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1. Architecture paper on the review of Australia’s tax system released
Members may recall that on 13 May, the Government announced the review of Australia’s tax system. As reported in Edition 17/2008 of the Tax Bulletin, the review will look at the current tax system and make recommendations to position Australia to deal with the demographic, social, economic and environmental challenges of the 21st century. The first report relating to the Australia’s Future Tax System (AFTS) review, entitled ‘Architecture of Australia’s tax and transfer system’ was released by the Treasury at a joint press conference held by the Treasurer, the Hon Wayne Swan MP and the Treasury Secretary and Chair of the review panel, Dr Ken Henry on 6 August.
The discussion paper sets out the architecture of the present tax-transfer system and provides some international comparisons along with some interesting findings from studies of organisations such as the OECD. It makes no recommendations about the future direction of the tax-transfer system in Australia and presupposes no particular reform agenda. However, the information provided does throw light on some areas that are ripe for reform.
Some highlights of the report include:
- Australian Governments levy at least 125 different types of taxes and 90 per cent of the total tax revenue raised came from 10 taxes.
- While a certain degree of complexity is inevitable, the complexity of our tax-transfer system is above the optimal level because of incremental policy development and income maximising behaviour of taxpayers and transfer recipient.
- Interestingly, compared with other OECD countries, Australia has the highest share of tax revenue from capital income but an OECD report has found that taxes on capital income have the one of the most detrimental impacts on economic growth.
- Other comparisons with OECD countries show that:
- Australia’s company tax rate is now above the average;
- Our reliance on consumption taxes (e.g. GST) is lower than average whilst reliance on revenue from taxes on property is greater;
- Our tax-transfer system is highly redistributive; and
- Australia and New Zealand are the only OECD countries with a dividend imputation system.
As to the next steps in this process, Dr Henry said that by the end of this month, the tax review panel will set out its plan for public consultation and it will identify key questions and key issues to focus those consultations. In addition, one of the members of the review panel, Dr Harmer, will be releasing a companion paper on the transfer system as it affects seniors, the disabled and carers. This will be released shortly and there will be an opportunity for consultation on that document.
Further detail, including the terms of reference of the review is available on the AFTS website.
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2. New Inspector-General of Taxation will be appointed
On 4 August, the Assistant Treasurer and Minister for Competition and Consumer Affairs, the Hon Chris Bowen MP, announced that the term of Mr David Vos AM, as the Inspector-General of Taxation (IGOT), would expire on 6 August 2008. He said that the Government expects to finalise the appointment of a new IGOT in the coming weeks, but until then, Mr Vos AM will act in the position of IGOT.
Mr Bowen acknowledged Mr Vos’ valuable work performed during his role, which is partly reflected in the fourteen reviews he has finalised during his five-year term. The ATO has accepted the majority of recommendations from these reviews, resulting in significant improvements to the administration of the tax system.
The Assistant Treasurer’s media release is available here.
Following this announcement, Mr David Vos AM issued a statement, published on the IGOT website, expressing his disappointment that his term as the IGOT is not to be extended. However, Mr Vos is leaving the role with a great sense of achievement and is pleased to have the next two months or so to complete his final Annual Report, and to move 5 current reviews closer to finality.
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3. Changes to the ATO Proof of Identity procedures for non-registered tax agents
As reported in Edition 27/2008, members have been raising concerns in relation the new proof of identity procedures for non-registered tax agents to apply from 1 July 2008.
The Institute had raised this issue with the ATO. At the ATO Tax Practitioner Forum (ATPF) meeting on 8 August, the ATO provided the following response.
“The new process provides a higher level of assurance that the ATO is speaking with the correct individual who is the organisation's authorised representative by seeking to have the caller establish their own identity by reference to a recently revised list of verifiable pieces of information.
These changes have been made to help protect clients’ information and the integrity of the ATO registers.
The ATO accepts the feedback that the development and communication of this change could have had some negative impacts on some callers and has agreed to work with representatives of the ATPF to find the right balance between the levels of assurance required and the impact this can have on some callers.”
