3 BETTER COMPUTING ESSENTIALS 4-5 NEWSLETTER JAN/FEB 2008 EXPLORING THE OPTIONS FOR LIFE INSURANCE 6 8 INSOLVENCY KEY DATES Understanding and Managing INTEREST RATE RISK Who determines interest rates? rate to encourage growth (spending); alternatively, a rate hike may be used The Board of the Reserve Bank of to curb an economy that is growing Australia (RBA) is charged with setting too quickly and causing inﬂationary the “ofﬁcial cash rate” (base interest pressures (such as increased wage rate). Its charter as Australia’s central demands). bank is to ensure that our dollar remains stable and that the Bank’s The Board of the RBA meets 11 times policies promote full employment and a year to determine the level of the contribute to the overall economic cash rate. They consult detailed prosperity of Australians. In order to information on retail sales, consumer do this, the RBA endeavours to keep conﬁdence, property prices and more Interest rates, and in particular whether consumer price inﬂation (CPI) within a and; take into account international they are about to rise or fall, is a major range of two to three percent. market factors, the price of wholesale talking point for most Australians. The ofﬁcial cash rate is used as a tool by credit (ie from bank to bank) and the However, despite their importance the RBA to keep the economy ticking performance of the Australian dollar in our every day lives most people along at a steady rate. If the economy before making their decision as to remain confused about how interest slows, the RBA may lower the cash where the cash rate should be set. rates are set. continued page 2 Knowledge. Insight. Experience. 1 Understanding and Managing INTEREST RATE RISK continued from page 1 "At its Cash rate V loan interest rate trade-off between ﬂexibility and security and also cost and security. meeting The “ofﬁcial cash rate” is the rate which the RBA believes should be paid by banks for Most of the major banking institutions offer yesterday, access to credit in the wholesale market. “Business Bankers” and “Risk Management the Board The banks will then add a premium to the Specialists” as part of their service to help identify ﬁnancial products which may assist to decided to cost of funds when applying the rate to retail loans and mortgages. So typically, reduce the interest rate risk and uncertainty increase the whilst the cash rate may be 6.75%, the retail facing business borrowers. Products include cash rate interest rate we are charged is likely to be options such as: by 25 base more than 8%. • Flexible Maturity Fixed Rate Bills – which points to..." Although the RBA sets the ofﬁcial cash rate, provide a known ﬁxed rate for a total it is not the sole determinant of interest rates term of say, ﬁve years, where the ﬁrst Glen Stevens - Governor, Reserve Bank of Australia. – the factors that inﬂuence rates are spread three year period is ﬁxed with an optional far and wide. Recent global developments two year extension period. in the sub-prime mortgage market have • Capped Rate Bills – where the customer increased wholesale funding costs for pays a premium to “cap” the interest rate banks to above the ofﬁcial cash rate and on their borrowings for a period of time, some institutions have passed on increased providing the borrower with a known interest costs to borrowers as a result. maximum cost of borrowing over that It is also important to understand that the term. Some institutions provide a “Pay- interest rates bandied about in the media If-Used” Capped Rate Bill – where the are not the complete story, because longer business pays for it, only if the cap rate is term rates often don’t follow short term reached. rates. For example, at present the 5 year There are a range of options available to ﬁxed rates have fallen even though short business owners to help with managing term rates are increasing. interest rate risk. Your local Boyce Director Managing interest rate risk can assist you to assess the options available and implement effective strategies to The ﬁrst step in managing your interest rate minimise your exposure to changes in risk is understanding your needs - are they interest rates. short or long term; how great is the risk to your business; do you have ﬂuctuating or Source: Infochoice - infochoice.com.au and ﬁxed cash ﬂow etc.? Generally there is a S.Fagg “The 5 Minute Guide to Interest Rates”. 2 Better Computing ESSENTIALS It’s all too easy to put off tasks such as condition. Giving your PC a tune-up its performance. Why take the risk? cleaning up your computer’s desktop is easy, just select Start/Accessories/ Use the latest security suites that have and protecting your computer from System Tools/Maintenance Wizard, and the following components: antivirus, viruses. Below is a checklist of some follow the instructions. The Maintenance ﬁrewall, spy ware protection, Trojan simple things you can do to improve Wizard performs maintenance tasks and malware protection. And don’t your productivity and the performance such as scanning and defragmenting put off downloading updates when of your computer. to ensure your ﬁles are stored logically. your program notiﬁes you that they are available—updates keep you safe! 1. Streamline