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1. Tax Agent Services Bill 2008 introduced
On 13 November, the Government introduced into Parliament the long-awaited Tax Agent Services Bill 2008. The Bill sets out the new regime governing the tax profession to ensure that tax agent services and BAS professional services provided to the public are of an appropriate ethical and professional standard. The key elements of the regulatory framework include:
- A single national Tax Practitioners Board is proposed to replace the existing state-based Tax Agents' Boards.
- Tax agents and BAS agents will be governed by a legislated Code of Professional Conduct defining the professional and ethical standards required of them.
- Civil penalties and injunctions will replace criminal penalties, which are more appropriate where the conduct being sanctioned is not serious enough to warrant a criminal conviction or imprisonment.
- Two 'safe harbours' for taxpayers who engage a tax agent or BAS agent are to be introduced.
The Bill contains the following measures:
Part 1 – provides the introduction to the Bill, including the commencement provisions, application provisions and the general administration of the Bill, the object clause and explanation of the use of defined terms.
Part 2 – provides that an entity needs to be registered to provide tax agent services for a fee or to engage in other conduct connected with providing tax agent services. It sets out the requirements for registration.
Part 3 – sets out the Code with which entities registered under the Bill must comply.
Part 4 – sets out the circumstances in which an entity’s registration can be terminated.
Part 5 – provides for civil penalties aimed at ensuring compliance with the Bill.
Part 6 – establishes the Board and sets out the Board’s functions and powers. The Board may investigate breaches of the Bill and has certain reporting obligations.
Part 7 – contains miscellaneous provisions, mainly administrative and machinery provisions relating to the operation of the Bill.
Part 8 – contains the Dictionary, which lists most of the terms that are defined in the Bill and sets out the meaning of some important concepts and provides rules on how to interpret the Bill.
The Explanatory Memorandum is available here.
The relevant Assistant Treasurer’s press release is available here.
The Institute has been involved in advocacy work in relation to the Tax Agent Services Bill throughout its long history which dates back well over a decade to 1994. As reported in Edition 25/2008 of the Tax Bulletin, on 30 June, the Institute lodged its final joint submission on the draft Bill which establishes the new regulatory framework for tax practitioners.
In early 2009, the Institute proposes to conduct a series of workshops and presentations to inform members on the implications of the new regulatory regime.
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2. Board of Taxation releases report, Scoping study of small business tax compliance costs
On 12 November, the Assistant Treasurer, the Hon Chris Bowen MP, announced the release of the Board of Taxation’s scoping study on small business tax compliance costs. The Government asked the Board in November 2005 to undertake the study and provide a final report to the Treasurer. The Board was asked to identify key factors that influence small business compliance cost and provide guidance on issues to be taken into consideration in reducing compliance costs for small business. In addition, the Board has also agreed to take into consideration recommendations from the Report of the Taskforce on Reducing Regulatory burdens on business (the Taskforce) in the scoping study. The Institute lodged a submission to the Taskforce in 2006.
In the joint press release issued by the Assistant Treasurer, the Hon Chris Bowen MP, and the Minister for Small Business, the Hon Craig Emerson MP, Mr Bowen said that the study confirms that compliance costs have a proportionately greater impact on smaller businesses than larger ones.
The study makes 31 findings that provide valuable information about small businesses in Australia and guidance in identifying opportunities to reduce compliance costs further. Mr Bowen said that he has asked the report’s findings be considered in the context of the comprehensive review of Australia’s Future Tax System.
The relevant Board’s press release is available here. Further details on the study are available on the Board’s website.
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3. Consultation meeting - Board of Taxation Review of Managed Investment Trusts
On 12 November, the Institute was represented by Ann Previtera (PricewaterhouseCoopers) and Susan Cantamessa at a consultation meeting sponsored by the Board of Taxation in relation to its review of the tax arrangements applying to managed investment trusts (MITs). The purpose of the meeting was to allow the Board to provide information on, and clarification of, the issues outlined in its discussion paper and to provide an avenue for participants to provide feedback on those issues and any other matters relevant to the Board's terms of reference ahead of any written submissions they wish to make.