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4. Meeting with Board of Taxation on review of the legal framework for the administration of the GST
Following the release of the issues paper on the review of the legal framework for the administration of the GST, which was reported in Edition 27/2008 of the Tax Bulletin, the Board of Taxation (the Board) is embarking on an extensive consultation with stakeholders in August 2008. On 4 August, Ali Noroozi and Norman Kang of the Institute participated in a meeting with the Board in this regard.
At the meeting the Board explained the process of the review and provided some guidance as to what was sought. This was followed by some initial discussion on potential reform areas. A summary of the key issues can be accessed from the Board of Taxation website here.
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5. ATO meeting - Shortfall penalties and voluntary disclosure
An NTLG workshop on shortfall penalties and voluntary disclosure was held on 5 August. Gary Christie (Deloitte) attended as the Institute's representative.
The primary focus of the meeting was Draft Miscellaneous Taxation Ruling MT 2008/D3 – Shortfall Penalties – voluntary disclosures. Key issues identified during the course of the workshop included:
- The definition of “what is a tax audit”
- The date of effect
- The Commissioner’s discretion
- The meaning of voluntary.
The definition of a “tax audit” as set out in the draft ruling is very broad and is based on the definition under section 995-1 of the ITAA 1997. The ATO view is that the definition includes a client risk review. This definition is at odds with ATO published material which states that a risk review is not an audit. The ATO advised at the meeting that there is no intent to depart from its published practices and there is no intent to change what the ATO says about these practices. The draft ruling therefore needs to be clarified in order to reflect this intent.
The date of effect is likely to be changed to be made prospective.
There are three main areas that create confusion around the definition of a tax audit:
- ATO products
- voluntary disclosures and penalties
- SIC or GIC
Given that there appears to be a different meaning of what is a ‘tax audit’ in respect of each of the above, the ATO will consider developing education material, possibly by way of a booklet, to clarify its meaning.
Much of the confusion around the definition of a “tax audit” revolves around the Commissioner’s discretion to treat a disclosure as being voluntary. Such a disclosure if made prior to an audit commencing will attract a 80% reduction to the penalty. Paragraph 40 of the draft ruling created a lot of confusion and as a consequence is to be reworded to clarify that the discretion will generally be exercised.
The ATO advised that a practice statement (PS) was to be prepared which will explain the meaning of voluntary. The profession however were of the view that it would make sense to have all relevant aspects explained in sufficient detail in the ruling rather than having to go elsewhere such as in a PS. The ATO will consider this aspect.
It is anticipated that a revised draft will be issued for further consultation prior to finalisation.
The Institute's joint submission on MT 2008/D1-D3 is here.
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6. ATO Tax Practitioner Forum meeting
On 8 August, Norman Kang attended the ATPF meeting on behalf of the Institute. Key issues discussed at the meeting included:
- Report on overall ATO performance for the year 2007-08 by the Commissioner of Taxation
- Update on the Standard Business Reporting (SBR) program and information on how SBR will be impacted by the taxation review announced recently by the Federal Government
- Update on the Change Program for Superannuation and Income Tax
- Information on the ATO debt collection strategies and initiatives
- Information on the Tax office letter production distribution schedule and the coordination of outbound correspondence
- Changes for non-registered tax agents to the ATO’s Proof of Identity (POI) procedures. The ATO policy in respect of POI has not changed, however, revised procedures for inbound telephone calls were put into effect from 1 July 2008 (refer to item 3 above)
- Information on the First Home Saver Account and the Education tax refund
- Information on the Partnership and trust distribution matching project.
For more details on the above issues or other topics discussed, please refer to the agenda for the meeting, with draft ATO responses, which is available here, and/or email mailto:taxgroup@charteredaccountants.com.au.
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7. Submission on ATO consultation paper on section 73CA of the ITAA 1936
On 6 August, the Institute lodged a submission on the ATO consultation paper on section 73CA of the Income Tax Assessment Act 1936 (ITAA 1936).
The Institute expressed the view that the interpretation of section 73CA adopted in the consultation paper is too broad and that the provisions were primarily aimed at R&D syndicate arrangements. It may be argued that the section has a remaining role to play in disallowing claims for R&D projects with respect to which the claimant bears no financial risk. However, this is already achieved by the way the ATO has to date interpreted section 73B(9) in that a taxpayer’s claim has to be commensurate to the financial risk which it bears.
