Taxation of mutuals
I noted here that Coleambally Irrigation Mutual Co-operative Limited lost its appeal to the Full Federal Court against the Fedreral Court's decision that its income was taxable.
On 27 May 2005, the High Court decided not to grant Coleambally Irrigation Mutual Co-operative Ltd leave to appeal the decision that the principle of mutuality cannot apply where the members of an organisation are prevented under their Constitution from obtaining the value of the assets on its winding up.
The Minister for Revenue and Assistant Treasurer, Mal Brough, has announced that the Government will amend the income tax law to ensure mutual not-for-profit organisations are not subject to tax on income as a result of the High Court decision.
The amendment to the Income Tax Assessment Act 1997 will provide that the mutuality principle may apply to affected not-for-profit organisations even though the organisation is precluded from distributing to members on winding up. On winding up, any surplus would be required to be distributed to another not-for-profit organisation. The Tax Office estimates that around 200,000 to 300,000 organisations (largely RSL and social clubs) would potentially have become subject to tax on receipts that the Tax Office had previously considered to be excluded from assessable income under the mutuality principle.
The amendment will give legislative backing to the Tax Office practice that applied to distribution clauses prior to the judicial decisions.
Australian industrial relations changes
The Prime Minister and the Minister for Employment and Workplace Relations have announced proposed changes to the industrial relations system.
The Howard Government will:
- establish the Australian Fair Pay Commission;
- enshrine minimum conditions in legislation;
- introduce the Australian Fair Pay and Conditions Standard;
- simplify the agreement making process at the workplace;
- provide award protection for those not covered by agreements;
- change the role of the Australian Industrial Relations Commission;
- amend the unfair dismissal laws; and
- introduce a national system of workplace relations (subject to States' agreement).
The Howard Government intends to exempt businesses who employ up to 100 employees from unfair dismissal laws. The Government will continue to protect all employees by providing a remedy for unlawful termination, which prohibits dismissal for discriminatory grounds such as race, colour, sex, union membership or pregnancy .
For businesses with over 100 employees, employees covered will be required to have been employed for six months before they can pursue an unfair dismissal remedy. This is an extension of the current 3-month qualifying period.
Since Choicepoint, more reports are being made of privacy breaches in organisations such as financial institutions. BeSpacific points to this chronology of data breaches since Choicepoint. Is your customers' information really secure?
On the other side, if you are a financial institution how can you ensure the customer is who he or she says he is? The Australian Payments Clearing Association has announced a new electronic Identity Document Reference Guide to help test the authenticity of identification documents. See the APCA Payment Monitor 1st Quarter 2005.
Lender property valuation survey
APRA has released the results of its surveys on the property valuation practices used by authorised deposit-taking institutions (ADIs) and lenders mortgage insurers (LMIs) as part of their mortgage and insurance approval processes.
The main conclusion of the surveys is that there has been a movement away from the traditional reliance on a full external valuation of a property (involving an internal inspection) in favour of more streamlined valuation methodologies, particularly by the larger ADIs.
APRA Chairman, Dr John Laker, said that these new methodologies had not been tested in a major property market downturn and they may expose lenders to increased credit risk if appropriate controls are not in place.
“Good practice, in APRA’s view, would see these new techniques limited to lower risk lending, where there is benefit to the lender in reducing valuation costs without significantly adding to risk”, he said. “In addition, it is important that alternative methodologies have been appropriately researched and approved at senior levels, with a suitable level of subsequent back‑testing.”
Corporate governance for ADI's
The Australian Prudential Regulation Authority (APRA) has released draft prudential standards and a discussion paper outlining proposed governance arrangements for authorised deposit‑taking institutions (ADIs), general insurers, life insurers and authorised non-operating holding companies (NOHCs).
The objectives are to ensure that an ADI is well managed, has access to appropriate independent expertise, and gives due consideration to the impact of its decisions on depositors.
The draft standards are stricter than the ASX guidelines as previously explained by APRA Chair John Laker.
Key provisions include:
- a majority of independent non-executive directors on a board;
- the requirement for a policy on boartd renewal (in lieu of fixed terms for directors);
- no prohibition on a director serving onn the board of more than one APRA-regulated institution;
- a period of at least 3 years must pass before a chief executive can become chair;
- provision to APRA of written details of the resignation or removal of a director within 14 days.
Comments on the discussion paper and draft prudential standards are invited by 12 August 2005.
A "fit and proper" person standard will be released soon.
Analysis of Corporate Governance Reports
The ASX Corporate Governance Council has released its analysis of corporate governance practices as reported in listed companies' 2004 annual reports.
ASX listing rule 4.10.3 requires companies to disclose in the corporate governance section of their annual report the extent to which they have adopted the ASX Corporate Governance Council’s 28 Recommendations.
The analysis found the large majority of listed companies have fulfilled their reporting requirements satisfactorily, either confirming adoption of the Recommendations or providing ‘if not, why not?’ reporting.
However not all companies complied with the recommendations. For example 38% of reports reviewed disclosed the company had chosen to adopt the practice outlined in Recommendation 2.1 (majority of board to be independent) and 48% disclosed they had chosen to adopt alternative practices.
The following observations arise from the review of 2004 annual reports:
• Companies which addressed the recommendations in order, gave detailed cross-referencing or provided a table outlining adoption/exception reporting were the easiest to follow.
• Clear referencing to a website and to the remuneration section of the Annual Report were also attributes of the better reports.
Privacy Review Report
The Privacy Commissioner has released her report on the private sector provisions of the Privacy Act.
“While I have made a number of recommendations I believe that there is no fundamental flaw with the private sector provisions in the Privacy Act,” she said.