Submissions on the Board's Discussion Paper released in October 2008 are due by 19 December 2008. However, submissions on the capital versus revenue account treatment of gains and losses made on the disposal of investment assets by MITs (see Chapter 7 of the Discussion Paper) are requested as soon as possible to allow the Board to provide interim comments to the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen.
If members have any comments which they would like considered for inclusion in any submission the Institute makes to the Board would they email them to the Tax Group as soon as possible.
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4. Meeting with Treasury - draft legislation to increase access to the small business CGT concessions
On 6 November, Susan Cantamessa from the Institute attended a meeting with Treasury to discuss the draft legislation and explanatory memorandum to increase access to the small business CGT concessions via the $2 million aggregated turnover test and to make a number of related changes. The closing date for submissions is 26 November 2008.
Members are encouraged to review the draft legislation and explanatory memorandum to ensure that the amendments achieve their purpose and do not create any unintended outcomes. We would welcome any comments you have as soon as possible but no later than 21 November 2008. Comments should be sent to the Tax Group.
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5. BCTR members finalise State business tax reform report
On 11 November, Donna Bagnall of the Institute attended the Annual General Meeting (AGM) and full meeting of the Business Coalition for Tax Reform (“BCTR”), along with the coalition’s key tax organisations. The major agenda item for the full meeting was to finalise the BCTR’s draft report on “State business tax reform”. The next stage will be to prepare and present the final “State business tax reform” report in a submission to the Henry review of Australia’s Future Tax System.
As reported in Edition 42/2008 of the Tax Bulletin, the comprehensive report is designed to take a strategic approach in its review and recommendation of large-scale reforms to State taxes. The report is backed by economy-wide modelling which assesses the economic outcomes that could be achieved under various state tax reform scenarios.
In this regard, the Institute notes that the New South Wales Mini-Budget, announced on 11 November, appears to be a step in the wrong direction for state tax reform. In the Mini-Budget, the NSW Government has deferred the date when duties on unquoted marketable securities, mortgage duty on business loans and transfer duty on non-land business assets will be abolished to 1 July 2012. Each of these duties was to be abolished as part of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA) that was struck when the GST was introduced in 2000.
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6. NTLG FBT Sub-committee meeting
On Thursday 13 November, the Institute attended the National Tax Liaison Group (NTLG) FBT Subcommittee meeting. The Institute was represented by Paul Ellis (EY), Elizma Bolt (Deloitte) and Norman Kang of the Institute. Some of the issues discussed included the following:
- The ATO provided an update since the August meeting on its FBT publications, cases, rulings, legislation update, etc.
- Definition of a ‘briefcase’ for the purposes of section 58X exemption and meaning of ‘primarily for use in the employee’s employment’ for briefcases
- Discussion on whether the cost of mobile phone calls, rental charges and phone accessories satisfy the ‘work use’ test and qualify for the FBT exemption under the recently amended section 58X
- Recent amendments for joint benefits and the ‘otherwise deductible rule’
- Incentive award programs offered to a dealership business by a manufacturer or distributor
- Whether accommodation, travel and meal costs incurred by an employee whilst they are in Australia on a ‘look-see trip’ are exempt from FBT
- Documentation to substantiate odometer readings
- Recipient’s payments for car benefits
- Living away from home benefits and living away from home allowance
For more details on the above issues or other topics discussed, please refer to the agenda for the meeting, without the ATO’s response.
The ATO’s response will be available once the draft minutes of the meetings are approved. They will be published on the ATO website and a link provided in the Chartered Accountants Tax Bulletin.
The next meeting will be on 26 February 2008. If members have any issues they would like to raise please email these to Tax Group
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7. Bookkeeper Advisory Group meeting
On Friday 14 November, Norman Kang attended the Bookkeeper Advisory Group (BAG) on behalf of the Institute. The key issues that were discussed in the meeting included:
- Presentation and discussion on what constitutes a BAS service
- Issues and priorities due to the introduction of the Tax Agent Services Bill 2008
- National Tax Practitioner Board priority issues
- Clarification surrounding the 1400 hour requirement
- Issue of BAS service providers’ entitlement to the same lodgement and payment concessions/deferrals as tax agents in relation to eligible quarterly activity statements
- New Tax Office proof of identity procedures
- Recent initiatives in debt area including referral to external collection agencies.
