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JAN/FEB 2008
                                                                                                 EXPLORING THE OPTIONS FOR
                                                                                                 LIFE INSURANCE

                                                                                                 6                    8
                                                                                                 INSOLVENCY           KEY DATES

Understanding and Managing
                                             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
                                             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”.

Better Computing
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.

                        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.

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.

                      Director responsibilities and
                      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
                                                                      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.

• 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
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
                                                 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.

    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 infomoree@boyceca.com                                  E infocooma@boyceca.com
                                                                                                                            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 infogoulburn@boyceca.com                                     2007 PAYG instalment notices—forms R and T.
    P 02 6884 6499                                           Directors
    E infodubbo@boyceca.com                                                                                                 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 infoorange@boyceca.com                                                                                                Boyce would like to remind all clients that when
                                                                                                                            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.

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