A physiotherapist who lodged an unfair dismissal application with the Fair Work Commission (FWC) has passed the first hurdle after the FWC found that he was an employee, not an independent contractor. The FWC’s judgment in Mark Mitchell v Uraidla Physio (U2017/625)  FWC 2476 could have far-reaching implications for healthcare providers, including those who divide their time between several separate practices.
Between July 2014 and December 2016, Mark Mitchell (the Applicant) worked as a physiotherapist at Uraidla Physio (the Respondent). Uraidla Physio was owned by Nadine Schultz and was a small practice, with just one treatment room.
Throughout the course of his relationship with Uraidla Physio, Mr Mitchell also provided services through his own physiotherapy business, as well as at another established practice.
At the commencement of his relationship with Uraidla Physio, Mr Mitchell was asked by Ms Schultz whether he would prefer to be an ‘employee’ in which case he would receive a set hourly rate, or a ‘contractor’ being paid a percentage of his billings. Mr Mitchell opted to work as a contractor.
After Ms Schultz wrote to Mr Mitchell in December 2016 advising him that his services were no longer required, Mr Mitchell contended that at the time of his dismissal he was actually an employee for the purposes of the Fair Work Act 2009 (FWA).
Employee or contractor?
Mr Mitchell made the following arguments in support of his contention that he was an employee:
Uraidla Physio maintained that the nature of the relationship was that Mr Mitchell was at all times an independent contractor, based on the following contentions:
The ruling and general law on employees v contractors
The question to ask when determining whether a worker is an employee or contractor is ultimately whether the worker is a servant of another in that other’s business, or whether the worker carries on a business of his or her own account. The answer to this question comes from an examination of the relationship as a whole, in this case by reference to the factors noted above.
In the circumstances, the parties’ own discussions about the nature of the relationship were superficial, with no detailed arrangements having been agreed. Fundamentally, the FWC held that Mr Mitchell was working within the workplace, operational systems and business of Uraidla Physio.
Further, the FWC noted that some of the types of transactions (such as the reliance upon invoicing and payments with consideration given to GST) that typify an independent contractual relationship were conspicuously absent in this case.
When viewing the relationship as a whole, and weighing up the conflicting indicia set out above, the FWC was satisfied that Mr Mitchell was an employee within the meaning of the FWA.
The nature of employment was likened to that of a casual employee, where there was an expectation of ongoing work, with payment being linked to performance of such work, without any additional entitlements. As such, Mr Mitchell was free to pursue his claim for unfair dismissal.
Lessons for healthcare providers at small practices
In Australia, large healthcare practices generally employ additional healthcare providers to manage client loads, whereas smaller practices commonly operate within a framework of informal and loosely categorised contractual arrangements.
Following the FWC’s decision to characterise Mr Mitchell as an employee of Uraidla Physio, there appears to be scope for the same result to be reached in relation to healthcare providers in similar fields, such as podiatry and osteopathy.
Healthcare providers who bring on an extra pair of hands to assist in their practice should be mindful of the consequences of failing to adequately classify and codify such a relationship from the outset.
Even when both parties expressly agree that the relationship is not one of employment, the principal’s liability in respect of unpaid employee entitlements and unfair dismissal remedies may arise.
Horse Racing Regulations – Co-Ownership Agreement
The horse racing industry has recently seen the commencement of a new set of regulations in respect of the rights and responsibilities of co-owners and trainers. Racing Australia’s new Trainer and Owner Reforms (‘TOR’), which commenced on the 1st August 2017, includes the introduction of a standardised Co-Ownership Agreement (‘COA’).
The standardised Co-Owner Agreement has been introduced to protect those in ownership groups that are informally conceived and run. By providing a default set of contractual terms, it aims to clear up any uncertainty surrounding the responsibilities and management of co-ownership ventures that may exist. While parties can agree to co-existing contractual arrangements, they may not automatically override the new COA terms. Instead, the Co-Owners must expressly agree to vary the COA terms in accordance with the new regulations (see note 7 of Racing Australia’s FAQ). The exception to this is where the entire co-ownership venture is managed as a registered Promoter Syndicate, in which case the COA terms do not apply.
