Tony Schiffmann

BDO has welcomed 25 new partners over the last financial year, the largest partner intake in the firm’s history.

BDO’s ten newest partner appointments announced yesterday, in addition to the 15 partners announced in February 2021, signals strong client demand and continued growth taking BDO’s national tally of partners up to 222.

“It has been a big year for BDO with extraordinary demand for skills in our sector,” BDO’s chief executive partner Tony Schiffmann said.

“We’ve responded by nurturing a distinct culture – which is reflected in how we are servicing our clients, attracting high calibre talent and retaining and promoting great people – a culture which the market has also clearly recognised.”

BDO enjoys a strong pipeline of future leaders; ten of the year’s 25 partner appointments were internal promotions and, during the same period, BDO appointed 55 Associate Directors.

“Our culture is a key factor that attracts new hires to BDO.  We continue to invest heavily in our people-centric approach and build upon our positive brand values and behaviours. Culture is a key differentiator for people looking to move or join a professional services firm. We have cultivated a culture that is an attractive proposition to quality talent who are looking to grow and become part of a successful and growing firm,” continued Schiffmann.

“These most recent promotions and appointments strengthen our market offering and are quite evenly spread across tax, advisory and audit areas.”

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Leon Fouche

Despite enhanced cyber maturity, beefed up cyber budgets and improved security posture, many Australian businesses still lack the ability to act quickly and comprehensively in the face of a cyber security attack.

The key take-away from accounting and professional services firm BDO in Australia’s annual Cyber Security Survey, which – in conjunction with leading cyber emergency response team AusCERT – examined the cyber security risks and realities experienced by more than 500 board, business and IT executives across Australia and New Zealand.

The 2018/2019 BDO and AusCERT Cyber Security Survey found that despite the introduction of stricter compliance regulations and greater executive and leadership team buy-in on cyber security, untried or poorly planned response protocols were leaving both government and private enterprises vulnerable to increasingly sophisticated cyber attacks.

BDO’s National Cyber Security Leader Leon Fouche said all industries needed to ramp up their focus on employee education and training to empower their people to take action, with the 2018/2019 survey finding that 64 per cent of all data breaches were caused by targeted, malicious attacks on people.

“While recent compliance regulations have boosted data breach notification numbers and industry leaders have endorsed the implementation of more comprehensive resilience measures, many Australian organisations do not have the capability to detect a breach or respond to it in a manner that contains cost and reputational damage,” Mr Fouche said.

“Sophisticated cyber attacks and data breaches sit alongside weapons of mass destruction and natural disasters in terms of their ability to disrupt and damage, however in many business cases, the focus on preventative measures has far outweighed response or incident management.

“Every organisation should have a pre-defined plan, which is regularly tested, to ensure that everyone in the organisation knows what to do and how to respond to cyber security incidents.”

On average, the cost to an Australian organisation for a data breach was almost $US2 million.¹

The potential for huge financial implications is one reason 86.4% of survey respondents indicated they expected to have a cyber security awareness plan in place within the next 12 months.

The most common vehicle for cyber attack remained phishing, which accounted for 20.19% of all cyber security incidents experienced in 2018 and has been trending upwards since the inaugural BDO and AusCERT Cyber Security Survey in 2016. Phishing was followed by malware (14.08%) and ransomware attacks (9.39%).

“Phishing attacks remain popular as hackers seek the simplest, cheapest tactic to prey on human curiosity and achieve the best results,” Mr Fouche said.

“The level of sophistication of some phishing attacks makes it difficult for a recipient to determine if these types of emails are real or fake.

“That’s why education and training are so important. Employees need to be given the knowledge to detect a potential cyber attack and the tools to respond if they suspect there has been a breach or they have inadvertently disclosed sensitive information.”

AusCERT Director Dr David Stockdale was encouraged by the survey findings.

“AusCERT has long supported the concept of mandatory breach notification, and it is heartening to see evidence that organisations expected to comply with at least one data breach regulation spend approximately 20% more on information security controls,” Dr Stockdale said.

“It is also pleasing to observe the survey finding that leadership awareness has increased.

“This has forced a change of culture within our own management as we’ve shifted from a purely technical organisation to a business focused, modern incarnation of a Cyber Emergency Response Team.

“Increasingly AusCERT is seeing greater uptake amongst members for training courses, impartial advice, post-incident reviews and the development of incident response plans.”

Respondents are anticipating data loss and theft of confidential information to be the most prevalent threat in 2019 and beyond.

