Impact News
Newsletter No. 1 – March 15th, 2011
…Specialists in Business Valuations, Commercial Litigation
Fraud Examination and Financial Investigations.
Self-Managed Super Funds and Family Law Matters
Self-Managed Superannuation Funds often hold a
large portion of marital assets but may in effect be
controlled by one party. Recent cases have highlighted
an issue that may face many family law practitioners at
one time or another and in some circumstances create
a massive impetus to settle the case before it gets to
court.
Self-Managed Super Funds (SMSFs) can be
problematic in a family law settlement at the best of
times, but add to that the potential for the SMSF in
question to be deemed “non-complying” and the
problems become almost insurmountable.
This year the ATO will be looking at related party
transactions in SMSFs in particular. These transactions
would include loans to members of the fund or
businesses related to the fund and its members.
However, just because a contravention of the
Superannuation Industry (Supervision) Act 1993 (“SIS
Act”) has occurred does not mean that the ATO will
issue a notice of non-compliance. Whilst the ATO has
some discretion with regard to the non-complying fund,
if the fund has failed to meet the definition of an
Australian superannuation fund as set out in s29595(2) of the Income Tax Assessment Act 1997
(“ITAA”) the legislation provides for no discretion. The
resultant punitive tax measures, fees, penalties and
interest can see the Commissioner’s assessment
exceed 46.5% of the original value of the noncomplying transactions.
If this wasn’t problematic enough, add to the mix the
family law matter where the SMSF forms either a
marital asset or resource of one spouse or the other. It
is incumbent upon the Counsel and solicitors to
disclose to the court the nature
and extent of any potential non-complying transactions
and resulting potential tax liability within the SMSF.
This disclosure should include an expert assessment
of whether the transaction is compliant and the likely
range of any punitive tax that may be levied against the
fund, members and/or trustee.
It is likely, however, that it would be in the best
interests of both parties to the matter to settle the case
before it becomes necessary to disclose to the court
the predicament of the SMSF as the fund may be
referred to the ATO by the court as a matter of routine.
In a recent matter in which Impact Forensics was
involved, the parties to the action had invested a
considerable sum into a dubious “investment”, the
result of which was the loss of the entire sum. Should
the investment be considered to be non-complying the
punitive tax amounts would have eroded the majority of
the marital assets. Unfortunately for the parties to the
matter, this problem was not highlighted until the very
last moment, whilst the case was in the process of
being heard. This scenario necessitated the full and
frank disclosure of the SMSF predicament to the court
in the form of an expert report.
In a recent Melbourne matter, Counsel advised the
parties not to disclose the potentially non-compliant
SMSF to the court and is now facing the possibility of
being disbarred. It is worth noting therefore, that in any
new family law matter you face where a SMSF may be
a marital asset or resource, the compliance status of
the fund should be considered and the implications of
non-compliance clearly communicated to the parties. It
may just create the extra impetus necessary to ensure
early settlement.
Brett Goodyer
Partner, Impact Forensics
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Impact News
Newsletter No. 1 – March 15th, 2011
Further issues regarding Self-Managed
Superannuation Funds that may require expert
assistance are:
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The role of trustees when one trustee removes the
assets of the fund
The role and rights of SMSF members
SMSF members and their trustee role
Concessional and Non-concessional inputs to an
SMSF
Recourse to questionable financial advice given to
an SMSF and its members
Quantification of financial damages from
questionable financial advice
Further issues regarding superannuation and Family
Law:
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Valuation of members benefits in a
superannuation fund
Valuation of member benefits in a prescribed
benefit or statutory superannuation fund
Call Brett or Ian for more information
Business Valuation Checklist
Can any accountant provide a business valuation that
will stand the test of litigation?
A lot of accountants are willing to provide a Business
Valuation who have limited experience in doing so, or
whose reports are potentially problematic. Without a
sound understanding of Business Valuation
accounting, court requirements and access to
appropriate data, you may not get what you think you
have paid for.
The most common mistake in business valuations by
inexperienced valuers is providing a one or two page
report that simply provides a value with little to no
substantiation except for “in my expert opinion”. This is
insufficient and if relied upon for settlement purposes
may open you (and the accountant) up to potential
professional indemnity issues.