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8. Submission on thin capitalisation: amendments to the application of accounting standards
The Institute has lodged a submission with Treasury on the draft legislation to amend the thin capitalisation regime to accommodate the departure from Australian equivalents to International Financial Reporting Standards (AIFRS) in a number of instances. In particular, the draft legislation aims to exclude from thin capitalisation calculations:
- assets and liabilities in respect of post employment benefits payable pursuant to defined benefit plan and
- deferred tax assets and liabilities.
The draft legislation also proposes to allow entities to revalue one or more of its intangible assets where this would be prevented under AASB 138 (Intangible assets) due to the absence of an active market.
In its submission the Institute makes ten recommendations including that:
- the exclusion of assets and liabilities in respect of post employment benefits and deferred taxes be optional
- entities be allowed to recognise all intangible assets (and not merely intangible assets as defined in, and within the meaning of. AASB 138) which would not be recognised under AIFRS or would be given a different value because of the absence of an active market.
The submission is available on the Institute's website.
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9. Fraud or evasion - intentional disregard of taxation law - Bui v Commissioner of Taxation [2008] AATA 666
The applicant was a partner in a partnership operating a restaurant. Following an audit, the Commissioner issued amended assessments of income tax for the 1997 and 1998 years.
The Tribunal found that the applicant failed to discharge the onus of proving the absence of fraud or evasion in not including the full amount of her share of net partnership income based on a second handwritten set of records setting out sales in excess of those in the cash book. As such, the four-year time limit on amendment of assessments did not apply by virtue of section 170(2)(a) of the ITAA 1936 at the relevant time. The applicant also failed to prove that the methodology of Commissioner in amending assessments was flawed or excessive. As to penalty, the Tribunal considered it inappropriate to exercise the discretion to remit any part of the penalty as the income shortfalls were caused by the applicant’s intentional disregard of taxation law under section 226J of the ITAA 1936 (as in force at the relevant time). Thus, the Commissioner’s decision that she was liable to a penalty of 75% was affirmed.
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10. Appeal
The taxpayer has appealed to the Full Federal Court against the decision of Stone J in Lilyvale Hotel Pty Limited v Commissioner of Taxation [2008] FCA 1031. As reported in Edition 26/2008 of the Tax Bulletin, the court found that the business carried on by Lilyvale in the relevant period before a share sale (that resulted in failure of the continuity of ownership test) was not the same as the business it carried on in the relevant period afterwards so the same business test could not be satisfied.
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11. Decision Impact Statement - Rebmik Contractors Pty Ltd v Commissioner of Taxation
On 5 August, the ATO issued a DIS on Rebmik Contractors Pty Ltd v Commissioner of Taxation, which concerns off-road credits for diesel fuel used in excavation work carried out for the construction of an aged care facility and a medical school and the imposition of a penalty for failure to exercise reasonable care. This decision was reported in Edition 17/2008 of the Tax Bulletin.
In respect of the failure to take reasonable care, the DIS states:
‘The Commissioner does not take the remarks made by the Tribunal that the Applicant: "failed to take reasonable care as it did not seek advice from the ATO nor did it seek any legal advice regarding the interpretation of the relevant sections of the Energy Grants Act " (Tribunal decision paragraph 33) as imposing a requirement for taxpayers or applicants to seek, in every case, advice from the Tax Office or legal advice. Although the Commissioner considers that not obtaining ATO advice or legal advice may, in the particular circumstances of a matter, be relevant considerations, the mere fact that ATO advice or legal advice was not obtained does not necessarily lead to a conclusion that reasonable care was not taken’. The Institute is pleased to see these comments in the DIS, after raising concerns over the Tribunal’s statement above at the June NTLG meeting.