Therefore, it is important that race horse owners are generally aware of the new responsibilities and the accompanying procedure. Here at Pointon Partners, we have developed a quick outline of the standardised Co-Ownership Agreement to assist you in understanding these new regulations.
Under the COA, the Managing Owner must use all reasonable endeavours to properly manage the Horse Ownership Venture for the benefit of all Co-Owners. This presumably includes the keeping of basic accounting records as well as communicating sufficiently with the other Co-Owners. Importantly, it also includes notifying and obtaining the consent from the other co-owners in respect of the important actions discussed in further detail below.
In a legal context, the Managing Owner will be the person who was nominated on the relevant horse registration form that was lodged with Racing Australia. This will typically be the owner whose details were entered in first on the application. It will not necessarily be the person with the largest percentage ownership in the horse. Therefore, it is advisable that the co-owners review their application form and ensure that the correct person is nominated as the Managing Owner, because of the additional legal responsibilities attached to the role following the Trainer and Owner Reforms.
Although the Managing Owner is free to make day-to-day management decisions, they must notify and obtain written consent from the co-owners in respect of the important actions listed in the COA. Examples of important decisions where the Managing Owner must first notify and obtain at least a majority (or higher) consent from the Co-Owners include:
(Note that this list is non-exhaustive and is for illustrative purposes).
Major decisions in relation to the race horse
Trainer fees and agreements
Borrowing funds and other liabilities
Variation of the terms of the COA
Failure to properly obtain consent may open the Managing Owner up to legal liability under the COA, as it may be used as partial evidence of fraud, wilful misconduct or negligence. It might also be considered by the Principal Racing Authority as a disciplinable offence. Of course, the severity of the consequences will depend on the facts, but it is advisable that the Managing Owner protect themselves by following the COA requirements in respect of important management decisions.
Notification and consent procedure
The Managing Owner can notify the other Co-Owners in any written form, including email or text message. Likewise, written consent from the Co-Owners can be given informally via email or other electronic means. In-person meetings can also be organised if co-owners prefer, but at least five days’ notice of the time and location of the meeting should be given. The Managing Owner is also eligible to give consent themselves, in proportion to their ownership interest in the horse.
Importantly, the amount of consent needed varies depending on the decision. For instance: unanimous consent is required for a decision to borrow funds. Special consent (from Co-Owners that hold an aggregate of 75% or more of the Horse) is needed for breeding decisions. Majority consent (aggregate ownership of more than 50% of the Horse) is needed for most of the other important actions. The Managing Owner is also legally bound to comply with the decisions or approvals given by the majority, special or unanimous consent of the Co-Owners.
These requirements raise an issue for 50/50 partnerships. As many important decisions require written consent from Co-Owners with an aggregate ownership of more than 50%, there is the potential for partnerships to become stuck in a legal deadlock. This is reinforced by another term of the COA, which specifies that the Managing Owner may not have a second or casting vote at a formal meeting of co-owners. Hence, it would be sensible that parties expressly agree to vary this term early on in the co-ownership venture, while the co-owners are still amenable to each other. Otherwise, deadlocks would need to be resolved through the COA’s dispute process outlined below.
Aggrieved co-owners should raise the issue with the Managing Owner as soon as practicable, and the Managing Owner must be given 14 days to resolve the issue. The parties must also attend compulsory mediation before commencing any legal proceedings. However, interlocutory court orders may still be sought before or during the mediation if the matter is urgent.
In summary, the Managing Owner should protect themselves from legal liability by following the notification and consent requirements of the COA as prudently as possible. Likewise, the other Co-Owners should be aware of their right to be consulted and their voting power in respect to important management decisions.
Did you know that Pointon Partners offers mediation as a cost effective dispute resolution service to enable your clients to get back to business?
