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What is AUSTRAC and what does it do?

So, what is AUSTRAC and what does it do?

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is tasked with enforcing compliance with the Financial Transaction Reports Act 1998 (FTR Act) and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

One of the purposes of the FTR Act and AML/CTF Act is to seek to ensure that instances of tax evasion, money laundering and the potential financing of terrorists are reported to the appropriate authorities.

The AML/CTF Act

The AML/CTF Act imposes obligations on entities that provide ‘designated services’ (such as account/deposit-taking services, cash carrying/payroll services, currency exchange services, life insurance services and lending).

Entities that provide one or more designated services under the AML/CTF Act are ‘reporting entities’.

Threshold transactions

Reporting entities must submit a Threshold Transaction Report (TTR) to AUSTRAC within 10 business days after the entity provides a customer with a designated service involving a ‘threshold transaction’.

Threshold transactions involve the transfer of physical currency or e-currency of AUD$10,000 or more (or foreign currency equivalent).

International funds transfers

The ‘sender’ of an International Funds Transfer Instruction (IFTI) transmitted out of Australia, or the ‘recipient’ of an IFTI transmitted into Australia, must report the instruction to AUSTRAC within 10 business days after the day the instruction was sent or received.

Suspicious matter reports

A reporting entity must submit an Suspicious Matter Report (SMR) to AUSTRAC within 24 hours after forming the relevant suspicion if the suspicion relates to terrorism financing (or otherwise within 3 business days) if it is suspected on reasonable grounds that:

  • a person (or their agent) is not the person they claim to be, or
  • information the reporting entity has may be: relevant to investigate or prosecute a person for; an evasion (or attempted evasion) of a tax law, or § an offence against a Commonwealth, state or territory law; or of assistance in enforcing: the Proceeds of Crime Act 2002 (or regulations under that Act); or a State or Territory law that corresponds to that Act or its regulations
  • providing a designated service may be: preparatory to committing an offence related to money laundering or terrorism financing; or relevant to the investigation or prosecution of a person for an offence related to money laundering or terrorism financing.

The FTR Act

Where an entity is covered by the AML/CTF Act (which was enacted years after the FTR Act), they are generally not covered by the FTR Act.

The FTR Act covers cash dealers include financial institutions, corporations that provide financial or insurance services, trustees and managers of unit trusts and a person who carries on a business of operating a gambling house or casino. The obligations of solicitors are also prescribed by the Act.

Where a significant cash transaction takes place (a cash transaction involving AUD$10,000 or more (or foreign currency equivalent including transactions which, when aggregated, exceed that amount), a Significant Cash Transaction Report (SCTR) is to be lodged with AUSTRAC.

Cash dealers who are a party to a ‘suspect’ transaction must report that transaction to AUSTRAC. The cash dealer must submit a suspect transaction report (SUSTR) to AUSTRAC as soon as practicable after forming the suspicion.

The objective of the FTR Act is that by preparing the reports to AUSTRAC, businesses can more easily identify their customers and are therefore more likely to reduce the incidence of fraud.

Payment surcharge changes

If your business charges customers a surcharge on transactions, be aware that from 1 September 2017, all businesses that impose payment surcharges on card transactions need to comply with the the Competition and Consumer Amendment (Payment Surcharges) Act 2016 which bans ‘excessive’ payment surcharges.

The new laws cover surcharges on typical card payment methods:

  • EFTPOS (debit and prepaid);
  • MasterCard (credit, debit and prepaid);
  • Visa (credit, debit and prepaid); and
  • American Express companion cards (issued through an Australian financial service provider, rather than directly through American Express*).

*Note that the benchmarks will not apply to foreign-issued cards. American Express proprietary cards (issued by American Express directly) are not covered by the ban, nor are BPAY, PayPal, Diners Club cards, UnionPay, cash or cheques.

The purpose of the legislative ban is to stop excessive surcharges – those charged at a price more than the actual cost of accepting that payment method. The cost to a business of accepting each payment method known as the ‘cost of acceptance’ for that method and is determined according to the Reserve Bank of Australia (RBA)’s standards set by the RBA Payments Systems Board.