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12. Income Tax Rulings - Withdrawals
IT 2442W - Notice of Withdrawal - Income tax: Concession for eligible research and development expenditure
IT 2451W - Notice of Withdrawal - Income tax: Investor funding of research and development activities
IT 2552W - Notice of Withdrawal - Income tax: Research and development (R&D) - costing of expenditure
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13. Goods and Services Tax Ruling – Addenda
GSTR 2000/17A4 - Addendum - Goods and services tax: tax invoices
GSTR 2003/9A2 - Addendum - Goods and services tax: financial acquisitions threshold
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14. Class Rulings
CR 2008/52 - Income tax: return of capital: in specie distribution of shares by Legend Mining Limited
CR 2008/53 - Income tax: return of capital: Emperor Mines Limited
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15. Product Ruling Withdrawal
PR 2007/63W - Notice of Withdrawal - Income tax: Great Southern Plantations 2008 Project
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16. ATO Interpretative Decisions
ATO ID 2008/110 - Capital Gains Tax: debt arising from the provision of services - whether same amount can be both ordinary income and a capital gain
ATO ID 2008/111 - Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit - earnings foregone
ATO ID 2008/112 - Complying superannuation fund: deduction for increased amount of superannuation lump sum death benefit - expenses in relation to contributions
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17. Legislative Instruments
The First Home Saver Accounts Regulations 2008 were registered on the Federal Register on 8 August.
The Regulations supplement the regulatory requirements in the First Home Saver Accounts (FHSAs) Act 2008 in relation to FHSA providers that are trustees. These include conditions of authorisation, the circumstances in which providers must give information to the Regulator and additional matters the Court may take into account in disqualification proceedings.
These Regulations commence on the day after they are registered.
The Explanatory Statement is available here.
The Australian Prudential Regulation Authority Amendment Regulations 2008 (No.1) were registered on the Federal Register on 8 August.
The proposed Regulations amend the Australian Prudential Regulation Authority
Regulations 1998 (the Principal Regulations) to ensure that the Australian Prudential
Regulation Authority is able to give protected information or documents related to FHSAs business to the Commissioner of Taxation. The proposed Regulations also rectify a technical error in the Principal Regulations.
These Regulations commence on the day after they are registered.
The Explanatory Statement is available here.
The Electronic Transactions Amendment Regulations 2008 (No.2) were registered on the Federal Register on 8 August.
These Regulations amend the Electronic Transactions Regulations 2000 to specify that Part 7 of the First Home Saver Accounts Act 2008 is exempt from specified provisions of the Electronic Transactions Act 1999.
These Regulations commence on the day after they are registered.
The Explanatory Statement is available here.
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18. Recent ATO publications
Booklets and publications
Dependant tax offsets - From 1 July 2008 an income test of $150,000 applies to the five dependant tax offsets.
Partnership and trust distribution reviews - Distributions from partnerships and trusts to the respective partner and beneficiary returns for the years ended 30 June 2004 to 30 June 2007 are being reviewed to ensure that distributions have been correctly disclosed.
Tax seminars for September - Northern Territory - Outlines the tax seminars scheduled for September 2008 for the Northern Territory. Describes seminars for new businesses and existing businesses, as well as covering personal and business investment issues.
Class Ruling application - Use this form to apply for a class ruling.
Reporting on our performance - The Commissioner's latest online update 'reporting on our performance'.
Conservation covenant concessions - Explains tax concessions available to landowners entering into certain conservation covenants.
Tax can be a piece of cake - Information for young people new to the tax system. Includes information about tax file numbers and lodging your tax return. NAT 2705-07.2008
Tax Office Free and Open Source Software Policy v1.8 - The Tax Office is obliged to comply with Commonwealth Government policies and guidelines as they relate to the use of Freeware, Free and Open Source Software (FOSS).
The BAS service provider - edition 17, August 2008 - Issued 31 July 2008. This edition includes information about 'Your small business tax calendar', a new super guarantee charge calculator, FTC calculation, useful links and key dates for BSPs and their clients.
About SuperMatch - SuperMatch is designed to help you match individuals with information from the Lost members register (LMR), superannuation guarantee charge amounts we hold and accounts maintained for individuals in the superannuation holding accounts (SHA) special account.
Workforce education news: Issue 3 - This third issue of Workforce education news covers a range of topics affecting employers and professional associations, and their employees and members, including tax time information. Issued on July 24 2008.
eLink 29/08 - Bulletin to inform tax practitioners of the most recent updates to ato.gov.au including a lead article titled 'First home saver account'. Issued on 30 July 2008.