Mediation can be organised at any time – you don’t need to be involved in Court proceedings, you just need to agree with the other party to the dispute to try the process, and engage a mediator.
Pointon Partners offer the services of two qualified mediators – Brigid O’Dwyer and Andrew Cox.
As much as most people would prefer to maintain harmonious business relationships, and operate on a purely good faith basis, it is inevitable that disputes crop up from time to time in many commercial dealings. How these disputes are dealt with can make a huge difference to their impact and outcome.
Litigation is a notoriously expensive process. Even more detrimental, in particular for a small business, can be the hidden cost of director and staff time. Being involved in a Court case can take up significant time and money which could otherwise be spent profitably. And that’s if you win! A worst case scenario of losing a case and being ordered to pay the other party’s claim, as well as interest and costs, could be disastrous.
One way to keep disputes to a minimum is to invest in and adhere to clear procedural documentation, including terms of engagement, credit management and quality control. Another is to act early when things go wrong, and not wait for a dispute to escalate.
One of the most popular and widely used forms of alternative dispute resolution is mediation.
What is Mediation?
Mediation is a process whereby settlement negotiations are facilitated by a neutral and impartial third party. A mediator is not a judge, and does not make any decision about the merits of each party’s claim. The mediator’s job is to assist the parties in highlighting areas of agreement, clarifying the issues in dispute, sticking to a process and staying focussed, exploring various options for settling a dispute, and working towards a resolution that everyone can live with.
Mediation is a confidential process –things said at mediation can’t be used against a party in Court, which can encourage people to be frank and honest with each other when looking for possible solutions.
It is also a flexible process. Mediations can be attended just by the people involved in the dispute, or with the assistance of lawyers. It can occur as part of the litigation process, or can be instigated by the parties prior to any litigation. The parties choose where and when to mediate. If an agreement is reached, the parties usually sign up to terms of settlement on the day recording their deal. Terms of settlement are legally binding as a contract, except in exceptional circumstances, so it can pay to have your lawyer attend mediation with you to give you advice along the way, and before you sign.
Mediators don’t give you legal advice – their job is to oversee the process, not dictate the outcome.
Mediation vs Litigation:
Some of the reasons it is a good idea to mediate rather than litigate are:
The benefits of early mediation have been recognised in legislation – in certain disputes the law now requires that mediation must be attempted before proceedings can even be commenced. For example, in most retail landlord/tenant disputes in Victoria, a certificate from the Office of the Victorian Small Business Commissioner (OVSBC) stating that mediation has failed must be obtained before proceedings can be issued.
Both Brigid and Andrew have completed extensive mediator training, in addition to their many years of experience as commercial litigation lawyers (more than five decades between them!).
Brigid holds national accreditation under the National Mediation Accreditation System, and is a member of the panel of mediators at the OVSBC.
Although the requirement for impartiality would preclude Brigid or Andrew from acting as mediator in any disputes to which Pointon Partners’ clients are parties, we welcome referrals and enquiries in respect of any new matters, and would be pleased to answer queries you or your clients may have regarding the mediation process.
In May 2016, the Australian Stock Exchange (ASX) changed its policy on backdoor listings so that an entity’s securities will be suspended immediately from the announcement of a backdoor listing transaction.
However, the ASX has now relaxed this policy change by allowing entities to avoid suspension until re-compliance if they make an announcement of a backdoor listing transaction. This change came into effect on 19 December 2016 and prescribes new minimum disclosure requirements for the announcement.
What are the requirements?
An entity’s securities will be allowed to resume trading under the new minimum disclosure requirements if:
Information to be included in announcement
When an entity is required to re-comply with ASX’s admission and quotation requirements due to a merger with, or acquisition of, another entity or business, an announcement containing all information set out in Annexure A is required to be disclosed.
The types of information prescribed by Annexure A includes:
If an entity’s announcement does not include all information set out in Annexure A, the entity’s securities will be suspended from trading.