A payment surcharge is generally considered excessive if it exceeds the ‘cost of acceptance’.

If your cost of acceptance for Visa credit cards is 1%, then you can only charge a maximum of 1%, not 2% or 3%.

The cost of acceptance can include merchant service fees, fees paid for the rental and maintenance of payment card terminals, any other fees incurred in processing card transactions, fraud prevention services, insurance etc but these must be able to be verified by contracts, statements or invoices.

Businesses cannot include any of their own internal costs when calculating their surcharges (for example, labour or electricity costs).

The Australian Competition & Consumer Commission (ACCC) is responsible for enforcing the ban and can:

  • issue an infringement notice with penalties of up to $2,160 (individuals, partnerships), $10,800 (body corporate) or $108,000 (listed corporation
  • take court action seeking pecuniary penalties of up to $1,164,780, injunctions and other orders.

Receiving such a penalty would be a disastrous hit to small business, so make sure you comply with the payment surcharge changes. Ask your financial institution to let your know what the average cost of accepting cards is and review it annually so you don’t get caught out.

You may also need to update your business’s Terms of Trade.

Westpac notes costs of acceptance here, NAB here and ANZ here

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to business law, litigation and dispute resolution or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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Purchasing a Franchise?

What is a franchise?

A franchise is a business system controlled by the franchisor, using the franchisor’s symbol or trade mark for a fee, subject to rules/restrictions/restrictions as stated in the relevant Franchise Agreement.

Given the bargaining power of the franchisor and franchisee being very different, the relationship of franchisor/franchisee is regulated to help ensure fairness in their dealings.

The Australian Competition & Consumer Commission (ACCC) regulates the Franchising Code of Conduct (Franchising Code), which is a mandatory industry code that applies to the parties to a franchise agreement.

Franchising Code

The Franchising Code is in Schedule 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 made under s. 51AE of the Competition and Consumer Act 2010. The Franchising Code applies from 1 January 2015 and replaces the previous 1998 code.

In short, the Franchising Code:

  • requires parties to act in good faith (for example, reasonably, honestly etc) in their dealings
  • introduces financial penalties and infringement notices for serious breaches
  • requires franchisors to provide prospective franchisees with a short information sheet (Disclosure Document) outlining the risks and rewards of franchising
  • requires franchisors to provide greater transparency in the use of and accounting for money used for marketing and advertising and to set up a separate marketing fund for marketing and advertising fees
  • requires additional disclosure about the ability of the franchisor and a franchisee to sell online
  • prohibits franchisors from imposing significant capital expenditure, except in limited circumstances
  • provides a dispute resolution process

Disclosure Document

An important requirement of the Code is the requirement for the franchisor to provide a prospective franchisee with a “Disclosure Document”.

The purpose of the Disclosure Document is to provide prospective franchisees, and existing franchisees that wish to renew or extend their existing agreement, with information about the business and the franchisor to allow the franchisee to make an informed decision about the franchise and obtain current information regarding the franchised business.

The Disclosure Document must provide information on the business, including:

  • the franchisor, its contact details, its business and its directors and their business experience
  • details of any master franchisor
  • the franchise site or territory
  • details of legal proceedings against the franchisor and its directors
  • contact details of current (and former) franchisees
  • financial details
  • the franchisor’s requirements for supply of goods or services to a franchise
  • whether online saes are permitted and any restrictions
  • details on marketing or other cooperative funds
  • details of payments such as pre-payments, establishment costs and other fees
  • details on any trade marks and patents that are part of the franchised business
  • details of arrangements when the franchise arrangement ends

If you are purchasing a franchise, before entering into an agreement, you should seek legal and accounting advice.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to buying/selling businesses, franchises or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Business names and trade marks are the same thing, right? Wrong

A BUSINESS NAME DOES NOT CONFER OWNERSHIP

Having a business name is a requirement so that people can ascertain the owners of a business they are dealing with. The register of business names is now maintained by ASIC.