Administration
Download 2008 tax return program - To complete your tax return (including baby bonus claim) and lodge online, you will need to download this program.
Frequently asked questions about e-tax - Answers to common questions relating to lodging a tax return or baby bonus claim online, using e-tax.
General information about e-tax - General information about e-tax, including the benefits of using e-tax, computer requirements and security.
Lodging a 2008 tax return - This guide provides an overview of the steps required when using e-tax to complete and lodge your 2008 tax return (with in-built baby bonus claim).
It's tax time - What you need to know about lodging your tax return
Secondary digital certificate registration - There are a number of steps that must be taken by the primary and nominated secondary digital certificate holders during the registration process.
Superannuation
Authority to provide your tax file number to your super fund - You should complete this form if you are an employee, and have not completed a Tax file number declaration (NAT 3092) since 1 July 2007, and want to authorise your employer to provide your tax file number (TFN) to your super fund. NAT 72129.
Non-profits
Non-Profit News Service No. 0211 - Recent case: charitable institution - Aug 2008. On 28 July 2008, the Administrative Appeals Tribunal handed down its decision in the case of Aid/Watch Incorporated.
Non-Profit News Service No. 0209 - Non-profit organisations not registered for GST operating emergency vehicles or vessels - Aug 2008. Information for non-profit organisations operating emergency vehicles or vessels who are not registered for GST.
Non-Profit News Service No. 0210 - Fuel tax credits - Get money back for your organisation - Aug 2008. Information about fuel tax credits including eligibility and registration.
Minutes of meetings and related matters
Financial Services Industry Partnership draft minutes - 29 May 2008 - The draft minutes of the Financial Services Industry Partnership meeting held on 29 May 2008.
Tasmanian Regional Tax Practitioner Working Group minutes - 14 February 2008 - Minutes of the Tasmanian Regional Tax Practitioner Working Group (RTPWG) meeting held on 14 February 2008.
Trustee Beneficiary
Trustee beneficiary non-disclosure tax - Trustee beneficiary non-disclosure tax is payable if the trustee of the closely held trust does not make and give to the Commissioner a correct TB statement in relation to an untaxed part of a share of net income which is included in the assessable income of a trustee beneficiary.
Trustee beneficiary rules - These rules ensure that the trustee of a closely held trust with one or more trustee beneficiaries that are presently entitled to a share of the income and/or of a tax preferred amount of the trust advises the Commissioner of Taxation.
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19. TOFA and more: the Assistant Treasurer’s address at IFSA conference
In a speech addressed to the Investment and Financial Services Association (IFSA) conference, named the ‘Innovate 08’, the Assistant Treasurer and Minister for Competition and Consumer Affairs, the Hon Chris Bowen MP, made a number of tax related announcements.
On the topic of Taxation of Financial Arrangements (TOFA), the Assistant Treasurer informed that the consultation on the interaction of TOFA and Consolidation wound up recently. As reported in Edition 27 /2008 of the Tax Bulletin, the Institute has lodged a submission in this regard and has been involved in confidential consultation with the Department of Treasury.
The Assistant Treasurer proceeded to state that there will be another round of consultation before the introduction of legislation into Parliament during the Spring 2008 sittings. He warned that ‘this is the last round of consultation’ and encouraged interested stakeholders to be involved. Mr Bowen also announced that he had agreed to a soft start date of 1 July 2009 and a hard start date of 1 July 2010 for the new TOFA regime.
Mr Bowen also provided an update on Managed Investment Tax Regime. He said that his first reference to the Board of Taxation would be the development of a Managed Investment Tax Regime and that the Board of Taxation will soon be in a position to call for submission on a discussion paper.
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20. Commissioner’s update on ATO performance
The Commissioner's latest online update, entitled ‘Reporting on our performance’, was published on the ATO website on 6 August. The Commissioner Reported on the ATO’s performance in the past year, by examining the assessments of each of the ATO’s six sub-plans:
- Law;
- Easier, Cheaper and More Personalised;
- People and Place;
- Information Technology;
- Operations; and
- Compliance.
