Important News Alert
March 2015 Newsletter
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Client Alert: March 2015
11 tips for small business owners

Confidence among Australian small businesses slumped in 2014, according to CPA Australia’s annual Asia-Pacific Small Business Survey.

Nevertheless, for small business owners the start of the year is a great time to take stock.

Below are 11 resolutions to help jump-start a successful 2015.


New changes to Privacy Act commenced in March 2014
New changes to the Privacy Act commenced in March 2014.

They are especially important for the following categories:
  • have a turnover of more than $3m
  • are part of a group of companies that have at least one entity hitting that threshold
  • that provide health services (e.g. gyms, dentists, doctors) 
  • that trade in personal information (e.g. some recruitment companies, real estate agencies with a residential rent roll)
For more information you may review a free Simple Guide to Getting Compliant by AspectLegal:



Tax News
SMSF borrowing and non-commercial terms — new ATO decisions released
The ATO recently published 2 new interpretative decisions concerning related party limited recourse borrowing arrangements and non-arm's length income.
One feature common to the decisions was the 0% interest rate applying under the relevant loan arrangements. In these circumstances, the ATO determined that all income derived by the SMSF was to be assessed as non-arm's length income, currently subject to a 47% tax rate.
This article briefly summarises the ATO's decisions and explains the practical considerations for members and trustees of SMSFs.

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Certain loan arrangements give rise to non-arm's length income
The Commissioner of Taxation (Commissioner) considered:
  • the fund's trustee had acquired a fixed entitlement to the income of the custody trust (Holding Trust) through a scheme, being a compliant limited recourse borrowing arrangement (LRBA);
  • looking at the arrangements holistically, the parties to the scheme were not dealing with each other at arm's length; and
  • the income that would be expected if the parties were dealing with each other at arm's length would be nil as an arm's length lender would not make such a loan and without the loan, no investment would be made in the relevant asset.
Consequently, all of the income derived from the relevant asset acquired under each LRBA was considered non-arm's length income. Notably, non-arm's length income is taxable at the top marginal rate, currently 47%, regardless of whether the fund is paying a pension.

What facts did the Commissioner consider?
In each of the Decisions, the relevant facts included:

Loan must be at commercial terms:
  • a loan interest at market rate,
  • loan to value ratio
  • no personal guarantees or other security given to the lender;
  • terms of repayments, and that they are actually made
  • a substantial loan term of either 15 or 20 years
A mortgage granted in favour of the lender; and

A compliant LRBA involving a custody trust (the Holding Trust) in which a custodian held the legal title to the relevant investment, but the SMSF trustee held a beneficial entitlement to the assets of the Holding Trust, including the income arising from the investment.


What does this mean for related party limited recourse borrowing arrangements?
The Decisions deal with 2 sets of facts which both involved interest free loans. However, both Decisions also involved other circumstances which contributed to the Commissioner determining, holistically, that the parties were not dealing with each other on an arm's length basis.
It is not clear whether the Commissioner would ever accept an interest free loan as being made on arm's length terms, nor the weight that the Commissioner will apply to each of the factors that comprise a borrowing arrangement, such as loan term, guarantees and repayment schedules.
Until such time as the ATO publishes guidance as to the factors the Commissioner will consider relevant when assessing whether an LRBA is entered on arm's length terms, fund trustees and members should consider the following and seek advice as needs be:
  • exercise caution to ensure all the terms of the loan can be justified as being commercial;
  • seek out evidence of commercial terms — perhaps by obtaining a contemporaneous quote from a commercial lender outlining the terms they would be prepared to lend on;
  • where a fund's trustee has an existing related party LRBA clients with interest-free or low rate loans — or other loan terms that may not be commercial — consider varying the loan agreement to reduce the risk of a non-arm's length income assessment for future years.

Are the Decisions binding?

No. The Decisions are edited and summarised records of ATO decisions only and do not have the force of law.
However, if a taxpayer does not follow an interpretative decision and the decision ultimately proves to be correct, then this could have implications for culpability penalties.
Where can I read the full Decisions

You can access each of the Rulings at:
ATO Webinars
The ATO recently introduced the series of webinars to help business owners with running their business. You can register for the following free webinars at the ATO website:
What is new at BMG?
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It is possible. 
Contact BMG Wealth to find out more information!

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Meet the Team

BMG Outsourcing
 believe that for outsourcing to be a success, it is imperative that the key managers from both Australia and the Philippines travel to learn first hand the way businesses operate, and learn the outsourcing company culture.
Meeting the clients in their own environment has been important to the business relationship.
Sheila at Luna Park
Visiting Australia for 26 days is one of the best adventures I had so far: seeing the breathtaking views of the beach, the woods, and the hills, meeting with wonderful and friendly people, and flying on an airplane for the first time. It is interesting to learn the culture and way of life in Australia, which is somewhat different from the Philippines. This trip also made me become more independent with the chance to learn how to cook and wash my clothes by myself.

Sheila Marie Ann Magcalas
Executive Assistant
Cha at Manly Beach
It happened so fast! This business trip is a breakthrough in my life. Australia is an amazing country, packed with amazing people, surrounded with stunning places and a very rich culture! After meeting our clients, it made a big impact on how I work and it helped me understand not just their business but who they are, which I believe is really important. This is a big thing.

Chariz Aira Manio 
Client Manager
Ralp at NRC
Australia, never in my wildest dream have I thought I would ever be in this place, let alone shoot in this Paradise. Now I am here and have done that and more! I have learned new things, discovered new skills, experienced a new culture and met a lot of wonderful people. I will surely be back.

Ralp Umali
Photographer/ Videographer
Tips from John Beale
Photo of John Beale
Last newsletter we talked about "Price" and the impact on profit.
"Variable Cost" increase should result in increased prices, the customer will need to accept the higher price or sales will fall. If the increased variable cost results in an improved product or service, the increased customer demand may negate the need to increase price.

A decrease in variable cost should not be allowed to diminish the product or service quality, which would have a consequential effect on sales
If quality did decline, the fall in gross profit would have to be less than the decrease in variable costs.
Do you have a profit improvement strategy?
Talk to BMG today and see how we can help you develop your strategy.
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