Registration of a business name is required before carrying on a business or trade within Australia. Exceptions to registration include:

  • those operating as sole traders with their operating name being identical as their first name and surname (tip – if it has ‘& Co’, “& Partners” or ‘& Associates’ it must be registered);
  • partnerships where the operating name is the same as all of the partners’ names;
  • registered Australian companies whose operating name is the same as the company’s name (ie, with the “Pty Ltd” added).

While a business name is often used as a brand or trademark, having business name registration does not give ownership of that name. Only a trade mark under the Trade Marks Act 1995 (Cth) can provide that kind of protection.

Don’t rely on a business name registration thinking that it gives you any protection – it doesn’t give you any protection at all.

If you register a business, company or domain name, you do not automatically have the right to use that name as a trade mark. The same word(s) may be able to be registered by different people as a business name in other states and territories.

A REGISTERED TRADEMARK IS NECESSARY TO OWN A NAME

If you have a registered trade mark, you do have exclusive use of the trade mark throughout Australia (and other jurisdictions if you obtain registration there also) and you can take legal action for infringement of your trade mark if another person or entity uses it for goods or services like those covered by your trade mark registration.

A trademark can be a word or words, a phrase, a logo or a combination thereof (and even scents, sounds and colours!) which identify and distinguish a business’s goods or services from those of others. You can also trade mark your domain name if it fits within the requirements of the legislation.

There is no legal requirement to use the TM or ® symbols however, the TM symbol indicates that you have a pending application for the brand or that you are claiming some rights in the name without trademark registration whereas the ® symbol indicates that the trademark is registered.

After establishing or growing a business, the last thing you would want to do is receive a ‘cease and desist’ letter from the lawyers of a competitor asking you to cease using their client’s trade mark and to account to them for profits you have made, so don’t rely on a business name registration thinking that it gives you any protection, as it does not!

If you or your clients that are trading without a registered business name or under a brand without trademark protection, then they should be referred for advice by an expert in the area.

Similarly, if you have a trademark and become aware of someone infringing on your trademark, such as by using a very similar name or logo or indicating they have some association with your business or products when they do not, you should get advice from a lawyer on sending an appropriately worded letter asking them to cease using it,

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to intellectual property licensing or infringement or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Minimizing risk in your business

Running a business is risky and small businesses can be especially so. Minimizing risk in your business is crucial.

Often, SME owners put their own personal assets on the line, whether to borrow funds from a lender to start up or buy stock or equipment or by signing a guarantee in relation to suppliers and others for the debts of the business.

There are several methods of protecting personal assets from creditors, but it is a process that many don’t follow. Some are quite simple and easy to put in place. They include…

Placing assets in a spouses’ name or in a family trust

In most circumstances, creditors will not be able to make a claim upon assets owned by your spouse or held by a discretionary trust, provided that you are not the trustee. If your spouse is the trustee, then he or she is the person who will usually decide how to divide up the income or capital of a trust (or not to).

Of course, stamp duty and capital gains tax issues must also be considered before acquiring or transferring assets as well as the potential operation of claw back provisions. The loss of the principal place of residence CGT exemption or the land tax issues may be a factor weighing against doing this.

In the end, it is weighing up risk vs benefits and making an informed decision regarding any asset protection measures.

Encumbering assets if you cannot transfer them

An asset that is mortgaged to its value is not attractive to a creditor. The mortgagee in such a case is the only entity that will benefit from the subsequent sale of the asset.

A guarantee form a person without assets is effectively valueless. Often businesses don’t check to see what a guarantor actually owns.

If you seek a guarantee from a director of another business, you could make some inquiries about their credit/financial position before creating an account,

Correctly structuring your business

Sometimes it is not feasible to establish an asset-holding entity and a trading entity (as many small business start-ups are strapped for cash) but it can be a great way to protect the business assets from day to day trading risks. Even getting the type of business structure right from the beginning (sole trader, partnership, company, trust or combination etc) can have a massive impact on your business.

It is possible to establish a company with a single director and/or single shareholder. The company dealing with third parties, supplies, customers and the like is the entity that may be liable to them, not the shareholders.

The shareholders are only liable to the company for the unpaid amounts (if any) on any issued share capital. This liability is usually a nominal amount such as a dollar. Shareholders have no liability to third parties unless they agree to it, such as by giving a guarantee.