The Commissioner said that overall the ATO has performed well in 2007-08, with strong delivery of commitments to Government, including increased collections of revenue and debt, while improving already high levels of community and tax agent confidence. However, the Commissioner also noted areas for improvements, such as the timeliness of public rulings and the implementation of Release 3 of the Change Program.
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21. Interest withholding tax – extension of eligibility for exemption to State Government bonds: draft legislation released
On 8 August, Treasury released the draft legislation following Government’s announcement of 20 May 2008 indicating its intention to extend eligibility for exemption from interest withholding tax (IWT) to State Government bonds. The draft legislation is currently scheduled for introduction into Parliament, with a view to passage, in the Spring 2008 sitting.
These amendments will make bonds (but not other debentures or debt interests), issued in Australia by State or Territory central borrowing authority, eligible for exemption from IWT, providing that they meet the requirements of section 129 F of the ITAA 1936. It is proposed that the measure will apply to interest paid on or after the date of Royal Assent.
Treasury is inviting for comments and submissions, due by 5pm, Monday 18 August. Further detail on this, including a copy of the draft legislation is available on Treasury website.
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22. ATO data matching project on security industry
On 6 August, the ATO announced in the Commonwealth of Australia Gazette, GN 31 that they will request and collect names, addresses, business and licence details of entities within the security industry from the following sources:
- Victorian Police Licensing Services Division
- New South Wales Police Security Industry Registry
- Northern Territory Office of Racing, Gaming and Licensing
- ACT Department of Fair Trading
- Tasmanian Office of Consumer Affairs
- Queensland Department of Fair Trading
- Western Australia Police Commercial Agents
- South Australia Office of Consumer and Business Affairs
- The Australian Crime Commission.
Data collected will be electronically matched with certain sections of the ATO data holdings to identify non-compliance with registration, reporting, lodgment and payment obligations under taxation law. Approximately 38,000 records relating to registered entities within the security industry from all governing bodies will be matched.
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Chartered Accountants Tax Seminars for Practice
Seminar one - GST, CGT and Income Tax for Property Transactions
Seminar two - Buying and Selling a Business
Throughout August and September in Sydney and Melbourne. Minimise risk and optimise the benefit for your business or your clients with two 3 hour seminars held in Sydney and Melbourne on GST, CGT and Income Tax for property transactions and Buying & Selling a business.
Chartered Accountants Live Online Training
Corporate Tax Update with KPMG - Wed, 13 August 2008
Practice Tax Update - Thurs, 14 August 2008 and Fri, 15 August 2008
Chartered Accountants Live Online Training is a convenient way to contribute to your qualifying hours.
Chartered Accountants Tax Seminars for Practice
Seminar one - GST, CGT and Income Tax for Property Transactions
Seminar two - Buying and Selling a Business
Throughout September in Brisbane, Adelaide and Perth. Attend one seminar or both with GST, CGT and Income Tax for Property Transactions and Buying & Selling a Business scheduled on the same day for your convenience.
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Help us to improve the bulletin by sharing your tax issues and experiences that might be of interest to other members. Responses should be emailed to taxgroup@charteredaccountants.com.au
Disclaimer
The Institute has created and maintains this tax bulletin as a service to its members and the community. While some of the information provided is about legal issues and legislation, it is not legal advice. The Institute does not expect or invite any person to act or rely on any statement, view or opinion expressed in this bulletin, and readers should make and rely on their own inquiries in making any decisions or giving any advice.
The Institute accepts no responsibility for any errors or omissions contained in this bulletin, and disclaims all warranties with regard to the information at this bulletin, including all implied warranties of merchantability and fitness for a particular purpose. In no event shall the Institute be liable for any loss or damage arising out of or in connection with the use of this bulletin or the information contained in it, including special, indirect or consequential loss or damage, and whether such loss or damage arises in contract, negligence, tort, under statute, or otherwise.
The material provided in this bulletin is protected by copyright. Apart from any use permitted under the Copyright Act 1968, no part of any material may be reproduced or provided to the public or to any person, in any form or by any means, without written permission from the Institute or the relevant copyright owner.
Any information provided to the Institute in connection with this bulletin shall be provided by the submitter and received by the Institute on a non-confidential basis. The Institute shall be free to reproduce, use, disclose and distribute this information to others without limitation.
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