I spoke with my accountant today and asked her if my company could lend me money – it’s got more money than it needs and I’ve got less than I want. Actually having written that I realise it’s not accurate. The point of borrowing money from my company is that I’m borrowing lots of money in my own name from a bank – and I don’t much fancy receiving 2% less on my borrowings than my company gets in interest from the bank. The Tax Office, quite rightly, tightened up on private companies lending money to their shareholders because an interest free loan from your company is a pretty easy way to avoid ever having to pay your personal rate of tax if it’s higher than the company rate. So they required that a ‘commerical’ rate of interst be charged.
So far so good. So I wanted the company to lend money to me on which I’d pay a commercial rate of interest (lets leave to one side that the rate should actually be commercial – ie the rate I can get – around 7.2% rather than the ‘standard variable rate’ which no-one pays and which is over 8%).
The tax office have ‘tightened up’ on this further. Now if they banned loans of this kind, I’m not sure it woudl make sense in principle, but I’m sure there’d be some sense in it – since no doubt this maneuvre offers various ways of avoiding tax that I don’t know about. But that would be too simple (and probably politically difficult).
So it’s the old death by a thousand wrist slappings. You have to have a written loan agreement. You can write one yourself but you’re better advised to buy one from a lawyer’s word processor at around $400 to fit the relevant sections of the Tax Act. And you can’t give yourself a rolling ‘line of credit’ on which you pay interest as it falls due – if necessary capitalising the interest by increasing the size of the loan. It has to be for a definite term. In fact the term has to be seven years if it’s unsecured and twenty years if it’s secured. This is the first level of farce because I can presumably write a second mortgage on our property (well buy one for another $400) and voila it’s secured. Still, the whole thing is a farce. Not much chance of being foreclosed on there!
But then what if I want to borrow from the company again to meet the repayments (which is the financial equivalent of just having a line of credit that you can capitalise interest on). No problem. I just
write photocopy another loan agreement and off I go again. I can do this for as long as I’ve got paper and toner in my photocopier.
Today the BCA welcomed a new Bill with the short (propaganda) title of the “Simpler Regulatory System Bill”. I’ll have a closer look at it but at a quick inspection it doesn’t look reassuring. It contains a bunch of things that should not require legislation to fix. Indeed the fact that it does require legislation to fix them shows not that they’re being fixed but that they’re still broken! It’s like getting approval from head office to re-fix a nut on the wheel of a car as it runs down the assembly line.
Unfortunately it’s difficult to easily work out the detail of the changes even when consulting the relevant part of the ministerial website. But it’s quite clear that many of the changes, including those liseted below the fold, not only shouldn’t be made by parliaments but should have been made as a matter of routine years ago.
|2.3 Change in office holders||The requirement for a company to notify ASIC of a change in officeholder, where the officeholder has already notified ASIC, will be removed.|
|2.4 Company addresses||A single process for notification of an update of all company addresses will be implemented.This measure will be supported by changes to the relevant regulations.|
|2.6 Reduce compliance burden associated with voluntary deregistration||Amendments will allow deregistration of a company to proceed where an annual review fee becomes payable or is incurred after the application for deregistration is approved.|
|2.7 Upfront payment of annual fees for companies||Amendments will allow companies to pay a single sum to cover review fees for an extended period.This measure will be supported by changes to the relevant regulations.|
|2.8 Electronic distribution of annual reports||The default option for receiving annual reports will be changed to be via the Internet. Members will continue to be able to choose to receive hard copy annual reports free of charge.|
Indeed, some are still wrong. Why should any ‘default’ form of delivery be mandated for receiving annual reports from companies? Annual reports should be made reasonably available to shareholders. That’s all ye know and all ye need to know. Why should companies be required to provide hard copy annual reports, and why at no charge? Why shouldn’t some companies not authorise their management to do what they consider appropriate, including charging reasonable fees for tree based annual reports?
This regulation will soon be obsolete. Perhaps it is even planned obsolescence. Stand by for the next red tape busting initiative where a parliamentary committee changes this rule. Then the only dilemma will be whether to repackage it in a future red tape simplification exercise or instead the next environmental package. But hey – why be picky?
It can be packaged into both.