Members can email Tax Group if they require further information on the above items.
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8. Legal expenses incurred by Customs Officer in defending charges deductible - Commissioner of Taxation v Day [2008] HCA 53
The High Court (Gummow, Hayne, Heydon and Kiefel JJ, Kirby J dissenting) has dismissed the Commissioner’s appeal, finding that a deduction for legal expenses of approximately $37,000 was allowable.
The expenses were incurred in relation to defending charges brought against the taxpayer, a Customs Officer, for improper conduct as an officer under s 56(d) of the (now repealed) Public Service Act 1922. The taxpayer claimed that the legal expenses were incurred in gaining or producing assessable income and therefore deductible under s8-1(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997).
The Commissioner unsuccessfully contended that the legal expenses were incurred in defending charges in regard to (improper) conduct which was extraneous to the performance of his income-producing activities as a Customs Officer so could not be said to have been incurred ‘in’ or ‘in the course of’ gaining or producing assessable income. In other words, the Commissioner view was that ‘a positive obligation to perform tasks of employment is different from one not to engage in certain other conduct, particularly where the conduct proscribed involves private misbehaviour’.
In finding that the legal expenses were deductible, the majority of the High Court stated (at para 37), ‘[w]hat was productive of his income by way of salary is to be found in all the incidents of his office in the Service to which the Act referred, including his obligation to observe standards of conduct, breach of which might entail disciplinary charges. The respondent's outgoings, by way of legal expenses, followed upon the bringing of the charges with respect to his conduct, or misconduct, as an officer. He was exposed to those charges and consequential expenses, by reason of his office. The charges cannot be considered as remote from his office, in the way that private conduct giving rise to criminal or other sanctions may be’.
The Court then stated (para 38) that ‘[t]he incurring of expenditure by the employee to defend a charge because it may result in his or her dismissal may not itself be sufficient in every case to establish the necessarily connection to the employment or service which is productive of income. Much will depend upon what is entailed in the employment and the duties which it imposes upon an employee. In the present case the requisite connection is present’.
The Court also rejected the Commissioner’s other contention that s 8 1(2)(b) of the ITAA 1997 denied a deduction, concluding that '[t]he expenses cannot be viewed as of a private nature, in the way that some fines and penalties unconnected to a person's service may be’.
Special leave to appeal was granted on the Commissioner's undertaking to pay the costs of the respondent.
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9. Miscellaneous Taxation Rulings
MT 2008/1 - Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard
MT 2008/2 - Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable
MT 2008/3 - Shortfall penalties: voluntary disclosures
These rulings were released in draft form as MT 2008/D1, MT 2008/D2 and MT 2008/D3 respectively.
The combined joint submission lodged by the Institute and various other professional bodies on the draft rulings, and the ATO’s responses, are available on the Institute website.