your ﬁling system 4. Be prepared Finding ﬁles doesn’t have to be a chore Don’t be caught off guard if your PC 6. Saving space – if you develop and use a consistent is hit by a disruptive event such as a It is easy to ﬁll the space of your hard ﬁling system. Create folders with power surge. Surge protecting power drive with big ﬁles or multiple copies of meaningful names, and always name boards and phone adapters are cheap ﬁles. To save space, it’s a good idea to and ﬁle your documents appropriately. insurance for peace of mind. delete any unwanted ﬁles if you are 2. Bring order to your Inbox It is also important to use “System sure you don’t need them; you should Restore” to create snapshots in time also compress larger ﬁles. Winzip, a free If your Inbox is overﬂowing, then of your PC’s system ﬁles and settings. program available on the internet, will organising your e-mail correspondence Then if disaster does strike, rolling enable you to compress large ﬁles. into subfolders is essential. Group e-mails back the clock is easy - go to Start > External hard drives make a great by action required, suppliers, clients, or All Programs > Accessories > System backup tool as you can keep the data whatever makes sense for you. Tools > System Restore. Get into the separate to your PC. They come in When new emails come in, implement habit of creating restore points before many shapes, sizes and prices, so there a system where you either: delete, ﬁle performing a potentially risky activity is sure to be one that suits your budget. or ﬂag the item for action. such as downloading software from the Once your Inbox is unclogged, tracking Internet. You should also have an ofﬂine 7. Give yourself a break down speciﬁc e-mails is a snap with copy of important ﬁles saved to a USB Extended time in front of your PC is powerful search tools now used by drive, CD or DVD. more physically demanding than you many email programs. In Outlook, go 5. Protect your PC might think. In order to stay productive to Tools/Find/Advanced Find to search and prevent injuries and bodily stress, for emails by sender, key words, and Viruses, spy ware, malware, Trojans and be sure to support your back, and take other search criteria. all sorts of nasties can pose a massive regular breaks to stretch your limbs, or security issue, potentially exposing you to 3. Give your PC a tune-up go for a walk. fraudulent use of your credit cards and Like your car, your computer needs even identity theft. As well, they make If you need more IT assistance, contact regular tune-ups to run at peak your PC sick - dramatically reducing your local Boyce Accountant. 3 Exploring the options for LIFE INSURANCE The main reason for purchasing life insurance life insurance cover has been purchased "Whilst income is to provide ﬁnancially for those you leave through a superannuation fund there may protection behind when you die. An all too common be a tax liability on any lump sum paid to a cover is not occurrence is a family with children, where beneﬁciary who is not a dependent of the one income earning parent dies. In such policy holder. As well, there may be issues cheap - it is tax circumstances, a life insurance payout can with the right of the fund’s trustees to overrule deductible." enable the surviving family members to your decision about who the beneﬁciary of continue their lives without having to make your life insurance policy is. It is important to ﬁnancial sacriﬁces. seek advice about these issues. Life insurance can also assist with the Total & Permanent Disablement Insurance (TPD) payment of costs associated with death such Total and Permanent Disability Insurance (TPD) as the funeral and burial costs, legal costs for is often an optional extra provided with a life probating a will, and outstanding debts such insurance policy and covers the policy holder as ﬁnal medical expenses that may not be against a permanent disability. The amount covered by private health insurance. of cover you can buy is usually limited by the Term Life Insurance amount of life cover purchased. Claims are generally paid as a lump sum. This type of cover provides a cash lump sum in the event of the death of the life insured. It TPD policies offered by different insurers are is relatively cheap given the potential payout very similar. Typically, in order to receive amount and is the basic cover necessary for a payout, most insurers deﬁne total and most people who have dependents. permanent disability as when you are unable to work for six months and, it is likely that you The cover is easy to understand - quite will never return to work. simply, if you die whilst the policy is in place, the amount of cover is paid out. The only One disadvantage of TPD is that as a rule, exclusion (in most cases) is suicide occurring you can only ever claim it once. Also, making within the ﬁrst 13 months of the policy. Many a claim may void your death cover - so you policies will payout the amount of cover prior need to ensure you have enough cover from to death, if you are diagnosed with a terminal a TPD payout to live for the remainder of your illness and have less than 12 months to live. life, in case you are no longer insurable. Premiums for term life insurance