GE MasterCard customers refunded after ASIC review

GE Money will refund a $25 establishment fee to approximately 2,500 MasterCard customers following discussions with the Australian Securities and Investments Commission (ASIC).

GE’s announcement follows concerns raised by ASIC regarding the following statement on its website:

‘There is no annual fee for your GO MasterCard. That means it costs you nothing to have it – pay nothing and make it your card of choice year after year.’

An investigation by ASIC found that while existing customers did not incur charges, new customers were charged a $25 establishment fee.

ASIC’s Executive Director of Consumer Protection, Mr Greg Tanzer, said while the fee was disclosed in other material, ASIC found that the representation was definitive and likely to mislead customers.

‘This case highlights the need to ensure that definitive statements in advertising or promotional material are accurate. The fact that an investigation of all available material will provide consumers with a thorough understanding of the product does not excuse representations that are on their face likely to mislead’, he said.

GE has now refunded the establishment fee to all consumers who applied for the MasterCard online. It has also removed the statement from the GO MasterCard website.

Mr Tanzer acknowledged GE’s co-operation in responding to ASIC’s concerns.

‘The issue of consumer redress in relation to misleading or potentially misleading conduct is a very important one. In that context, ASIC welcomes GE’s decision to refund the establishment fee to all potentially affected customers.’

The GO MasterCard was widely advertised through other means. The statement considered by ASIC to be misleading did not appear as part of the broader advertising campaign, which included television and radio advertising, brochures, and in-store materials.

ASIC press release

Bankruptcy Act changes

Recent amendment to section 121 of the Bankruptcy Act tips balance towards creditors.

Simplistically, section 121 deals with transfers that were enacted with the intention of protecting property from creditors. The transfer does not need to have happened within a particular time period to be subject to the section. It is the intention of the transfer that is important.

Proving intention can be done in many ways, but the most common would have to be showing that the now bankrupt was or was about to become insolvent. Showing insolvency at the time of the transfer was then a major part of investigations.

The amendment to this section is to provide a presumption of insolvency, albeit rebutttable. subsection 4A states:

For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:
(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or
(b) having kept such books, accounts and records, has not preserved them.

Now, if the transferor (the bankrupt) did not keep proper records, insolvency can be presumed, and the required intention can be deemed.

The other major amendment is the addition of a new circumstances that does not give rise to consideration in the transfer. That is set out in subsection (6):

(e) if the transferee is the spouse of the transferor the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975 .

This stops the transferor transferring their interest in their residential home to another person for consideration being the right to reside there.

*This article provided by Worrells

Tax danger in company guarantees

A potential disaster
Tom and Anna are the owners of a company that operates four very successful cafes. Three of the cafes operate from strata retail premises owned by the company. The company has been built up to this stage over 12 years by the reinvestment of virtually all profits at the expense of Tom and Anna’s personal lifestyle.

After years of living in rental accommodation Tom and Anna recently decided to purchase their own home, since they have negligible personal assets (other than their shares in the company). Their bank manager told them he would approve a loan for the required $545,000 only if the company provided a guarantee for this personal borrowing. Tom and Anna agreed to this condition when he pointed out that no stamp duty cost would be involved since the assets of the company were already charged in favour of the bank to secure the company’s small overdraft.

Tom and Anna went ahead with the purchase of their dream home.

Potential Disaster! If Tom and Anna default on the loan they will be deemed to have received an unfranked dividend of $545,000 from their company, resulting in a tax liability of $253,425. To add insult to injury, the company’s franking account balance will be reduced by $545,000, possibly resulting in a franking deficit tax liability.

Believe it or not, this is the consequence of Division 7A of the Income Tax Assessment Act 1936. Under Division 7A, a company guarantee in favour of shareholders is treated as a deemed dividend to the extent the guarantee is called upon. It does not appear possible to undo the tax mischief that can be unwittingly created by the giving of a company guarantee.

Once again, neither ignorance of the provisions nor a lack of tax avoidance motives can be used to get Tom and Anna off the hook.

This article appeared in Thomson’s inTax Magazine (August 2006);