act provides a 24 month transitional period to register existing security interests.  However, these transitional security interests will need to be registered on the PPS Register within the transitional period to avoid losing priority after the end of the transitional period.

The enforcement provision of  the PPS Act only applies to security interests provided by security agreements made at the time or after the PPS Register opens.  For transitional security interests the enforcement rules that applied at the time of entering into the security agreement would apply as if the Act had not been enacted.

To go to the Government’s PPS information website, click HERE

Any comments?

Disclaimer: This document provides general information about the operation of the PPS system and does not constitute legal advice. You should seek legal or other professional advice to consider the application of PPS to your individual circumstances.