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10. Taxation Ruling – Addendum
TR 2001/14 - Income tax: Division 35 – non-commercial business losses
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11. Goods and Services Tax Ruling – Addendum
GSTR 2001/4 - Goods and services tax: GST consequences of court orders and out of court settlements
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12. Class Rulings
CR 2008/73 - Fringe benefits tax: Fernwood Corporate Health Counselling program
CR 2008/74 - Income tax: demerger of Buru Energy Ltd by ARC Energy Ltd and merger of ARC Energy Ltd with Australian Worldwide Exploration Ltd
CR 2008/75 - Income tax: conversion by Australian Co operative Foods Limited to a company registered under the Corporations Act 2001 and subsequent payment of special dividend pursuant to Scheme of Arrangement
CR 2008/76 - Income tax: scrip for scrip: exchange of pSivida Ltd shares, options or warrants for equivalent New pSivida Inc securities
Addendum
CR 2007/29 - Income tax: capital gains – roll over relief – acquisition of land for Traveston Crossing and Wyaralong Dams
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13. ATO Interpretative Decisions
ATO ID 2008/144 - GST and chocolate beverage drinking preparation
ATO ID 2008/145 - Periodic compensation payments received by a non-resident individual and the Pension Article of the UK Convention
ATO ID 2008/146 - Capital allowances: business related costs - capital expenditure incurred - non-contractual customer relationships
ATO ID 2008/147 - Capital gains tax: vendor cancellation of contract - compensation payment - preserving ownership rights
ATO ID 2008/148 - Energy Grants (Credits) Scheme: off-road credit - diesel fuel purchased for use (and used) in the construction of a car park and civil works on hospital grounds
Withdrawals
ATO ID 2001/126 (Withdrawn) - Taxation of compensation paid to non-residents
ATO ID 2002/177 (Withdrawn) - Deductibility of loss on rental property located in a foreign country
ATO ID 2002/764 (Withdrawn) - Interest Expenses - Rental Property Located in a Foreign Country
ATO ID 2003/291 (Withdrawn) - Foreign Tax Credit: tax imposed by Zimbabwe on pension income
ATO ID 2003/618 (Withdrawn) - Foreign Tax Credit: Foreign tax paid on salary and wages of an Australian resident employed in foreign consulate located in Australia
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14. Practice Statement
PS LA 2008/16 - The GST implications in the recovery of legal costs (professional fees and disbursements) awarded by courts or settled by agreement between the parties
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15. Taxpayer Alert
TA 2008/18 - Arrangements to shift foreign business losses into Australian branches or resident entities
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16. Tax Laws Amendment (2008 Measures No.5) Bill 2008: Senate Committee report tabled
On 17 November, the Senate Standing Committee on Economics tabled a report on its inquiry into Tax Laws Amendment (2008 Measures No.5) Bill 2008. As reported in Edition 37/2008 of the Tax Bulletin, the Bill contains five schedules:
- Schedule 1 amends the GST tax base to overcome deficiencies dealing with real
property and the margin scheme
- Schedule 2 modifies the thin capitalisation regime to adjust for certain impacts of the
2005 adoption of Australian equivalents to International Financial Reporting
Standards
- Schedule 3 extends the eligibility for exemption from interest withholding tax to
bonds issued in Australia by state and territory central borrowing authorities
- Schedule 4 removes an anomaly in the fringe benefits tax law as it applies to benefits for investment properties held jointly by an employee and their associates
- Schedule 5 amends the eligible investment business rules in Division 6C for managed investment
trusts.
In its report, the Committee recommended that the Bill be passed.
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17. Recent ATO publications
Booklets and publications
Coming soon: ato.gov.au refresh - From 22 November the ato.gov.au website will have a new look.
eLink 43/08 - Bulletin to inform tax practitioners of the most recent updates to ato.gov.au including a lead article titled 'Tax haven abuse'. Issued on 5 November 2008.
Workforce education news: Issue 6 - This sixth 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 October 29 2008.
Consumer Price Index (CPI) rates - Consumer Price Index (CPI) rates updated to include September 2008 quarter figure.
Administration
ATO interest amounts now available in the pre-filling report - Information for tax agents about what is included in the ATO interest amount totals now provided in the pre-filling report on the Tax Agent Portal.
Income tax return processing - Broadcast sent on 12 November 2008 to inform tax agents that given our current commitment to finalising original income tax returns, there will be delays in the processing of amendment requests and in returning calls about the progress of returns.
Portal maintenance schedule - Scheduled downtime for 2008.
Non-profits
Non-Profit News Service No. 0222 - National Rental Affordability Scheme - participation by charities - Nov 2008. The Treasurer has announced that a transitional safety net will be introduced to cover charities looking to participate in the National Rental Affordability Scheme.
Minutes of meetings and related matters
Financial Services Industry Partnership draft minutes - 14 August 2008 - Draft minutes of the Financial Services Industry Partnership meeting held on 14 August 2008.
Small Business Advisory Group minutes - 17 July 2008 - Minutes of the Small Business Advisory Group meeting held on 17 July 2008.
Division 7A
Division 7A essentials - Division 7A may apply to private companies that make tax-free distributions to shareholders or shareholders' associates in the form of payments, loans or debts forgiven.
