The Australian Government is introducing a new third party reporting regime designed to equip the Australia Taxation Office (ATO) with more data to enable pre-filling of income tax returns for individuals and for compliance and data matching activities.
Under the proposed regime, which is currently before Parliament, affected entities (including government related entities, the Australian Securities and Investment Commission (ASIC), listed companies and trusts, fund managers and custodians, and banks) will have a new, annual obligation to report information to the ATO regarding a wide range of transactions such as government grants and payments to suppliers, transfers of real property, transfers of shares and units and business payments.
For most affected entities, the first reporting obligation is still more than two years away and while the intention of this new reporting regime is to complement and enhance existing reporting obligations, affected entities should start considering the impacts early in order to assess the extent to which other regulatory change projects (e.g. FATCA, CRS and/or AML/KYC) could be leveraged from a people, process and technology perspective to deliver a solution for these additional reporting obligations.
On 15 October 2015, Tax and Superannuation Laws Amendment (2015 Measures No 5) Bill 2015 was introduced into Federal Parliament, and includes amendments to the Taxation Administration Act 1953 to introduce a new third party reporting regime covering a range of transactions and payments. Entities with a reporting obligation under the proposed new regime will be required to report information on these transactions to the ATO for its use in pre-filling tax returns for individuals, and compliance and data-matching activities.
Relevant third parties will be expected to report information to the ATO on transactions that could reasonably be expected to have tax consequences for other entities. The entity with the reporting obligation will not, however, be required to determine whether a tax-related liability arises for the parties to the transaction. Initially, the information collected under this regime will relate to income tax only, but this may be expanded to include other tax-related liabilities in the future including goods and services tax (GST), excise duty, various withholding taxes and administrative penalties.
The various transactions covered under the regime, and the entities required to report are set out in the table on the following page. Whilst Government-related entities and ASIC will be heavily impacted by these new measures, listed companies and trusts, fund managers, custodians and financial intermediaries will also have new reporting requirements to the ATO.
Click here to view table.
The Commissioner of Taxation may provide an exemption from the third party reporting regime for specific entities or classes of entities, and/or specific classes of transactions, taking into consideration of variety of circumstances including the compliance costs imposed on the entity, the availability of information and the Commissioner’s ability to use the information.
Additionally, there is a broad exemption for information relating to certain wholesale clients, such that information is not required to be reported to the extent it relates to a party to the transaction that is not an individual and that is being provided a financial product or service under a transaction as a wholesale client.
What information will be reported?
The proposed law does not specify the type of information to be reported, but does indicate that the information that is required to be reported in the “approved form”:
- relates to the identification, collection or recovery of possible tax-related liability of a party to the transaction (disregarding any exemption that may apply to those parties)
- may relate to identifying the parties to the transaction, and
- for a transfer of real property, may include the tax file numbers of those parties to the transaction who have quoted their tax file numbers to the State or Territory concerned.
The ATO has been, and continues to, undertake extensive consultation with stakeholders to agree on the approved format and extent of reported information. Further details can be found on the ATO’s Let’s Talk website, including draft guidance for entities required to report under this regime and draft reporting specifications.
It is likely that, to the extent possible, these new reporting requirements will be streamlined with other reporting regimes already in place to reduce compliance costs and avoid duplication (for example, it is expected that fund managers will report via the Annual Investment Income Report or AIIR).
When will the report be due?
In most cases, the reporting obligations first commence for transactions occurring on or after 1 July 2017, giving rise to a report for the year ended 30 June 2018 which will be due to the ATO by 31 July 2018.
The exception is transfers of real property and reports by ASIC which will be required to be reported from 1 July 2016, giving rise to a report for the year ended 30 June 2017 which will be due to the ATO by 31 July 2017.
The due date of 31 July is subject to any allowed extension of time and administrative penalties will apply for failing to report by the due date.
The Commissioner will have the ability to change the frequency of the reporting obligation in the future, and it is anticipated that the reporting obligation will become more frequent as technology and systems evolve.
The reporting obligations under the new regime will be onerous for some affected entities and may require systems upgrades to enable the requisite information to be captured and reported to the ATO. For most affected entities, these processes will need to be in place by 1 July 2017.