What if an entity cannot meet the requirements?
An entity can still announce a backdoor listing transaction if they are not able to include all information prescribed in Annexure A.
However, the entity’s securities will remain suspended from quotation until:
As a result of this policy change, an entity who is announcing a backdoor listing transaction effectively has a choice to either:
 ASX, Updating ASX’s Admission Requirements for Listed Entities – Response to Consultation (November 2016) Australian Stock Exchange, 16 <http://www.asx.com.au/documents/investor-relations/asx-listing-admission-requirements-market-response-2-11-16.pdf>.
 Australian Securities Exchange, ASX Listing Rule, Guidance Note 12, 19 December 2016, Annexure A.
 Ibid; above n 1.
 Australian Securities Exchange, ASX Listing Rule, Guidance Note 12, 19 December 2016, Annexure A.
 Ibid 2.10
 Above n 1.
The Treasurer has recently released exposure draft legislation (Treasury Laws Amendment (Housing Tax Integrity) Bill 2017) in relation to removal of the CGT main residence exemption for foreign residents. The changes are part of the Commonwealth Government’s ‘housing affordability’ reforms announced in the 2017-18 Budget.
This will affect both Australian tax residents who resided in an Australian property and then became expat, as well as foreigners who never became Australian tax residents as defined, but established a main residence in an Australian property as a question of fact.
If the changes are implemented, then there will be limited opportunities for foreign residents to access the CGT main residence exemption after May 2017, however careful and timely planning may result in significant CGT savings. The same applies for Australian tax residents, who intend to become expats.
Currently, individuals are entitled to a full or partial CGT main residence exemption, regardless of their tax residency at the time a CGT event occurs in relation to the property. The exemption is most commonly applied when the main residence is sold and triggers a capital gain.
It is worthy of note that once a property is established as a main residence as a question of fact, while no other property is claimed as a main residence, the owner can be absent during some or all of the ownership period, and the full gain can continue to be exempt if the property is not used to produce any assessable income.
If the property is used to produce assessable income while the owner is absent (e.g. by being let out), then the exemption will continue to apply as long as occupation by the owner is resumed within 6 years or the activity producing assessable income ceases within 6 years.
Where the property is owned and occupied, but used to derive some assessable income (e.g. taking in an arm’s length boarder on commercial terms or operating a home office), the gain on the main residence will be entitled to a partial exemption.
Subject to the transitional measure mentioned below, the proposed legislation would remove this entitlement for foreign tax resident individuals with effect from 9 May 2017. Therefore, individuals who are foreign residents for tax purposes, who enter into a contract of sale after that date will be liable for CGT on any capital gain arising from the sale.
Unlike the withdrawal of the 50% CGT exemption for non-residents, there is no “grandfathering” of the increase in value on the main residence up to 9 May 2017.
There is an opportunity for foreign resident individuals to apply the CGT main residence exemption, if a contract of sale is entered into prior to 30 June 2019 and the individual owned the property (or a part of it) from 9 May 2017 to the date of the contract of sale. Hence, foreign resident individuals should consider selling their Australian main residence, if the other requirements for a full or partial exemption are met, prior to 30 June 2019.
Otherwise, in order to access the CGT main residence exemption after 9 May 2017, a foreign resident individual would need to become an Australian tax resident prior to entering into the contract of sale. However, becoming an Australian tax resident will take time, in order to establish the requisite connection with Australia, which will also depend on any applicable Double Tax Agreement, and will have other usually significant tax issues for them in Australia and the country they are leaving.
Deceased estates and beneficiaries
Currently, trustees of deceased estates, and beneficiaries of deceased estates, are entitled to the CGT main residence exemption, regardless of the tax residency of the deceased or the beneficiaries.
The proposed legislation would remove this entitlement for trustees of deceased estates and beneficiaries in relation to the deceased’s period of ownership, if the deceased was a foreign tax resident at the time of death. If the beneficiary is an Australian tax resident, then the beneficiary will be entitled to a partial exemption in relation to their period of ownership, and subject to the other requirements for the main residence exemption.