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18. Dr Henry’s speech on complexity of Australia’s tax-transfer system
On 12 November, Dr Ken Henry, Chair of the Australia’s Future Tax System Review Panel (the Review Panel) and Secretary to the Treasury, delivered a speech to the National Press Club, entitled “Towards a tax and transfer system of human scale”.
Dr Henry said that he is ‘acutely aware of the extraordinary complexity in the system, especially when tax is combined with transfer payments’. He added, ‘Australia’s system has now no fewer than 125 taxes’, and with a sense of humour, continued that, ‘It turns out there are more taxes in Australia than there are northern hairy nosed wombats (115)’.
When discussing the topic of personal cost of complexity, Dr Henry said that Australians should not need to consult an accountant to decide whether to return to work or put their kids in childcare, and that their retirement planning also should be lot easier. He continued that as well as complexity, there is another issue related to tax that confronts ordinary Australians – uncertainty, or broadly, risk. Dealing with risk also takes time and resources and like complexity, risk is costly.
Dr Henry suggested the Government to do the following two things to achieve a simpler tax system:
- Sit back regularly and think about the transaction costs of the system as a whole, with an eye to reforms that can not only simplify the tax system but meet other economic, social and environmental objectives.
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- Look at the tax and transfer system from the perspectives of the citizens for whom it has been designed.
In closing, Dr Henry announced that the Review Panel will release a consultation paper next month. The paper will summarise submissions received by the Panel, identify some key issues, draw out the choices that emerge from the Review Panel’s analysis of the issues, and seek views on a range of more specific questions. He said that there will be a second, longer consultation period of perhaps six months following the release of the consultation paper. In the second half of next year, the Review Panel will be writing up a report, due to the Government by December 2009.
As members may be aware, the Institute and KPMG lodged a joint submission with the Review Panel on 17 October, as reported in Edition 40/2008 of the Tax Bulletin. The Institute will again be involved the forth coming major consultation and will seek members comments in due course.
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19. Government’s response to Cutler report delayed
The Government’s response to the Cutler report on Australia’s innovation system, Venturous Australia – building strength in innovation, is to be delayed until early next year instead of being released in December as previously indicated, according to a press report. Dr Terry Cutler is quoted as saying that ‘the delay is good if it leads to a better response, but bad if it means we don’t get a major foothold in the current budget deliberations…. In the current climate the biggest danger is now there will have to be trade-offs.’
Dr Cutler also reportedly said that the best outcome for him would be to make sure at least his key recommendations around small and medium sized enterprises (SMEs) were funded in the budget. In addition, changing the R&D tax concession to a tax credit would give innovative companies an immediate cash benefit, while changes to procurement would give them a potential customer rather than a subsidy.
Members will recall that on 3 October, the Institute lodged a submission with the Review Secretariat in response to the Cutler Report. In our submission, the Institute encouraged simplification of the R&D incentive and the removal of existing complexities and inefficiencies.
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20. ATO warns against inappropriate shifting of foreign business losses into Australia
On 13 November, the Tax Commissioner issued a media release announcing the issue of a taxpayer alert (TA), TA 2008/18 (refer item 15), warning multinationals that the ATO will be closely examining claims for foreign business losses shifted to Australia.
The Commissioner said that the ATO has seen attempts to aggressively transfer existing or unrealised losses from the foreign operations of another business into Australia, possibly as a result of the current global economic environment.
He noted that this is an especially timely reminder for those multinationals whose financial year ends on 31 December and caution should be taken to avoid tax debts, substantial penalties and interest which may arise from inappropriate transfers of foreign losses to Australia. The Commissioner also said that the ATO will be working with industry to address any concerns while looking carefully for these arrangements as international markets continue to generate foreign losses.
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Tax Update for Business
Throughout November 2008 and March 2009 in Sydney, Melbourne, Adelaide, Perth and Brisbane. In just 3 hours, explore the current and impending legislative changes across all areas of taxation relative to business.
Trusts and Tax for Property Seminars
Throughout November in Moree, Dubbo, Port Macquarie and Lismore. Unlock the tax benefits in trusts. Analyse the key tax attributes of trusts and recent litigation developments and how those tax attributes can be used effectively in a commercial environment.
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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.
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