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Franchising Code of Conduct Disclosure Documents  

A franchisor in Australia must maintain a disclosure document in a prescribed form to provide information to existing or prospective franchisees. Franchisors will in most cases seek advice from a lawyer specialising in this area to assist them with the preparation of this document.

We have only addressed the “Financial Details” requirement below as this is where some input may be required from an auditor. The exact content of the Disclosure Document is set out in the Code.

Requirement to Update

The Code requires disclosure documents to be updated within four months of the franchisors year-end. An update is not required if the franchisor either did not sign any new agreements in the year or only entered into one agreement AND does not intend to enter into any new agreements in the coming year. Overruling this, there is a provision in the code that if a franchisee requests an update, the documents must be updated so that it reflects the position of the franchisor as at the end of the last financial year.

Financial Details Requirements

Financial information required to be disclosed can be found in Item 21 of the Disclosure Document requirements of the Code.

Solvency Statement

Item 21-1 requires a statement of solvency, signed by a director, stating that the director has reasonable grounds to believe the Franchisor entity will be able to pay its debts as and when they fall due.

The solvency statement should reflect the franchisors position at the end of the last financial year or if they did not exist then, at the date the statement is signed.

Financial Reports

Item 21-2 requires financial reports for the past two financial years in accordance with sections 295 to 297 of the Corporations Act 2001 (meaning they are prepared in accordance with accounting standards and present a true and fair view). Item 21-3 indicates that consolidated financial reports should be provided if they are required to be prepared under the Corporations Act 2001 and they are requested by a franchisee.

Avoiding the Need to Provide Financial Reports to Franchisees

Item 21-4 provides an option for franchisors who are hesitant to provide financial reports to franchisees. If the solvency statement referred to above is audited by a registered company auditor within 4 months after the end of the financial year to which the statement relates and a copy of the auditor’s report is provided with the solvency statement, then there is no requirement to provide financial reports.
To be clear, the auditor is not auditing the financial reports, they are auditing the solvency statement. The auditor will obtain evidence to support the director’s own opinion on the franchisors solvency.

Franchisors Not Operating for More Than Two Financial Years

Item 21-5 states that if the franchisor has not existed for 2 or more financial years, then instead of providing the financial reports mentioned in item 21.2 or 21.3, a statutory declaration of solvency can be provided together with an independent audit report on the entity’s solvency as at the date of the declaration.

Other Ongoing Disclosure Obligations of Franchisors

The Code requires a franchisor to tell a franchisee or prospective franchisee about certain materially relevant facts in writing, within a reasonable time (but not more than 14 days) after becoming aware of it. A relevant link to the Code section is here. Franchisors should consult with their lawyer when making such disclosures.

Final Advice

As registered company auditors, SAAS Audit can assist with the audit of a solvency statement if required. As a first step, we recommend that franchisors, in consultation with their lawyers, consider if an update to their Disclosure Documents is required. It is only if an update is required that updated financial details will be needed.

Contributions to Super – When Are They Received?


In 2018 the 30th June fell on a Saturday, increasing the chance that SMSF trustees who left decisions on contributions to the last minute will not end up with the result they intended. It may be too late to fix this for 2018 but we thought we would make our position as SMSF auditors clear in relation to our views on when contributions have been received by a fund.

Detailed guidance with further examples can be seen in ATO Taxation Ruling TR 2010/1.

Contribution Paid via EFT or BPAY

A contribution via EFT is ‘received’ by the fund and should be accounted for when the amount is received in the SMSF’s bank account. The ATO do not accept the argument that SMSF assets have increased & the contribution can be recognised if the payer has made the payment & can demonstrate that the money has left their bank account.

A case often sighted on this matter is Rawson v FCT [2012] AATA 322. Mr Rawson initiated a concessional contribution of $97,127 from his Company to his wife’s superannuation fund using BPAY at 7.21pm on 29 June 2009. This was received into the fund’s account on 1 July as Mr Rawson has missed the cut-off time of 6.30pm as stated in the bank’s BPAY terms for monies to be received the next business day.

Both the Commissioner & the Administrative Appeals Tribunal rejected Mrs Rawson’s request to reallocate the contribution using “special circumstances” grounds as it was not in any way “unusual or out of the ordinary” – presumably if it could be demonstrated that there was an error by the bank and their terms were not kept to, the ATO would have allowed a reallocation.

Linked Bank Accounts

In some cases, the accounts of the payer and the receiving fund are “linked” accounts held at the same bank and immediate transfers are possible. If a transfer between linked accounts were made on a week-end it be recorded on the next business day on the accounts bank statements.

We would accept evidence from the bank that the accounts are linked and documentation of the transaction in this case. We have not yet come across this in practice.

