Let us keep you informed

Will credit card surcharges be banned? If credit card surcharges are banned in other countries, why not Australia? This alert looks at the surcharge debate and the payment system complexity that has brought us to this point. In the United Kingdom, consumer credit and debit card surcharges have been banned since 2018. In Europe, all except American Express and Diners Club consumer surcharges are banned. And in Australia, there is a push to follow suit. But is the issue as simple as it seems?

Is there a problem paying your super when you die? The Government has announced its intention to introduce mandatory standards for large superannuation funds to, amongst other things, deliver timely and compassionate handling of death benefits. Do we have a problem with paying out super when a member dies? The value of superannuation in Australia is now around $4.1 trillion. When you die, your super does not automatically form part of your estate but instead, is paid to your eligible beneficiaries by the fund trustee according to the fund rules, superannuation law, and any death benefit nomination you made. Complaints to the Australian Financial Complaints Authority ( AFCA ) about the handling of death benefits surged sevenfold between 2021 and 2023. The critical issue was delays in payments. While most super death benefits are paid within 3 months, for others it can take well over a year. The super laws do not specify a time period only that super needs to be paid to beneficiaries “as soon as practicable” after the death of the member.

Why the ATO is targeting babyboomer wealth “Succession planning, and the tax risks associated with it, is our number one focus in 2025. In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning.” ATO Private Wealth Deputy Commissioner Louise Clarke The Australian Taxation Office ( ATO ) thinks that wealthy babyboomer Australians, particularly those with successful family-controlled businesses, are planning and structuring to dispose of assets in a way in which the tax outcomes might not be in accord with the ATO’s expectations. If you are within the ATO’s Top 500 (Australia's largest and wealthiest private groups) or Next 5,000 (Australian residents who, together with their associates, control a net wealth of over $50 million) programs, expect the ATO to be paying close attention to how money flows through the entities you control. A critical issue for many business owners is how to effectively (and compliantly) benefit from a successful business. In many cases, the owners have spent years building the business and the business has become not only a substantial asset, but a lucrative source of income either through salary and wages, dividends, or through the sale of shares or assets. Generally, under tax law, you can legitimately structure assets if there is a good reason to do so - like for asset protection, but if you tip across the line and the only viable reason for a structure is to reduce tax, then you risk the ATO taking a very close look at your operations or worse, denying any tax benefits under the general anti-avoidance rules in Part IVA of the tax rules, designed to combat “blatant, artificial or contrived” tax avoidance activities.  “We’re seeing that succession planning behaviour is primarily done by group heads who are approaching retirement. They typically own groups that family members are a part of, and wealth is transferred to the next generation to keep it within the family (via trusts and other means),” ATO Private Wealth Deputy Commissioner Louise Clarke said in a recent update.

CGT withholding measures now law The Government recently passed legislation making changes to the foreign resident capital gains withholding laws (among other changes). Foreign resident capital gains withholding is relevant for all vendors selling certain taxable real property (ie. Australian land). Even Australian residents can be caught by these laws because, if they do not have a valid 'clearance certificate' issued by the Australian Taxation Office ( ATO ) at, or before settlement, tax must be withheld from the sale proceeds by the purchaser and paid to the ATO. The new legislation increases the foreign resident capital gains withholding rate to 15% (from 12.5%), and completely removes the threshold (currently $750,000) before which withholding applies. This means that all disposals of taxable real property are potentially subject to foreign residents' capital gains withholding requirements regardless of the market value of the CGT asset. These amendments take effect from 1 January 2025.

In the previous blog, we discussed the new standards in place for 31 December 2024, however the current / non-current classification changes deserve a bit more attention. The revised AASB 101 Presentation of Financial Statements introduces a slightly amended definition of current liabilities and additional guidance around matters such as breaches of covenants, waivers and periods of grace. Entities should consider the timing of testing of bank covenants since if they are tested: On or before the reporting date – compliance with the covenants is considered in presenting the liability as current or non-current After the reporting date – they are not considered as part of the current / non-current classification. For example, an entity has a covenant which is tested annually at 31 January 2025, but they do not consider the existence of any potential breach of this covenant when classifying the liability for their 31 December 2024 financials since the testing date is after the reporting period. However, additional disclosures are now required where an entity is required to give information about the existence of covenants, including facts and circumstances that indicate the entity may have difficulty complying with the covenant. In the example above, if the entity considered that they may breach the January covenants due to current trading results, then this information would be disclosed in the 31 December 2024 financial statements. Further disclosures in this example would depend on whether an actual breach occurred: If breach occurred but going concern basis was still appropriate, then this would be disclosed as a non-adjusting event after the reporting date If breach occurred and going concern was no longer appropriate, then the financial statements for 31 December 2024 would be prepared on a non-going concern basis If no breach occurred, then a disclosure would be useful to clarify if facts and circumstances about a potential breach were included. If an entity receives a waiver or period of grace in relation to a breached covenant, then this should be received by the borrower prior to the reporting period for it to be useful for the financial statements.  Entities should carefully review their loan agreements and covenants, to ensure accurate classification of liabilities under the new guidance since action may need to be taken prior to the end of the reporting period.