In relation to a deceased who was an Australian tax resident at the date of death, the main residence exemption accrued by the deceased will continue to be available to the beneficiary, regardless of the beneficiary’s tax residency. This includes a two year period following the deceased’s death, within which the main residence may be sold. Therefore, a beneficiary, who is a foreign tax resident, may be attributed with the deceased’s entitlement to the main residence exemption following the deceased’s death.
These changes, if enacted, may require wills and succession plans to be reviewed, to confirm that unintended CGT consequences are not triggered by moving or remaining offshore.
The above is a brief summary of proposed changes to a complex area of the tax law. It is possible that the proposed law may be changed prior to enactment, or that it never becomes law. If the above issues are being considered, then professional legal and tax advice should be sought prior to implementing any new strategy.
For an earlier article on recent changes to Victorian stamp duty and non-residents, see:
The Supreme Court of Victoria’s recent decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage  VSCA 178 has confirmed that a wide interpretation of ‘retail premises’ should be used for the purposes of the Retail Leases Act 2003 (Vic) (Act). This included a finding that ‘the ultimate consumer test can be satisfied by either commercial or non-commercial consumers’ – i.e. in relation to business to business services, as well as business to private customer.
This decision could have major implications for both landlords and tenants under existing and future leases, by bringing such leases within the regulation and scope of the Act.
Cold Storage (the tenant) operated a cool storage business using freezer warehouses and related facilities which were built on the premises.
The customers of Cold Storage paid fees to store their dairy products, seafood, small goods and the like. In addition, Cold Storage provided ancillary services such as loading and unloading of pallets into the warehouses and arranging the transportation of products to and from the warehouses.
The usual customers of Cold Storage were companies involved in the food industry.
The Supreme Court dismissed the appeal and found that the premises were retail premises for the purpose of the Act. The Supreme Court applied the ‘ultimate consumer’ test and determined that the ‘ultimate consumer’ does not necessarily to have to be a person, but can be a business which uses services for a business purpose.
What does this mean?
If your premises are deemed to be retail premises for the purposes of the Act, the Act will deem that certain potentially onerous provisions apply in relation to the lease of that premises, despite any term in the lease to the contrary, including that:
These provisions demonstrate the risk for landlords who do not correctly identify retail premises leases, and set terms accordingly.
Let’s revisit the definition of retail premises
A retail premises as defined by section 4(1)(a) of the Act is a ‘premises, not including any area intended for use as a residence, that under the terms of the lease relating to the premises are used, or are to be used, wholly or predominantly for the sale or hire of goods by retail or the retail provisions of services’.
Under the Act the time to determine if the premises are retail premises is at the time the lease is entered into or renewed.
How to determine if the premises are retail
The Act does not prescribe a checklist of premises that are considered to be retail. In some circumstances it will be easy to classify your premises as a retail premises for the purpose of the Act, with some obvious examples being premises used as a clothes shop, a hairdresser or a café.
However, it can often be difficult for parties to determine if the premises is a retail premises where the tenant provides services, including if services are provided on a business to business basis. Prudence must be exercised in such circumstances, in particular by landlords.
Reasons for findings in the Cold Storage Case
The Supreme Court concluded that the premises was a retail premises as:
It was noted by the Supreme Court that in isolation none of the above features would ‘suffice to constitute the premises as retail premises’ but the ‘absence of one or more of them, would not necessarily result in a finding that the premises were not retail premises’.
The Supreme Court of Victoria stated that ‘the phrase ‘retail provision of services’ has long been interpreted by reference (at least in part) to an ultimate consumer test; that is, are the services used by the person to whom they are sold or are the services passed on by the purchaser in an unaltered state to some third person?’.
Therefore, it is clear that the ultimate consumer test can be satisfied by either commercial or private consumers as ‘no distinction has been drawn between commercial and non-commercial users of the service’.
