Fate of outstanding tax measures
On 14 December 2013, the Assistant Treasurer announced the outcome of the review concerning whether or not 64 unenacted tax and superannuation measures would proceed.
The Government had previously announced on 6 November 2013 that of 92 unenacted tax and superannuation measures, 18 measures would proceed, three would be amended and seven would not proceed (refer to the Deloitte Tax Road Ahead publication for details).
The remaining 64 measures were to be subject to an expedited review involving consultation between the Board of Taxation, its advisory panel and stakeholders to determine whether or not they should proceed.
Although the Government had earlier indicated that it had “a disposition not to proceed” with all of those 64 measures, the Government has now announced that following the consultation:
- 16 of the measures will proceed, with no net financial impact over the forward estimates
- 48 measures will not proceed, at a net revenue cost of $67.9 million over the forward estimates.
We welcome the decision to proceed with many of the unenacted measures. While all of the 64 measures were originally announced to address a particular issue, some were generally regarded as being more important than others. So, for example, many taxpayers will be pleased to see that the reform of the debt/equity integrity rule (section 974-80) will proceed.
On the other hand, a number of measures that have been abandoned were eagerly awaited by taxpayers. For example, it is disappointing that the proposed controlled foreign company (CFC) reforms have been abandoned.
There is no doubt that a legislative backlog of tax and superannuation measures, such as that which has just been reviewed by the Government, creates uncertainty and compliance costs for business. It is to be hoped that in the future the Government and stakeholders can develop a more efficient way to design, develop and implement tax policy changes, particularly as we look forward to a wide-ranging tax reform process with the development of the Government’s tax reform white paper.
Proceed as announced
The Government will proceed with the following measures:
- Debt/equity tax rules ─ limiting scope of integrity rule (reform of section 974-80)
- Instalment warrants – income tax treatment and look-through treatment of instalment warrants and similar arrangements
- Loss recoupment rules ─ multiple classes of shares. Superannuation tracing rules will be incorporated into this measure
- Functional currency rules ─ extending the range of entities that can use a functional currency
- Philanthropy ─ reforming the ‘in Australia’ requirements that apply to tax exempt entities.
Capital gains tax (CGT)
- Strengthening certain integrity provisions in the scrip-for-scrip roll-over
- Look-through treatment for earn out arrangements
- Minor amendments ensuring the proper functioning of the CGT provisions ─ life insurance policies; and broadening the exemptions for certain compensation payments and insurance policies
- Minor amendments ensuring the proper functioning of the CGT provisions ─ restructure roll-overs; amendment to include concessional treatment for revenue assets and trading stock; and amendment to the revenue asset and trading stock roll-overs for interposing a company.
Taxation of financial arrangements (TOFA)
- Amendments to tax hedging rules
- Foreign currency regulations ─ technical and compliance cost savings amendments.
Goods and Services Tax (GST)
- Cross-border transactions ─ ‘connected with Australia’ rules
- Government response to Board of Taxation report: GST administration ─ reverse charge for going concerns and farm land supplied for farming.
- Greater certainty in relation to fund mergers
- Unlawful payments from regulated superannuation funds ─ promotion of illegal early release schemes
- Self-managed superannuation funds ─ administrative directions and penalties.
In the case of the debt/equity integrity measure, the Assistant Treasurer indicated that the design of the measure will be considered as part of the post-implementation review of the debt/equity provisions, currently being conducted by the Board of Taxation. In the case of the TOFA amendments to the tax hedging rules and foreign currency regulations measures, the design of those measures will be considered as part of a broader TOFA review to be conducted by Treasury in the second half of 2014.
Will not proceed
The 48 measures that the Government has decided will not proceed include (amongst others) the following:
- Review of the foreign source income anti-tax-deferral (attribution) regimes
- Taxation exemptions for foreign governments (sovereign immunity).
- Securities lending arrangements tax rules – extending the scope to address insolvency issues
- Off-market share buybacks ─ implementing the Board of Taxation recommendations
- Completion of the rewrite of the simplified imputation integrity rules
- Consolidation ─ calculation and collection of income tax liabilities. The Government indicated that it will refer issues related to multiple-entry consolidated (MEC) groups for consideration by the ongoing MEC group review
- Consolidation ─ operation of the rules following a demerger
- Improvements to the company loss recoupment rules – correction of minor technical issues
- Uniform capital allowance regime ─ technical changes
- Bad debts ─ ensuring consistent treatment in related-party financing arrangements (symmetric treatment of bad debts.
Research and development tax incentive
- Quarterly credits.
- Venture Australia ─ enhancing taxation arrangements in respect of venture capital.
Goods and Services Tax (GST)
- Government response to Board of Taxation report: GST administration ─ review multi-party transactions
- Government response to Board of Taxation report: GST administration ─ simplify grouping rules; allow registration and grouping of holding companies
- Government response to Board of Taxation report: GST administration ─ clarify treatment of tax law partnerships.
- Not-for-profit sector reforms ─ better targeting not-for-profit tax concessions. Although this measure will not proceed, the Government indicated that it will explore simpler alternatives to address the risks to revenue
- Superannuation reforms ─ encouraging the take-up of deferred lifetime annuities. Although this measure will not proceed, the Assistant Treasurer indicated that the Government will soon consider the unnecessary barriers to the development of longevity insurance products, as part of a broader review of the regulatory arrangements for retirement income streams.
The Government confirmed that it is developing a legislative measure to protect taxpayers who may have self-assessed on the basis of an announced measure that will no longer proceed. Deloitte will be monitoring how the Government intends to protect taxpayers in this situation and will provide further information as it becomes available.
The Government intends that the bulk of legislation should be passed by the Parliament during 2014. It is noteworthy that the Government had previously flagged the ambitious target of legislating the relevant unenacted measures by 1 July 2014. Given that the number of unenacted measures which will proceed has been expanded, the legislative timetable has been deferred