Small change
- ATO audit activity – GST and IPOs
- Dollar disclosure regulations
- Changes to remuneration disclosures by registered schemes
- Transaction costs in registered managed investment scheme constitutions (section 601GA) – ASIC's interim position
- ASIC concern in relation to high yield investments
ATO audit activity – GST and IPOs
In a recent Financial Services Industry Partnership meeting, the Australian Taxation Office (ATO) confirmed that it is undertaking a project to audit goods and services tax (GST ) input tax credits claimed in the context of initial public offerings. This follows on from the ATO's statement in its Compliance Program for 2004-05 that 'we are paying close attention to companies that incorrectly claim full input tax credits for acquisitions on share sales and purchases'. The possibility of a public ruling on these issues has been flagged.
We are now seeing significantly increased audit activity in relation to initial public offerings (IPOs) and merger and acquisition transactions. Input tax credits for costs incurred in these areas are under close scrutiny with audits often triggered by claims for GST refunds. The application of the reduced input tax credit regime is the target of particular attention. Disagreements as to its application are likely to be frequent given the very general wording of the relevant regulations.
In situations where a single entity acquires services in relation to issuing, buying or selling shares there is little that can be done to determine the GST position. However, where more than one entity in a group is involved, it is important to ensure that acquisitions are made, and paid for, by the entity with the greatest entitlement to input tax credits.
Dollar disclosure regulations
On 7 October, the Australian Securities & Investment Commission (ASIC ) issued class order relief 04/1176 to extend the date for compliance with the dollar disclosure regime from 1 January 2005 to 1 March 2005. ASIC announced that the class order relief provides Australian financial services licensees (and their representatives) and product issuers with a further two month extension to the transitional period, meaning that they will now need to disclose various fees and benefits (as required under the regulations) as amounts in dollars in statements of advice, product disclosure statements and periodic statements prepared on or after 1 March 2005. However, as previously indicated, ASIC is encouraging those in a position to comply with the requirements before the end of the transitional period to do so.
ASIC had foreshadowed the possibility of extending the transitional period when it released its policy proposal paper on 10 August. The paper outlines how ASIC plans to approach the dollar disclosure provisions and how it proposes to use its power under the new regulations to make dollar disclosure determinations. ASIC announced that it expects to issue a final policy statement on dollar disclosure in November 2004.
For further details about the class order, refer to ASIC's website.
Changes to remuneration disclosures by registered schemes
ASIC has announced short term relief for disclosing entities in relation to disclosing details of remuneration paid directly or indirectly to directors and executives of their responsible entities.
Class Order 04/0967 provides short term relief from any requirement for financial reports of registered schemes that are disclosing entities to reveal remuneration paid directly or indirectly to directors and executives of their responsible entities. The class order covers financial years and half-years ending 30 June 2004 up to, but not including, 30 September 2004.
The class order was made following a request by the Australian Accounting Standards Board. Further information is contained in the ASIC media release.
Transaction costs in registered managed investment scheme constitutions (section 601GA) – ASIC's interim position
On 9 July 2004, ASIC announced that, until 31 December 2004, it will consider granting case-by-case relief to remove the need for scheme constitutions to contain a mechanism that is 'certain, complete and independently verifiable' for calculating the transaction costs component of the price of an interest in the scheme (ie the amount added to the issue price or deducted from the proceeds when a member withdraws from the scheme). Until the end of the year, ASIC will take no action in relation to constitutions of existing schemes that do not contain such a mechanism.
Before this announcement, ASIC had adopted a practice of rejecting constitutions that included what industry considered to be a fairly standard definition of 'transaction costs'. However, as a result of industry feedback, ASIC recognised that its position had the potential to cause practical difficulties for fund managers and, therefore, ASIC decided to adopt this interim position while it continues its dialogue with industry. ASIC has issued a consultation paper on 1 October, Proposed relief for constitutions of registered managed investment schemes. Comments on the consultation paper were due by 30 November 2004.
For new schemes, it will be a condition of the relief that the basis for calculating the transaction costs be disclosed in the scheme's product disclosure statement.
Further information on the relief can be obtained from ASIC's website.
ASIC concern in relation to high yield investments
ASIC has issued a further warning to consumers about high yield investments including debentures and unsecured notes.
In a statement released in late July, ASIC's director of corporate finance, Richard Cockburn, noted that in 2003-04, ASIC had issued stop orders in respect of more than $1.8 billion in debenture fundraising until offending prospectuses were corrected. Examples included:
- failing to update information about a major loan being in arrears, giving the impression that it was about two months behind when it was actually six years behind;
- failing to advise that a company had breached its annual lending limit; and
- potentially misleading information suggesting that investors had security over real estate.
This has been an issue of continuing concern to ASIC, which has released a number of warning statements in relation to high yield investments:
ASIC focuses on defective debenture prospectuses
Putting the stop to defective prospectuses.
In the 2002-03 financial year, ASIC placed a total of 89 stop orders on defective prospectuses seeking to raise more than $383 million from the public.
We understand that ASIC has been vigilant in approaching financial institutions who it believes are in breach of the Corporations Act requirement to describe certain debentures as 'unsecured notes' rather than 'debentures'. Many of these institutions have been issuing such paper as 'debentures' for years.