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 IMCC Group (Australia) Pty Ltd v CB Cold Storage  VSCA 178, 44.
 Ibid, 1.
 Ibid, 50-1.
 Ibid 44.
 Retail Leases Act 2003 (Vic) s 50.
 Richmond Football Club Limited v Verraty Pty Ltd  VCAT 2104.
 Retail Leases Act 2003 (Vic) s 21(1).
 Ibid s 51.
 Ibid s 4(1)(a).
 Ibid s 11(2).
 IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd  VSCA 178, 50/
 Ibid 3.
 Ibid 3, 44.
As an intellectual property rights owner of, it is important that you are vigilant about protecting your intellectual property from infringement and maintaining the reputation and value of your brand and/or products. Counterfeit products which are imported in Australia can impact on and undermine the growth of a brand and its presence. The Australian Department of Immigration and Border Protection however does provide some comfort to brand owners against counterfeit importation by giving them the option of lodging a Notice of Objection to stop the flow of counterfeit products at the border.
What is a Notice of Objection (“Notice”)?
A Notice is a document that allows the Australian Border Force to seize imported goods that are suspected of infringing trademark and/or copyright rights that are the subject of the Notice. A Notice is lodged by Intellectual Property owners (or in some cases authorised users) who are concerned about the potential damage to trade, reputation and profits that may result from the importation of goods that infringe their intellectual property. Intellectual Property rights owners with a Notice in place are commonly referred to as ‘objectors’.
What can the Australian Border Force (‘ABF’) do when infringing goods are imported?
With a valid Notice in place, the ABF are able to seize goods that:
How is a Notice Filed?
In order to file a Notice, the following must be submitted to the Department of Immigration and Border Protection:
How long is the Notice valid for?
A Notice under the Trade Marks Act 1995 and/or Copyright Act 1968 is valid for four years. A Notice can be re-lodged to ensure ongoing protection, or withdrawn at any time if no longer required.
What happens when goods are seized?
When goods are seized, the importer and the objector will be notified in writing by the seizing officer of the Department of Immigration and Border Protection.
If the importer wishes to make a claim for the release of seized goods, they must do so within ten working days of notification.
If a claim for release is made by the importer, the objector will be notified and will have ten working days to:
The importer can voluntarily forfeit the goods at any time before legal action has commenced.
If the objector does not commence legal action and the goods have not been forfeited by the importer, the ABF will release the goods to the importer subject to all other legislative requirements being met. The ABF does not however make the final decision on whether goods are infringing Intellectual Property. This will be determined by the Courts, if an action is commenced by either party, and orders will be made by the Court accordingly. This may include:
If the goods are ordered to be forfeited, the ABF will dispose of them as directed by the relevant delegate, usually by destruction.
What are the costs to obtain a Notice?
There are no fees involved in the actual lodgement of a Notice.
In the event that counterfeit goods are seized however, costs will be incurred, and these will depend on factors such as quantity, type of goods and storage.
Notably, if the objector takes the matter before the Court, the objector may be able to recoup some of its costs from the importer as part of the settlement process.
The Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) (Act) amends the Privacy Act 1988 (Cth) (Privacy Act) to introduce mandatory data breach notification provisions for organisations, agencies and certain other entities that are regulated by the Privacy Act (entities).
“Mandatory data breach notification” commonly refers to a legal requirement to assess whether an eligible data breach has occurred and, if necessary, provide notice to affected individuals and the Australian Information Commissioner (Commissioner).
The amendments introduced by the Act are due to take effect on 22 February 2018, unless an earlier date is proclaimed.
What is an “eligible data breach”?
A data breach arises where there is unauthorised access to, or unauthorised disclosure of, certain information about one or more individuals (the affected individuals), or where certain information is lost in circumstances that is likely to give rise to unauthorised access or unauthorised disclosure.