———-

[1] Ponemon Institute’s Cost of a Data Breach Study: https://databreachcalculator.mybluemix.net/assets/2018_Global_Cost_of_a_Data_Breach_Report.pdf

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A report published by leading global advisory firm BDO, in conjunction with leading cyber emergency response team AusCERT, has revealed 20% of incidents experienced by respondents in the past financial year were malware attacks, compared to 16.7% for both ransomware and phishing attacks.

BDO National Leader for Cyber Security Leon Fouche said he was unsurprised by the high reporting of malware attacks on these type of businesses.

“Cyber criminals use malware to take control of a user’s computer system and perform fraudulent activities,” Mr Fouche said.

“Once they have access to someone’s private or financial account information the potential for financial gain, at the expense of an often unsuspecting victim, can be significant.

“But it’s not just the financial loss businesses need to be concerned about, the extensive reputational damage must also be considered.

“If organisations have to disclose they’ve been the victim of a cyber attack that has resulted in financial loss, there is significant reputational risk.”

Mr Fouche said what was equally alarming—particularly given the financial impact at play—was that a quarter of respondents in this sector stated they had not currently planned to report cyber security risk to the board or executives.

“Despite 51.6% of respondents in this sector currently reporting these risks to the board, it’s quite confronting when you see so many not even considering it in the future,” he said.

“It’s important the board and CEO continue to play an increasingly active role in the cyber security of their own business. After all, they are ultimately accountable for it.

“This is particularly important in this sector because data breaches will impact the reputation and financial stability of an organisation and it’s essential for boards and executives to be educated about the impact and likelihood of a cyber security incident, and what the organisation’s capabilities are to defend against it.”

Key Financial and Insurance statistics

Cyber security controls already or currently being adopted in the financial and insurance sector (% of respondents)

• Patch management processes 64.5%
• Privileged account management 74.2%
• Email filtering system to block suspicious emails 93.5%
• Regular cyber security risk assessments 54.8%
• Cyber security awareness program 58.1%

Top three cyber security incidents experienced last financial year in the financial and insurance sector (% of respondents reported)

• Malware/trojan infections 20%
• Phishing/targeted malicious emails 16.7%
• Ransomware 16.7%

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Mark Molesworth

BDO Tax Partner Mark Molesworth has cautiously welcomed draft legislation aimed at addressing issues with some companies carrying forward and claiming income tax losses.

This is an issue particularly faced by early stage companies (especially those focussed on innovative products and services) that frequently experience significant changes in shareholders in the early years of their existence in response to continuing capital needs, which has previously resulted in them failing the 50% continuity of shareholders test.

Mr Molesworth said the Government’s response was a step in the right direction, but that problems still remain.

“The existing same business test is very restrictive and can lead to the stifling of innovation in order to ensure that existing losses remain available,” he said.

“Any steps to liberalise the same business test would be good for the economy and for taxpayers.

“However, the means by which this has been done may increase compliance costs for such businesses and may not have the desired effect.

“In particular, the requirement that changes made to the business are ones that would be reasonably expected will mean ATO officers (and taxpayers) will need to obtain evidence of what such businesses would do.

“This requires either a large degree of business experience – which ATO officers may not have – or a potentially expensive and time consuming evidence collection exercise. Furthermore, what others may (or may not) do may not necessarily be relevant to assessing the outcomes for a particular company’s circumstances.

“It may make the task too hard or too costly and lead businesses down the path of least resistance – don’t innovate and be certain the losses remain available.”

Background

In order to claim losses from past years against current year income, a company must have more than 50% continuity of shareholders. Where this continuity of ownership test is failed, under the current test a company must:

• Carry on the same business; and
• Not derive income from a new business or new kind of transaction.
• Once it fails both of these tests, the past year losses are not available.

This is perceived as a problem for businesses focussed on innovation and continuing capital requirements in order to prove their products and services and grow. That is, they often make losses in the early years, get new investors and therefore fail the continuity of ownership test. The company may then move in a new (but related) direction. However, because the same business test requires an identical business and not merely a similar business, they often fail the same business test.

How the draft legislation responds The ED legislation tries to overcome this by saying that a company that fails the continuity of ownership test can continue to use its losses if it passes either:

• The existing same business test; or
• A business continuity test.

The new business continuity test requires that the continuing business be similar (but not necessarily the same) It focusses on:

• Whether the same assets are used before and after the change in ownership
• Whether the sources of income for the company are the same before and after the change in ownership •
• Whether the changes to the business (from before to after the change in ownership) are ones that would reasonably be expected from similarly placed businesses.

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Lance Cunningham

The Australian business community has spoken on the critical issue of tax reform, highlighting the discrepancy between business and government priorities.

