Welcome to the nineteenth edition of the Flint Forensics Pty Ltd semi-annual newsletter. This newsletter is to help keep you informed of the latest developments relevant to Life Policies and personal and commercial litigation support. It is a free service provided by Flint Forensics Pty Ltd.
- ATO testing a florists figures and amending the income tax and GST assessments
- The PPS Register
ATO testing a florist figures and amending the income tax and GST assessments
How many times have you been told that the ATO has accepted the figures in a tax return, therefore you had too without question. The actual answer should go something like, the tax system is self assessed and until the information is tested an objective answer can not be provided. The Carter and Commissioner of Taxation  AATA 141 (14 March 2013) is one of many examples that illustrates why just because a tax return is lodged, does not necessarily mean it can be relied upon.
In this case, the Tribunal affirmed the decision of the Commissioner to disallow objections to assessments of income tax and GST net amounts. The reason for disallowing the objections was that the applicant had reported the cost of goods sold (COGS) that was outside the COGS industry benchmark percentage range.
The applicant carried on a business of florist retail trading. During the relevant period, the applicant lodged the income tax return for the business showing the cost of sales of approximately $260k and a total business income of $314k. The Commissioner advised that the COGS represented 83% of the applicant’s business income and this was outside the COGS industry benchmark percentage range of between 44% and 54%.
The Commissioner was also not satisfied that the applicant’s records for the business during the relevant period had been kept so as to enable the Commissioner to readily ascertain the applicant’s tax liability. As a result, the Commissioner assessed the applicant based on the small business industry COGS benchmark for the industry segment of florist retail.
Based on the evidence before it, the Tribunal considered that the applicant had failed to prove positively, on the balance of probabilities, that the relevant assessments were excessive. The applicant’s problems appeared to arise as a result of the following:
- a defective cash register
- missing till tapes
- the fact that no reconciliation’s have ever been produced
- the spread sheet summary of till rolls was unreliable.
Mrs Carter claimed the following, inter alia, that:
- Shortly after she had purchased the Florist Business the supermarket in the shopping complex containing her shop started selling flowers;
- She had had to reduce her prices to compete;
- Her pricing had been on an ad hoc basis;
- The majority of her sales were EFTPOS;
- The cash register (“till”) never worked properly and the roll would never follow through correctly and constantly jammed;
- She could not afford a reliable cash register (“till”) until about 8 months ago;
- When added, the amounts shown on the cash register roll (“till tapes”) matched her bank accounts, cash at bank, income tax returns and BASs;
- The 2009 benchmarks have been withdrawn, indicating that the benchmarks are compiled incorrectly (which is a reflection on the 2008 benchmarks);
- The cost of flowers and other items are considerably cheaper in the Eastern States;
These explanations were not sufficient. The case is a good read, as it highlights items of relevance such as:
- The legislation on keeping of records.
- An explanation on Mrs Carter burden of proof in confirming the income and GST assessments were excessive.
- An explanation as the Commissioner role in the burden of proof.
The PPS Register
We used to complete an ASIC search to identify whether or not an entity had a registered charge. This has now changed with the advent of the PPS Register and although there are additional costs, there are benefits for the consumer to protect their rights, but for investigations, there are more security interest being registered which helps creating a profile on a persons activities, if required.
Why register a security interest on the PPS Register?
Businesses can improve the way they manage credit risk by registering their security interest in the goods they supply or lease on the PPS Register. If you do not register your security interest and a debtor goes into bankruptcy or is placed into liquidation, your position will be like that of an unsecured creditor. Secured creditors will be ahead of you when payments are made or assets distributed.
The Personal Property Securities Act 2009 (Cth) contains rules for determining priority between security interests in the same collateral. It is therefore important to register your security interests as soon as possible.
What is personal property?
Personal property is given a wide definition by the PPS Act. With a few exceptions, it covers any property someone can own, other than land, buildings and fixtures.
Personal property includes:
- plant and equipment
- cars, boats, planes
- crops, livestock
- licenses, shares, accounts receivable, contract rights, and
- intellectual property
What is a security interest?
When you buy personal property on hire purchase, or use personal property as security for a loan or another type of credit providing transaction, the transaction creates a security interest in the personal property. A security interest is an interest in personal property provided for by a transaction that secures payment or performance of an obligation.
Who are the parties involved in the creation of a security interest?
Usually there are two distinct parties involved in the creation of a security interest:
- the secured party (creditor, lender, supplier or lessor), and
- the grantor (debtor, borrower, supply customer or lessee).
What are some of the common business transactions that can create a security interest?
There are many different kinds of business transactions that can create a security interest. The list below provides some common examples:
- a fixed charge
- a floating charge
- a chattel mortgage
- a conditional sale agreement (including an agreement to sell subject to retention of title)
- a hire purchase agreement
- a pledge
- a trust receipt
- a consignment (whether or not a commercial consignment)
- a lease of goods (whether or not a PPS lease)
- an assignment, or
- a transfer of title
Retention of title
Retention of title is an important example of a transaction that creates a security interest that will affect many small businesses that supply or receive goods on credit. You can visit the New rules page on the PPS Register website to find out more on retention of title.
What is collateral?
Collateral is personal property that is subject to a security interest. When personal property is offered as security in a lending or leasing transaction, the PPS Act refers to it as collateral.
All collateral is considered to be commercial if it is not consumer property. Visit the For consumers page for information about consumer property.
As a business user of the PPS Register, you would most likely need to register security interests in commercial property on the register.
The PPS Register and commercial collateral
The PPS Register has arranged commercial collateral into nine categories or classes. Before making a registration it is advisable for you to consider what type of commercial property best describes your item.
The nine collateral classes are:
- agriculture – for example crops and livestock
- all present and after-acquired property
- all present and after-acquired property, except
- financial property
- intangible property – for example intellectual property, financial property
- motor vehicles
- other goods – for example art works, office machinery
Each registration you make must only relate to a single collateral class.
I have available a series of instruction forms under downloads which also include guidelines on what information may be required for specific tasks. This is a valuable resource. I can only stress the importance of requesting the right information the first time. The client experience is the fundamental outcome and knowing what to ask for goes along way in the efficient and effective management of the claim. Please feel free to review these at your leisure.
You can either print them out or simply un protect the document by using the password “FLINTFORENSICS” and save the document to your desktop. If you need to expand on your instruction, when you refer matters, simply delete from page 2 and details further.
Looking forward to working with you all in the coming year as we are all working as a team.
In the editions, look forward to more and specifically:
- Emotionalist Theory.
Talk to you soon,