Contributions Paid by Cash or Cheque

This is relatively straightforward. The contribution can be recognised as soon as the SMSF trustee has received the cash or cheque. The are some caveats in relation to cheques:

  • No contribution is made if the cheque is dishonoured

  • No contribution is made if the cheque is post dated

  • For a contribution to be made, the ATO has the expectation that cheques are promptly presented for payment, they refer to “a few business days consistent with prudent business practice”

In-Specie Contributions of Assets (Business Real Property or Listed Shares)

In this case, contributions are recognised on the transfer of ownership. It is accepted by the ATO that the fund obtains ownership of an asset when beneficial ownership of the asset is acquired, and that beneficial ownership can be acquired earlier than legal ownership.

In the case of business real property, all transfer documents could be signed but not yet lodged. The date of the transfer for SMSF accounts purposes is the date the fund trustee has all necessary documents in their possession to effect the transfer.

Similar principles apply to listed shares, the SMSF acquires the beneficial ownership of shares in an ASX listed company when they obtain a properly executed off-market share transfer in registrable form.

As SMSF auditors we cannot offer flexibility when interpreting the timing of contributions, we refer to established precedents and ATO guidance. Trustees should take care when planning contributions close to the year end where the intention is for the contribution to be recognised in the current year. Writing a cheque can be a much safer option than relying on your bank to process an EFT before the year-end.

For our not-for-profit clients or potential clients registered with the Australian Charities and Not-for-profits Commission one of our first steps when commencing work is to review the charity’s details on the ACNC website. We would encourage registered charities to do the same and consider if the information presented is up to date and accurate. These are some areas where corrections may be needed.

Entity Subtype
If under Registration Details, you see “Charity to select subtype” as a hyperlink it means that the Charity’s existing subtype is out of date – action should be taken to update this by choosing one of the current 14 charity subtypes that applies to your Charity.

Charity Details
Check that your address, phone number & email contact details are correct if the Charity has trading names these should be included as Other Name(s). Is the Charity’s website correctly recorded?

Annual Reporting
This section lists documents lodged and due for lodgement. Check that all required AIS and Financial Reports have been lodged, plan for future lodgement requirements in good time.

Charity’s Documents – Annual Report
The Annual Report is not the same as the financial report, uploading an annual report to the ACNC is optional. It is a report on your charity's activities for the past year including an overview of activities, governance, finances and other important information. The ACNC provide a template and note that the Annual Report can assist a charity with meeting Governance Standard 1, making information about your purposes available to the public.

Responsible Persons
Check that the list of responsible persons is up to date. A charity must notify the ACNC of changes via their charity portal, this includes changes to the responsible person's position, for example, a treasurer becoming president.

The ACNC website is a great source of information and advice for those involved in a governance role within a registered charity.

Contact SAAS Audit if you require an audit or review or if we can assist with the preparation of your financial report.

The Federal Budget in May 2018 included a proposal that would allow more time for Australians aged 65 to 74 to boost their retirement savings, by introducing an exemption from the superannuation work test if specific circumstances apply.

This exemption will apply where an individual’s total superannuation balance is below $300,000 and will permit voluntary superannuation contributions in the first year that they do not meet the work test requirements. This will come into effect from 1 July 2019.

We thought it would be useful to run through what it takes to meet the work test with some examples.

The Basic Rule

If you are aged between 65 and 74 you must satisfy the work test prior to your fund accepting contributions. You must have worked at least 40 hours within 30 consecutive days in a financial year before your fund can accept contributions for you. So, if you work 10 hours per week in any 30 day period or 10 hours over four days, that would be sufficient.

Work in this context means gainful employment. The Superannuation Industry (Supervision) Regulations 1994 - Reg 1.03 defines "gainfully employed" means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

There are two elements here, you must be employed or self-employed and there must be an objective of receiving gain or reward. Let look at some examples.

Passive Income

Passive investment income (such as the receipt of rent, trust distributions or dividends) is not a direct result of actions or exertion in a particular task. A person who only receives passive income would fail to meet the work test.

There have been cases where share traders & gamblers have argued that their activity is a business so would qualify as gainful employment, the ATO would tend to disagree.

Gain or Reward

There is no minimum or monetary value for the gain or reward but there needs to be a correlation between the work done and the 'reward.'  There must be an objective to receive a payment. Previous case law has shown work test can be satisfied provided there is a profit-making objective and a realistic expectation of reward, even if that reward is not received in the same year the work is undertaken.

Unpaid or charity work as a volunteer does not meet the definition of gainful employment as there is no reward.

Working for Family or Friends

The Superannuation Guarantee (Administration) Act 1992 states “A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work.” If a member is paid for babysitting or gardening, the circumstances surrounding the arrangement will be critical.  For example, if grandchildren are looked after while their parents are on holiday, the motive for doing so would likely be for personal or domestic reasons rather than to derive financial gain. In this case, the definition of gainful employment may not be satisfied.
If in doubt about the work test, a private ruling should be sought from the ATO.

Please note - the above article is general in nature, it was written without taking into account any individual contractor’s situation or needs, and is not intended as professional advice.

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