A record 523 respondents from around the country – across sectors and business sizes – have had their say in BDO’s fifth annual Tax Reform Survey.

BDO National Tax Director Lance Cunningham said multinational profit shifting was identified as the number one priority issue, with GST and state taxes rounding out the top three areas most in need of reform.

“This year’s survey attracted more than double the number of respondents than in 2015, a clear sign the business community still sees holistic tax reform as an urgent priority even if the government does not,” he said.

“With the fast-tracked Federal Budget on 3 May, and potential double dissolution election in July fast approaching, I would urge Prime Minister Turnbull and Treasurer Morrison to outline how they plan to tackle tax reform as a matter of urgency.

“After getting so close to genuine tax reform through the Tax White Paper process, many businesses feel cheated by its recent abandonment and are fearful the federal budget will present only piecemeal measures and a vague commitment to look closer at tax reform after the next election.

“While most (almost 90%) survey respondents wanted to see a tax reform options paper ahead of the federal budget, hope has now all but faded that this will occur in the next five weeks.”

Recently, the Federal Government has hinted that company tax rate cuts could be included as part of this year’s Federal Budget, however the BDO survey revealed that, while a company tax rate cut would be welcome, businesses identified other areas as more urgent priorities.

“Like previous announcements regarding carve outs of specific tax areas like GST and individual income tax, there is danger in addressing one-off measures like company tax cuts without taking a holistic view,” Mr Cunningham said.

“It is also critical that Federal and State Governments are involved in building the simplest, fairest and most effective tax system we can possibly get.

“Certainly from a business perspective, reform of GST to allow for removal of inefficient state taxes have been identified as much more pressing issues than company tax rate cuts.” 

Multinational profit shifting

“The fact that survey respondents still considered this the primary issue could suggest either the public does not see these changes as going far enough, or, and more likely, the Federal Government has not sufficiently educated the public about these quite extensive and complex changes to elevate multinational profit shifting,” Mr Cunningham said.

“Respondents rated multinational profit shifting as the issue most in need of urgent tax reform (closely followed by GST and state taxes), however this seems at odds with opinions for the statement that Australian’s adoption of the OECD’s BEPS initiatives was an appropriate way of discouraging companies from avoiding taxation in Australia.

“While only 47.78% of survey respondents agreed with this statement, about the same number had a neutral view (potentially indicating a lack of knowledge about the issue) and only 5% disagreed.

“Eliminating the neutral responses, it can be suggested more than 90% of those with a view on the issue were in agreement that the Federal Government’s moves were appropriate. However, this appears contrary to the identification of multinational profit shifting as the tax issue most in need of reform.

“The recent multinational anti-tax avoidance law changes in Australia included a rewrite and tightening of Australia’s transfer pricing rules and tightening of the Thin Capitalisation rules.

“They also included the introduction of country by country reporting rules, increased penalties for multinationals involved in tax avoidance and the Multinational Anti Avoidance Law that deals with arrangements that artificially avoid the attribution of profits to a permanent establishment (PE) in Australia.

GST

“80.54% of respondents agreed a review of the GST is essential to any discussion of tax reform, with many (60.23%) in favour of abolishing all GST exemptions to simplify the system,” Mr Cunningham said.

“Slightly more (62.28%) disagreed that the GST rate should never exceed 10%, up from 38.2% of respondents in the first survey in 2012, which shows an increasing support for change of the GST rate.

“In terms of how increased GST revenue might be best directed, most respondents preferred the abolition of state stamp duties and reform of other state taxes (62.4%) over assisting the states to adequately fund health and education (52%) or enabling a cut to personal taxes (52%).”

State taxes

“85.36% agreed state stamp duties are a significant impost on business and reduce the mobility of the population and businesses by discouraging the sale of residential and business real estate, and other business assets,” Mr Cunningham said.

“Changes to state payroll taxes were also popular, with 82.59% in agreement they should be reformed to reduce the rates and either reduce or abolish the wages thresholds to make it more efficient, and 80.2% agreeing the taxes should be abolished as they discourage employment and are a disincentive to growing business.”

Company tax rate

“Respondents had varying thoughts on the current 30 per cent rate for companies with annual turnover of $2 million or more – perhaps due to smaller businesses already enjoying the 28.5 per cent rate from last year’s federal budget,” Mr Cunningham said.

“28.18% of respondents agreed the current company tax rate was appropriate, with 50% in disagreement.

“However, 59% of respondents agreed that a reduction in the corporate tax rate would improve the Australian economy by encouraging companies to invest and employ more staff (up from 50% in 2015), and 47% agreed the highest personal marginal tax rate and the company tax rate should be aligned, which was a reduction on the results in previous surveys.”