The attached checklist should apply to every business
valuation that crosses your desk. If it fails even one of
these tests the valuation should be sent back, or if it is
a partisan report from your opponent, appoint a
competent expert to provide a review of the report and
their own valuation.
It is the job of the expert business valuer to step
through the process in such a way that you should not
need to be an accountant or particularly conversant
with the business in question to understand how the
value was derived. Often a lawyer will simply flick to
the conclusion to look at the all-important number
calculated, but it is vital that the number is not only
correct but was provided to you in a logical, considered
manner. Simply accepting a provided value as fact
may be dangerous to you and your practice. Every
lawyer should undertake at least the following checklist
as a quality assurance test for every valuation and to
keep it with every report as confirmation of your
professional diligence.
All business valuation reports whether i for family law
or commercial purposes should include:
Expert’s CV and reason for being an expert
Listing of information relied upon
State the methodology utilised in the valuation
including reasoning for choosing that method
over any others that might be used. (Contrary to
popular belief the future maintainable earnings
and discounted cash flow methods are not the
sum total of available methodologies).
Reference to other methodologies and why the
method selected should be relied upon.
Critical explanation of why a particular multiple is
relied upon in multiple based valuations. (simply
choosing a number between 1 and 5 doesn’t
count)
Is the report logical? (Can you read it without
saying “Why?”)
A discussion of all relevant facts and matters
relied upon which the expert’s opinions are
based.
Explicitly state all assumptions that may
influence the expert’s opinion. When making
assumptions, such as adopting an average of
prior years’ profits to extend future maintainable
earnings, there needs to be expressed
consideration of the validity of this assumption.
Influencing issues such as market factors,
changes in business structure, demographic
considerations or industry pressures need to be
discussed. A statement by the expert regarding
facts within their knowledge (and the right to
revisit their conclusion if new information
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Impact News
Newsletter No. 1 – March 15th, 2011
Who are we?
becomes available).
A detailed discourse of any tests, investigations,
experiments or examinations undertaken and
relied upon by the expert. For example data
regarding similar businesses should be
considered and interpreted. this often requires
subscription to specialist data providers
Does it correctly reflect the expert’s duty to the
court and requisite court statement. Does the
expert understand the statement and the role
they may have in providing experttestimony in
court.
Does it pass the Layman* test
*The layman test is simply for any Average Joe/Joan to
pick up the report, read it and understand how the
valuer came to his or her decision to value the
business in such a way and how the specific value was
calculated.
The Partners of Impact Forensics - Brett
Goodyer and Ian Fargher are pleased to
announce that the practice website
www.impactforensics.com.au is up and
running (and looking mighty spiffy indeed).
The practice has received many new matters
since its formation in December 2010 and we
thank you for the continued support and
business into the future. If ever you need to
simply discuss a matter confidentially…
please give us a call.
CONTACT US
Impact Forensics
PO Box 5336
Wollongong NSW 2520
p|0447 264 224
e|info@impactforensics.com.au
Impact Forensics is a CPA accredited accounting
practice specialising in Forensic Accounting and
Fraud Examination. Based in Wollongong, NSW,
Australia we are the only specialist firm south of
Sydney.
We provide independent expert reports and advice on
accounting matters used for business improvement,
dispute settlement, litigation support, fraud prevention
and asset recovery, legislative compliance, AML/CTF
assurance, audit support and business valuation. We
are not distracted by providing general accounting and
taxation services.
Our partners are Ian Fargher and Brett Goodyer who
have over 35 year business experience including
senior roles.
Ian is a former Assistant Commissioner with the
Australian Taxation Office and currently leads the
Master of Forensic Accounting investigations and post
graduate tax program at the University of Wollongong.
He has a strong record of local and national
involvement in business, charity and the profession. He
has presented academic papers internationally.
Brett spent the last several years practicing in Sydney
as a partner in a second tier insolvency and forensic
accounting firm and heading up the Sydney Forensic
Accounting Division of one of the largest accounting
firms in the world. He developed his professional
acumen through internal audit roles, augmenting his
skills with a strong command of technology.
The practice provides personalised service, adding
value whilst minimising costs. We provide advice and
quotes for all matters. Where practicable we will meet
with yourself and your clients at your office at no
additional cost. We are the experts that you need as a
part of your team, to make an impact when it is needed
and to provide direction amongst the confusion of
complex financial information.
Contact us for a chat to see how we can be of
assistance.
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