Greenwashing is now a word that most of us are familiar with and although there are different definitions – the general theme is where an entity is making statements about their ‘greenness’ which are not matched by their actions. ASIC have been actively pursuing a number of entities in their area and two of these actions have now been resolved through the court process. In cases against two major investment companies, where ASIC alleged misleading claims about the sustainability of certain investment products, significant penalties have been imposed by the courts: $11.3 million for Mercer Superannuation (Australia) Ltd who admitted making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. $12.9 million for Vanguard Investments Australia who admitted to misleading investors that certain funds would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels, when this was not always the case. The lesson from these cases is clear: entities must have solid evidence to back up claims about their sustainability practices—whether related to carbon emissions, diversity, modern slavery, or other environmental and social commitments. Misleading statements on platforms such as websites, annual reports, and social media are being flagged, and enforcement actions are being taken to address these breaches, which can significantly erode consumer trust.

Big changes proposed for NFP financial reporting The AASB have just released their long anticipated exposure drafts relating to future financial reporting requirements for private sector NFP entities. These changes will mean that certain NFP entities are no longer able to prepare special purpose financial statements and will introduce a third tier of accounting standards which is able to be used by some NFP entities. These proposals are still in exposure draft phase and therefore you have an opportunity to provide feedback – once the final standards are released it will be too late. The comment period is open until 28 February 2025, and we encourage all our potentially affected clients to reach out to your Lowe Lippmann contact to discuss the impact on your financial statements as well as providing direct feedback to the AASB. In summary, these proposals are: NFP private sector entities to prepare general purpose financial statements if they meet one of the following: Are required by legislation to prepare financial statements that comply with either Australian Accounting Standards or accounting standards or Are required by their constituting or other document to prepare financial statements that comply with Australian Accounting Standards or Choose to prepare general purpose financial statements. (ED 334 Limiting the Ability of Not-for-Profit Entities to Prepare Special Purpose Financial Statements). To release a self-contained accounting standard which can be applied to certain NFP private sector entities and will be a general purpose framework (Tier 3). Further information about getting involved and additional resources are available on the AASB website on https://www.aasb.gov.au/news/developing-a-simpler-reporting-framework-for-nfp-entities-in-australia-exposure-drafts-released-for-feedback/

New standards at 31 December 2024  There are three new accounting standards to be considered for the first time for 31 December 2024 reporters. A summary of each of these standards has been considered below as well as potential impacts on our clients. Revised AASB 101 Presentation of Financial Statements provides additional guidance regarding presentation of liabilities as current or non-current. In particular, the standard includes more clarity around the existence of covenants and waivers / periods of grace in the event of a breach. Additional disclosures are required where covenants are tested after the reporting date. This is likely to have impact for many of our clients and we recommend that bank agreements are reviewed as soon as possible as well as identification of potential covenant breaches. AASB 2022-5 Amendments to Australian Accounting Standards – Lease Liability in a Sale and Leaseback clarifies how a seller-lessee should measure lease liabilities arising from a sale and leaseback transaction. It ensures that the leaseback does not lead to the recognition of gains that aren't aligned with the right-of-use asset retained. Expected to have little impact, generally if our clients enter sale and leaseback arrangements, there is a failed sale as control is not transferred from the selling entity. AASB 2023-1 Amendments to Australian Accounting Standards – Supplier Finance Arrangements (2024-1 for Tier 2) introduces new disclosure requirements to enhance transparency about the nature, timing, and amount of liabilities financed by suppliers in relation to the effects of such arrangements on an entity’s liquidity risk and leverage. Little impact expected, however disclosure amendment only.

What Should Be on the Board/Management Committee Agenda for NFP and Smaller Entities? We are fast approaching the end of the calendar year – the second most common reporting date for entities in Australia. Board and Management committees (Boards) of not-for-profits (NFPs) and small entities will be considering their annual reports and the 2025 outlook and as part of this project, it will be time to ensure the Board attention areas are appropriate. Boards should focus on current and emerging risks to ensure their organisations remain resilient and effective – the normal items of financial management, governance, and strategic planning remain relevant, however other key matters which should be included are: Cybersecurity: Ensure your organisation is protected against increasing cyber threats and has robust data protection measures in place, including knowing what data is collected and retained by the organisation. Climate Risk: Evaluate how environmental changes impact operations, funding, and long-term sustainability and whether there is impact from the mandatory climate-reporting risk regime on your suppliers which may impact you. Diversity & Inclusion: Ensuring your governance and decision-making reflect the community your organisation serves, and the appropriate voice is being heard. Digital Transformation: Discuss emerging technologies for operational efficiency and addressing any digital gaps. Ensure appropriate policies for the use of AI are in place. Staffing and Succession Planning: Regularly review staffing levels, development opportunities, and establish succession plans for key roles, such as the Chair of the Board, CEO or General Manager. Geopolitical situation: Consider any likely impacts from the current world uncertainty and overseas elections including supplier and beneficiary locations, changes in exchange rates and interest rates.