Other Key Findings

Superannuation

• 44% agreed the capping of superannuation contributions is inconsistent with the original policy of the superannuation scheme of Australia.
• 92% agree the rate of compulsory superannuation contributions should continue to increase from 9.5% to 12%.

International

• 93% disagreed that Australia’s tax system is competitive with international counterparts.
• Two-thirds (65.51%) disagreed that Australia’s tax system promotes it as a desirable location for regional headquarters and investment.

Respondent Statistics

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Leon Fouche

The critical focus of many Australian organisations on maintaining current awareness and defending themselves against the threat of a cyber attack has prompted leading audit, tax and advisory firm BDO to bolster its advisory capacity in this area.

Cyber security and technology risk specialist Leon Fouche has joined BDO’s Brisbane Risk Advisory team, providing the firm’s clients with an enhanced suite of solutions to tackle cyber security threats such as information loss and system disruptions.

His appointment follows the addition of business systems risk and assurance specialist Sharee Bartlett to the team in late 2015.

BDO National Leader, Risk Advisory Services, Marita Corbett said there was growing demand in the market for consultancy on technology-related risks.

“The short and long-term effects of cyber security incidents can be devastating to organisations and their broader stakeholders, operationally, financially, and from regulatory and reputational perspectives,” Ms Corbett said.

“Not only are Boards and executives trying to balance the efficiency benefits of technology-based business systems with the risks, they are facing increasing accountability including possible future legislation to manage these better.

“For example, the Federal Government’s draft Privacy Amendment (Notification of Serious Data Breaches) Bill 2015 – if passed – would introduce requirements to notify the national privacy regulator and affected individuals whenever such a breach is suspected.

“Leon significantly boosts BDO’s ability to work with clients to address these issues, bringing to the firm more than 20 years of experience including senior roles working with the public and private sectors.”

Mr Fouche is an active member in the Australian cyber security community and recently led G20 cyber security assessments and preparations for both government and private sector companies. He suggested broader sectors could learn from recent Federal and State Government moves to safeguard against cybercrime.

“The Federal Government is in the process of preparing its Cyber Security Strategy and the Queensland Government recently committed to investing in a highly specialised Cyber Security Unit,” Mr Fouche said.

“While governments are certainly prime targets for cybercrime, all entity forms are becoming more cyber-dependent and criminals becoming increasingly sophisticated in the ways they target them.

“The ability to detect and respond to cyber attacks is critical for all businesses, and requires both an understanding of current cyber security threats as well as collaboration across industry on cyber threats.”

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The Advisory Panel draws together some of Australia’s leading taxation professionals who voluntarily contribute their knowledge and expertise. Its purpose is to assist the Board of Taxation in the general performance of its Charter and in advising the Treasurer on improvements to the general integrity and functioning of the tax system.

BDO in Australia’s National Chairman, Ms Helen Argiris, said Mr Molesworth’s reappointment highlights the esteem with which his expertise and industry insights are held by key tax decision makers.

“Despite membership of the Advisory Panel changing from time to time and being reviewed periodically, Mark has been a member of the Panel since 2013,” Ms Argiris said.

“This long standing appointment cements his position as one of the country’s leading taxation experts and provides a valuable channel for Mark and BDO to ensure the tax reform agenda remains top of mind for Australian taxation authorities and regulators.

“Tax reform is a true passion for Mark, and this appointment is just one of many that allow him to ensure the interests of Australian taxpayers are continually kept top of mind when important taxation decisions are made at the highest levels.

“It is comforting to know that the Board will continue to benefit from having someone of Mark’s calibre on call to assist in achieving its goal of advising the Treasurer on improving the quality and effectiveness of Australia’s tax legislation.”

Mr Molesworth’s tax reform activities have seen him:

• Chair The Tax Institute’s CGT and Losses Technical Sub-committee
• Assist in drafting the Board of Taxation’s report on the Post Implementation Review of Division 7A as a member of the formal working party
• Consult to the ATO via The Tax Institute Private Groups Stakeholder Group
• Consult to the ATO via its SME Safe Harbour Working Group after the ATO approached him for the role
• Participate in the Board of Taxation’s consultations regarding the 64 announced but un-enacted measures, upon the request of the Treasurer.

Mr Molesworth is a direct taxation specialist (both here and abroad) with almost 20 years’ experience in working with taxpayers of all sizes and across a broad range of industries. His specialties include income tax law, FBT law, and the provision of support to clients subject to ATO audit or review.

He holds a Bachelor of Commerce (Honours) and a Bachelor of Laws (Honours), and is a fellow of The Tax Institute.

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