For a data breach to be an “eligible” data breach, a reasonable person would need to conclude that the unauthorised access or disclosure (or in the case of loss of information, likely unauthorised access or disclosure) would result in a likely risk of serious harm to any of the affected individuals to whom the information relates.
When is an affected individual at risk of “serious harm”?
To give rise to an “eligible” data breach, the reasonable person would need to be satisfied that the risk of serious harm occurring is likely, meaning more probable than not.
The Act does not define the term “serious harm”. Instead, the Act provides a list of ‘relevant matters’ that an entity should consider when determining whether access to or disclosure of information is likely to result in serious harm to an affected individual, as follows:
The Explanatory Memorandum to the Act notes that serious harm ‘could include serious physical, psychological, emotional, economic and financial harm, as well as serious harm to reputation and other forms of serious harm that a reasonable person in the entity’s position would identify as a possible outcome of the data breach. Though individuals may be distressed or otherwise upset at an unauthorised access to or unauthorised disclosure or loss of their personal information, this would not itself be sufficient to require notification unless a reasonable person in the entity’s position would consider that the likely consequences for those individuals would constitute a form of serious harm’.
Requirement to assess suspected eligible data breaches
If a relevant entity is aware that there are reasonable grounds to suspect that there may have been an eligible data breach in respect of it and is not aware that there are reasonable grounds to believe that the relevant circumstances amount to an eligible data breach, the entity must:
Requirement to notify the Commissioner
If an entity has reasonable grounds to believe that there has been an eligible data breach and provided that no exceptions to notification (as set out in the Act) apply, the entity must:
Requirement to notify the affected individual
Where an entity has reasonable grounds to believe that there has been an eligible data breach and is required to provide the Commissioner with a statement, the entity must as soon as practicable after the completion of the preparation of the statement:
Failure to comply
Failure to comply with the obligations of the Act will be ‘deemed to be an interference with the privacy of the affected individual for the purposes of the Privacy Act’. This will allow the Commissioner to use their ‘existing powers to investigate, make determinations and provide remedies in relation to the non-compliance with the Privacy Act’.
Therefore, it is crucial that organisations and entities covered by the Privacy Act and these provisions, take appropriate steps now to ensure that they will be able to comply with these requirements when they come into effect.
 Explanatory Memorandum, Privacy Amendment (Notifiable Data Breaches) Bill 2016 (Cth) 1.
 Ibid 2, 6.
 Ibid 7; Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) s 26WE(2).
 Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) s 26WE(2).
 Explanatory Memorandum, Privacy Amendment (Notifiable Data Breaches) Bill 2016 (Cth) 11.
 Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) s 26WG.
 Explanatory Memorandum, Privacy Amendment (Notifiable Data Breaches) Bill 2016 (Cth) 10.
 Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) s 26WH.
 Ibid s 26WK.
 Ibid s 26WL.
 Explanatory Memorandum, Privacy Amendment (Notifiable Data Breaches) Bill 2016 (Cth) 28.
Just over two months have passed since the Federal Government enacted the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 to reduce the corporate tax rate in Australia. The new company tax rate is 27.5% for the 2016-17 tax year for companies with aggregated annual turnover of less than $10m. The Government plans to progressively reduce the corporate tax rate to 25% for all companies irrespective of their size. Anecdotally it seems that companies may already be factoring in the new company tax rate in calculating how much to pay out to investors in the form of dividends
Who is likely to benefit from the corporate tax cuts?
A number of commentators, however, are questioning the economic rationale behind the amended company tax rate and the extent to which any tangible benefit is provided. The principal reason behind such scepticism is simple: the less tax paid by companies, the more tax paid by their shareholders.
This is attributable to an aspect of Australia’s corporate tax system which has become rarer internationally, being the dividend imputation system, which imputes tax paid by companies to their shareholders. If a company pays tax on its profits of 30%, an equivalent amount is then credited against shareholders’ taxable income (called “franking credits”) so that shareholders don’t have to pay further tax on amounts that have already been taxed at the company level. The purpose of this is to avoid double taxation.