“The overall effect is that the National Privacy Principles have worked well and delivered to individuals protection of personal and sensitive information in Australia in those areas covered by the Act.
“The Report contains 85 recommendations stemming from a balanced and pragmatic examination of the Privacy Act, within the terms of reference set by the Attorney General,” said Ms Curtis.
“The submissions also made it clear that the health sector would particularly benefit from national consistency and I have therefore recommended that a national health code be implemented across federal, state and territory levels.
“Another issue highlighted in many submissions was the need to raise the privacy awareness of organisations and individuals and therefore a number of my recommendations address this issue. Those recommendations, if implemented, would form the ‘lynch pin’ of an improved privacy scheme that would benefit individuals while recognising the right of businesses to achieve their objectives in an efficient way.
“Consumer control over personal information, a key feature of the private sector amendments to the Privacy Act, was addressed in the Review. I have recommended that the control that individuals have over their personal information be strengthened, particularly in relation to information collected about them indirectly or used or disclosed for other purposes such as direct marketing.
“Simple steps that could be taken to make this happen include measures to promote clearer and more easily understood privacy notices and a general opt-out right for all direct marketing approaches.
“The report also contains recommendations about the small business exemption with the aim of simplifying its application while suggesting that some sectors that handle large volumes of personal information, such as internet service providers for example, should be covered by the private sector provisions.
“Because of their complexity, the issue of privacy and research, in particular medical research, and privacy and new technologies warrant further debate. The main recommendation on these issues is that they should be considered in the context of a wider review of the Privacy Act.
Other recommendations relate to residential tenants and deceased persons:
The Australian Government should advance as a high priority the work
currently being undertaken by the Working Group on Residential Tenancy
Databases of the Ministerial Council on Consumer Affairs/Standing
Committee of Attorneys-General.
Deceased persons: If the National Health Privacy Code is adopted into the Privacy Act (see recommendation 13), then protection for health information under these provisions would extend to deceased persons. Also, the Australian Government's response to the Australian Law Reform Commission and the Australian Health Ethics Committee's inquiry into the protection of human genetic information in Australia may have implications for the Privacy Act. In addition, the Australian Government should consider as part of a wider review (recommendation 1) whether the jurisdiction of the Privacy Act should be extended to cover the personal information of deceased persons.
Corporate governance and state-owned enterprises
The OECD has approved new Guidelines on Corporate Governance of State-Owned Enterprises (pdf) to give concrete advice to countries on how to manage more effectively their responsibilities as company owners.
The Guidelines aim to help make state-owned enterprises more competitive, efficient and transparent.
In many OECD countries the state remains an important owner of large
firms operating in key sectors, including energy, utilities and
infrastructure. But a recent OECD study reveals the challenges facing
such firms, including conflicting corporate objectives, unclear board
responsibilities and opaque appointment procedures.
To address these issues, the Guidelines call on governments to:
Ensure a level-playing field for state-owned enterprises competing with the private sector by
Clearly separating the state’s ownership role from its regulatory role
Allowing more flexibility in capital structures while making sure that state-owned enterprises face competitive access to finance
Become more informed and active shareholders by
Simplifying the chain of accountability through centralising or more effectively coordinating shareholding responsibilities within the state administration
Reducing political interference in day-to-day management
Introducing a transparent nomination process for boards, based on competence and skills
Empower boards by
Clarifying their mandates and respecting their independence
Separating the role of Chairman and CEO and giving boards the power to appoint CEOs
Systematically monitoring the board’s performance
Improve transparency by
Strengthening internal controls
Carrying out independent, external audits based on international standards
Disclosing any financial assistance from the state
Producing aggregate performance reports
These Guidelines are based on and complementary to the OECD’s Principles of Corporate Governance, created in 1999 and revised in 2004, that are the benchmark for national codes of governance in members as well as non-member countries.
When is relief available for financial service providers?
ASIC has released an update report outlining decisions
on recent applications for relief by financial service providers from
the licensing, conduct, disclosure and managed investments provisions
of the Corporations Act 2001 (the Act).
ASIC's general policy is only to consider granting
relief from the requirements of Chapters 5C and 7 of the Act to address
atypical or unforeseen circumstances and unintended consequences of
The report covers the period from 15 August 2004 to 31 December 2004 and provides an overview of the circumstances in which ASIC has exercised, or refused to exercise, its discretionary powers to grant relief from the financial services provisions under Chapter 7 of the Act, and the managed investments provisions under Chapter 5C of the Act.
The report also outlines some instances where ASIC
decided to take a no-action position regarding non-compliance with
provisions of the Act.
ASIC updates FSR policies
ASIC has released five updated ASIC policy statements
and two updated guidance papers relating to financial services reform
The updated policy statements are:
- [PS 166] Licensing: Financial requirements;
- [PS 167] Licensing: Discretionary powers;
- [PS 168] Disclosure: Product disclosure statements (and other disclosure obligations);
- [PS 169] Disclosure: Discretionary powers; and
- [PS 175] Licensing: Financial product advisers – Conduct and disclosure.
Policy Statement 164 Organisational capacities [PS 164] is currently being reviewed. ASIC plans to issue an updated version of [PS 164] later in the year, and an update to PS 165 Licensing: Internal and external dispute resolution [PS 165] is under consideration.
The updated guidance papers are:
- The Hawking Prohibitions (Hawking Guide); and
- Licensing: The Scope of the Licensing Regime: Financial Product Advice and Dealing (Advice and Deal Guide).
amendments are largely of a minor and technical nature and do not raise
significant new policy issues. Due to the nature and large number of
changes, ASIC has not released marked-up versions of the updated policy
statements and guidance papers. A summary of the amendments to each of
the documents is provided in ASIC's Information Release.