increase Income Protection Insurance each year as you get older. Whilst life cover will look after your family Note that this cover is not the same as when you die, it is also important to “accidental death cover” which only covers consider what may happen if you can't you in the event of death in an accident. work because of illness or accident and A life insurance payout on death is tax-free your recovery period is estimated to be in the hands of the beneﬁciary(ies) if it is a many months, or even worse, you will never non-superannuation personal policy. If the be able to return to work. 4 This is when income protection insurance, otherwise known as disability insurance, is important. It is estimated that most people will earn about $4 million over their working lives, so it would seem logical that protecting your income is actually more important than insuring your home and your car. Highlighting the importance of income protection insurance is the statistics which show that at the age of 35 you are 10 times more likely to be disabled than to die. In effect, this type of insurance protects your ability to earn. Most policies will pay up to 75 per cent of your net income either for a limited period or until you reach the age of 65. However, there are such a large number of variations with Given the nature of what the adjunct to term life policies. However, these insurance policies that it is very payment is designed for, the amount be careful to read the ﬁne print on important that you understand what is, of trauma cover required is not as what your policy deﬁnes as a medical and what isn't, covered by your policy. great as life cover. Trauma cover is condition – most policies include While income protection cover is not also an expensive form of insurance. speciﬁc criteria on major illnesses. cheap, it is tax deductible. It is also Commonly people will take between While trauma insurance is not to be arguably the most important type of $50,000 to $150,000 cover (depending confused with income protection, it is personal insurance. on individual circumstances). Payment a good alternative for those people by the insurer is made upon diagnosis not in the workforce. In particular it suits Trauma Insurance of the condition. homemakers who have no personal Trauma insurance is known by a number Instead of receiving a monthly income income. Unlike income protection, the stream (as for income protection premium for women is lower than for of different terms depending upon the insurance) you are paid a lump sum men as statistically they suffer less from insurance company. It is commonly such critical illnesses as heart attacks. called trauma insurance, critical illness that you can spend for whatever cover, medical emergency cover or purpose – medical bills, your mortgage, If you would like to know more about life recovery cover. These policies are an overseas trip, even a new car. insurance policies, the cover available all designed to provide a lump sum The insurance company makes no and the costs, speak with your local payment in the event of speciﬁc demands on how you spend the Boyce Director who can refer you to a medical events. money. Trauma insurance is often an professional insurance advisor. 5 Director responsibilities and INSOLVENCY The Australian Securities and Investment "Directors must Commission (ASIC) has increased its level be aware of of prosecutions and banning orders for the the ﬁnancial misconduct of directors associated with insolvent companies. position of the Directors may be in breach of the law if they company..." are derelict in their duties to: • Prevent insolvent trading by the company; • Breach statutory duties imposed on them by the Corporations Act 2001; • An assessment of the company’s debts • Breach continuous disclosure provisions; to determine when those debts are due and payable. • Act inappropriately in relation to voidable transactions; • An assessment of all the assets of the • Fail to respond to Director Penalty Notices company to determine whether they are issued by the ATO; and realisable, and if so within what time frame. • Breach common law or equitable duties What should directors be on the look requiring directors take into account the out for? interest of creditors when the company is Some useful indicators of insolvency as insolvent. determined by ASIC include: So when is a company insolvent? • Liquidity ratios below 1. A company is deemed insolvent when it is • Overdue federal and state taxes. not able to pay all its debts as and when • Continuing losses. they become due and payable. • Poor relationship with banks and an In deciding whether a company is insolvent inability to borrow further funds. the courts will have regard to: • No access to alternative ﬁnance. • The expected net cash ﬂow from the • Creditors unpaid within trading terms. company’s business. • COD terms imposed by suppliers. • The arrangement the company has with its bankers and shareholders. • The issuing of post-dated cheques and/or • Whether there is capacity to fund cash dishonoured cheques. ﬂow from borrowings repayable at a time • “Special” creditors receiving special after the debts fall due. arrangements. 