Internationally, the trend has been away from imputation systems in favour of greatly reduced corporate tax rates, e.g. from 30% to 19% in the UK. Some commentators have suggested that Australia should follow this trend.
As a result of Australia’s imputation system, any cut to the corporate tax rate will be accompanied by a corresponding reduction in the amount of franking credits granted to shareholders. Therefore, whatever tax is not paid by companies is eventually recouped from shareholders, provided such profits are distributed to shareholders as dividends.
Non-resident shareholders, however, are not entitled to a tax offset on franked dividends (but are instead exempt from paying withholding tax on fully franked dividends). This means that whilst non-resident shareholders benefit from the reduced tax rate applying to dividends at the company level, they are not affected by the corresponding reduction in the amount of franking credits that may be attached to dividends. Therefore, they benefit more from the reduction of the corporate tax rate than resident shareholders.
Passive companies may qualify for the new corporate tax rate
To qualify for the reduced company tax rate, it must be demonstrated that the company is carrying on a business for the income year: s 23AA, Income Tax Assessment Act 1997 (ITAA97). In a surprising move that has been welcomed by business groups but questioned by key figures including Federal Revenue Minister Kelly O’Dwyer, the ATO has indicated on its website and in a draft tax ruling that passive investment companies may satisfy this requirement, whilst providing the usual caveat that no conclusions can be reached without first considering the particular facts and circumstances of each individual case.
This means that family investment companies that make and retain money from passive investments may be eligible for the company tax cuts. Whilst the ATO’s provisional view may be disputed (and indeed has been by the Minister for Revenue and Financial Services Kelly O’Dwyer), it is nonetheless arguable that companies that engage in passive investing in addition to activities that are clearly carrying on a business may more readily qualify for the reduced corporate tax rates on all of their income.
Note, any companies that have been paying the incorrect amount of tax because they were unaware they qualified for the reduced corporate tax rate may be entitled to a refund for any tax paid at the full 30% corporate tax rate for the 2015-16 tax year (when the corporate tax rate was set at 28.5% for companies with an aggregate annual turnover of less than $2m) and may seek to have their 2016-17 return amended.
Corporate tax rate and the “corporate tax rate for imputation purposes” to be calculated by reference to different years of income
Of particular significance is the fact that the corporate tax rate and the “corporate tax rate for imputation purposes” are to be calculated by reference to different years of income. The corporate tax rate for imputation purposes is to be “worked out on the assumption that the entity’s aggregated turnover for the income year is equal to its aggregated turnover for the previous income year”: section 995-1(1) ITAA97. A simple reading of the provision suggests that the annual aggregate turnover threshold test is to be assessed based on the company’s turnover in the previous income year. On the other hand, for the purpose of determining the applicable corporate tax rate for income tax purposes, the turnover test is to be assessed based on the company’s turnover in the current income year. In many cases, this will lead to the unintended result whereby a company must pay tax at a rate of 30%, but for the same year can only pay franked dividends with an imputation rate equal to the reduced company tax rate of 27.5%. In such a circumstance, a portion of the company’s profits will be taxed twice due to a shortfall in the maximum amount of franking credits that are allowed to be distributed to shareholders. This problem is compounded by the fact that surplus amounts of franking credits may end up being trapped in a company’s franking account unable to be distributed to shareholders.
Compliance issues – over-franking
As the amended corporate tax rate applies retrospectively from the start of the 2016-17 tax year, many companies may have made fully franked distributions and calculated the maximum franking credit on the basis of the 30% tax rate, rather than the amended 27.5% tax rate. However, shareholders who have received such dividends are only entitled to a tax offset to an amount calculated by reference to the amended 27.5% tax rate. Companies are required to give written notice to shareholders of the amended franking credit amount to avoid penalties.
 Subsection 995-1(1) of the ITAA97 defines a “business” to include “any profession, trade, employment, vocation or calling, but does not include occupation as an employee.”
 TR 2017/D2 at footnote 3.
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