Company directors may have some liability but only in limited circumstances can the corporate veil be lifted. Courts may be prepared to lift the veil in limited circumstances, such as in the case of insolvent trading, fraud or misrepresentation, inappropriate transactions or where public policy requires it.

Charging assets (and properly recording the charge)

Before lending money to your business, a charge should be created in the correct form and that form recorded as against assets such as real property (by way of mortgage recorded at Land and Property Information or another State’s land titles registry) or against non-real estate assets (by way of a Specific or General Security Deed and making a registration on the Personal Property Securities Register (PPSR)) to secure repayment of that money in preference to other creditors should the business fail.

Having proper terms of trade

Most businesses, if they have them at all, have terribly inadequate terms and conditions of trade. Often they are just copied and pasted from other documents and not tailored, leaving businesses thinking they are adequately protected when they really are not covered at all.

T&Cs should be built to protect your particular business and should be a work in progress, tweaked to solve or prevent problems that have arisen in your business from occurring again,

Avoiding personal guarantees altogether

A guarantee is a contract by which a guarantor promises that another person or entity will comply with his, her or its obligations to a third party and if they don’t, the guarantor will. The most common example involves bank loans where a guarantor such as a parent promises to repay the loan of their child if the child defaults.

Becoming a guarantor can be extremely risky, particularly when large liabilities are involved. Under most guarantees, the guarantor becomes immediately and primarily liable to repay the debt (and the lender does not have to wait for attempt to recover from the borrower before calling on the guarantee).

As a practical matter, many businesses cannot obtain finance unless a personal guarantee is provided. If this is the case however, whenever the loan is actually repaid or if the business can prove it is financial stable and secure, the guarantee should be discharged so that the guarantor cannot continue to rely on it at a later date concerning subsequent transactions.

Managing staff

One of the biggest risks to your business is that of staff leaving, and worse still, taking valuable information and assets with them.

Having appropriately drafted Employment Contracts with restraints of trade in them is a must.

Superannuation contributions

In many circumstances, superannuation entitlements can be protected from bankruptcy trustees. There may be no protection for example where the payments are made for the primary purpose of defeating creditors.

Making contributions to super is getting harder and harder with the Federal Government’s recent changes to the superannuation laws however, this can be an effective long term tool for wealth creation and asset protection. This will also usually involve the assistance of your financial planner.

Business succession planning

If you are in business with another person, what happens to your business if you or your business partner gets seriously injured or dies?

Do you have an appropriate and valid Will, Enduring Power of Attorney and Appointment of Enduring Guardians in place?

Usually having these estate planning documents is not enough. Presumably your business partner would give all of his or her assets to their spouse on their death through their Will. What if you don’t want to me in business with your business partner’s partner?

You should have in place business succession documents to deal with this such as a Buy/Sell Deed with appropriate insurances, a Shareholders Agreement (for companies), Unitholders Agreement (for unit trusts) or a Partnership Agreement (for businesses operating through a partnership structure).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting a new business, commercial law, business disputes or estate planning/business succession issues generally, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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What is legal tender in Australia?

As you would expect, Australian banknotes are legal tender throughout Australia.

Similarly, a payment of coins is a legal tender in Australia however, there are restrictions, such as those in the Currency Act 1965, about how much can be paid in coins.

Coins are not legal tender if they exceed:
  • 20c where 1c and/or 2c coins are offered (these coins have been withdrawn from circulation, but are still legal tender);
  • $5 if any combination of 5c, 10c, 20c and/or 50c coins are offered; and
  • 10 times the face value of the coin if $1 or $2 coins are offered.

For example, if someone wants to pay a merchant with 5c coins, they can only pay up to $5 worth of 5c coins and any more than that will not be considered legal tender.

The above is of course subject to any agreement between parties – a provider of goods or services is at liberty to set the commercial terms upon which payment will take place before an agreement for the supply of the goods or services is entered into.

For example, vending machines may not accept small denomination coins or payment may be agreed to be made in foreign currency such as USD.

If you would like any more information in relation to any commercial law or contractual issue, please contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

Source: Reserve Bank of Australia