6 • Solicitors’ letters of demand, summonses, judgements or warrants issued against COMPANY DIRECTORS the company. Potential Paying Liability • The paying of round sums to creditors without reference to speciﬁc invoices. Company Directors should be aware of the potential personal • An inability on the part of the company liability they may face for PAYG Withholding Amounts that to produce timely and accurate ﬁnancial remain unremitted by the due date. information to display the trading performance and ﬁnancial position. A company director becomes personally liable when the Australian Taxation Ofﬁce (ATO) issues a “Directors Penalty Responsibilities of a Director Notice” requiring payment of the PAYG amounts unpaid by the company. Directors have a personal duty to prevent the company incurring debts if they are In order to avoid personal liability, a director must act within 14 either aware at the time of incurring the debt days from the date of the notice and undertake one of four that there are grounds for suspecting that options: the company is insolvent; or a reasonable 1. Ensure that the company pays the liability; person in a like position in the company’s 2. Put in place a written repayment agreement under Section circumstances would be aware. 222ALA of the ITAA to pay the liability; Directors must be aware of the ﬁnancial 3. Advise the ATO that the company is being wound up; position of the company and put in place systems which disclose to them in a 4. Place the company under Administration within the meaning timely fashion the ﬁnancial position of the of the Corporations Act of 2001. company. Personal liability can occur without a director actually receiving a “Directors Penalty Notice” as the notice is sent Directors must also be able to demonstrate to the director at the address recorded with the Australian that their expectation that the company Securities and Investment Commission (ASIC). Therefore it is was solvent was based upon that critical Therefore, it is critical that you ensure that your current information. residential address is recorded correctly with ASIC. If you would like clariﬁcation or assistance If you receive a Directors Penalty Notice, you should in relation to the above, please speak with immediately contact your local Boyce Director who can your local Boyce Director. determine if the outstanding PAYG Withholding Amount can Source: Smith Hancock, November 2007 be paid to avoid personal liability or; if another of the four options for action should be taken. 7 CONTACT US KEYDATES Boyce Chartered Accountants 28 January 2008 Superannuation guarantee contributions for 1 BOYCE MOREE BOYCE COOMA October to 31 December 2007 quarter to be 39 Albert Street 36 Bombala Street Moree NSW 2400 Cooma NSW 2630 made to the fund by this date. P 02 6752 7799 P 02 6452 3344 21 February 2008 E email@example.com E firstname.lastname@example.org Due date for lodgement and payment of Directors Directors January 2008 monthly activity statements. Paul Fisher Kathy Kelly Phil Alchin Jono Forrest 28 February 2008 Associate Director Final date for lodgement and payment of October David Newnham BOYCE GOULBURN 19 Montague Street to December 2007 quarterly activity statements. BOYCE DUBBO Goulburn NSW 2580 Final date for payment and, if varying instalment 167 Brisbane Street P 02 4821 1466 amount, lodgement of October to December Dubbo NSW 2830 E email@example.com 2007 PAYG instalment notices—forms R and T. P 02 6884 6499 Directors E firstname.lastname@example.org Final date for payment, and if varying instalment Peter King amount, lodgement of October to December Directors Tony Long 2007 GST instalment notices—forms S and T. Bernard Kennedy Carmen Caldwell Caroline Wilcher Associate Director Income tax return lodgement and payment Associate Director Beth Hoskins due date for companies and superannuation Mike Nangle funds which were not due at an earlier date or, BOYCE WAGGA WAGGA are new registrations. BOYCE ORANGE 44 Fitzmaurice Street 124-128 Summer Street Wagga Wagga NSW 2650 Orange NSW 2830 P 02 6971 0600 PAYMENT OF INVOICES P 02 6361 9577 E Infowagga@boyceca.com E email@example.com Boyce would like to remind all clients that when Directors paying invoices by Electronic Funds Transfer Director Simon Sellars (EFT) into our bank account, it is essential that Richard Cummins Linda Mackellar Associate Director Associate Director your invoice number is used as the reference. Christine Dyet Denis Reeves This will ensure that the payment is correctly allocated to your invoice. IMPORTANT DISCLAIMER: The material contained in this publication is in the nature of general comment only, and neither purports, not is intended to be advice on any particular matter. Readers should not act or rely upon any matters or information contained in, or implied by this publication, without taking appropriate professional advice which relates speciﬁcally to their circumstances. We expressly disclaim all and any liability to any person, whether or not they are a client of Boyce Chartered Accountants, who acts or fails to act Liability limited by a scheme as a consequence of reliance upon the whole or any part of this publication. approved under Professional Standards Legislation. 8 Knowledge. Insight. Experience.