Inquiry into tax deductibility

On 1 December 2015, the Commonwealth Treasurer, asked the House of Representatives Standing Committee on Economics to undertake an inquiry into the simplification of the personal and company income tax system. Under the terms of reference, matters to be examined by the Committee include:

  • The personal tax system as it applies to individual non-business income, with particular reference to the deductibility of expenditure of individuals in earning assessable income, including but not limited to an examination of comparable jurisdictions such as the United Kingdom and New Zealand
  • The company income tax system, with particular reference to the deductibility of interest incurred by businesses in deriving their business income.

Submissions were due to be made to the Committee by 15 January 2016.

Innovation system

On 3 December 2015, the Senate Economics Committee tabled its final report on its inquiry into Australia's Innovation System. The Committee made five recommendations which, in summary, are as follows:

  • The Australian Government commits to maintaining stable, coherent and effective administrative arrangements for innovation policies and programs, based on a long-term strategic framework and a target to lift investment in research and development to three per cent of Gross Domestic Product.
  • An independent government agency be established with a mandate to administer and coordinate innovation system policies and programs.
  • The Australian Government, as part of its long-term innovation strategy, includes policy options to address the structural and strategic barriers that inhibit innovation, including: measures to enhance collaboration and the free flow of knowledge between the university system and the private sector; increase the size of the research and development workforce employed in industry; and ensure that public funding to support science, research and innovation is long term, predictable and secure.
  • The Australian Government, working in collaboration with State and Territory governments, adopt a range of measures to support the role of local and regional innovation ecosystems.
  • The education system be accorded a central focus in the Australian Government's longterm innovation strategy, thereby acknowledging the central importance of the interplay between the STEM subjects and the humanities, social sciences and creative industries.

Competition policy review

On 24 November 2015, the Commonwealth Government released its response to the final report of the Competition Policy review (Harper Review), which made 56 recommendations for reforms across competition policy, laws and institutions.

From a tax perspective, the Report recommended that indirect charges and taxes on road users, such as fuel excise and registration fees, should be reduced with the recommended introduction of direct cost-reflective road pricing. The Government has indicated that it supports this recommendation as a long term reform option.

Farm Management Deposits

In response to its announcement on 4 July 2015 in the Agricultural Competitiveness White Paper of changes to the Farm Management Deposit (FMD) scheme, the Commonwealth Treasury released exposure draft legislation to effect the changes which include:

  • increasing the maximum amount that can be held in FMDs to $800,000 (currently $400,000)  
  • allowing primary producers experiencing severe drought conditions to withdraw an amount held in an FMD within 12 months of its deposit in the income year following deposit without affecting the income tax treatment of the FMD in the earlier income year. However, early access to FMD withdrawals is only available for some categories of primary production businesses as defined in section 995-1 of the Income Tax Assessment Act 1997
  • allowing amounts held in an FMD to offset (i.e. by way of reducing the interest charged) a loan or other debt relating to the FMD holder’s primary production business.

There are also changes to the law relating to breaches of the FMD scheme including the imposition of administrative penalties.

The changes are proposed to apply for the 2016-17 income year and later years.

National Innovation & Science Agenda

On 7 December 2015, the Commonwealth Government released its National Innovation & Science Agenda that contains a range of tax-related measures and incentives to encourage innovation. These include: .

  • increasing access to company losses through relaxation of the same business test, to be replaced with a more flexible ‘predominantly similar business test’ which will enable companies to enter into new business activities and transactions without facing a tax penalty (with effect for losses made in the current and future income years)
  • changes to Venture Capital Limited Partnerships (VCLPs), including a new 10 per cent non-refundable tax offset for partners in Early Stage Venture Capital Limited Partnerships (ESVCLPs) based on capital invested in start-up companies; increasing the maximum size of ESVCLPs from $100 million to $200 million; ensuring that ESVCLPs will no longer need to divest from a company when its value exceeds $250 million; and relaxing eligibility and investment requirements for both VCLPs and ESVCLPs to allow managers to undertake a broader range of investment activities and greater diversity of investors (with effect from 1 July 2016)
  • new tax incentives for investors who support innovative start-ups including a 20 per cent non-refundable tax offset based on the amount of their investment (capped at $200,000) and a 10 year capital gains tax exemption for investments held for three years
  • change the depreciation of intangible assets by providing a new option to self-assess the effective life of acquired intangible assets (with effect for assets acquired from 1 July 2016)
  • reforms to Employee Share Schemes (ESS) to limit the requirement for disclosure documents given to employees under an ESS to be made available to the public and to make ESS more user-friendly for innovative companies.

The Government also proposes to amend the Commonwealth bankruptcy and corporate insolvency laws by:

  • reducing the default bankruptcy period from three years to one year
  • introducing a ‘safe harbour’ for directors from personal liability for insolvent trading if they appoint a professional restructuring adviser to develop a plan to turnaround a company in financial difficulty
  • banning ‘ipso facto’ contractual clauses that allow an agreement to be terminated solely due to an insolvency event, if a company is undertaking a restructure.

Commissioner’s Statutory Remedial Power

The Commonwealth Treasury has released for comment exposure draft legislation to implement a statutory remedial power to be given to the Commissioner of Taxation in relation to taxation and superannuation law.

Under the proposed law, the Commissioner of Taxation will have power to allow a modification to the operation of the law to address unforeseen or unintended outcomes in administration. It is intended that the power would be exercised to the extent that it would have a beneficial outcome for taxpayers, has a negligible revenue impact and only as a last resort.

Government response to tax disputes inquiry

On 4 December 2015, the Commonwealth Government tabled its response to the inquiry into Tax Disputes by the House of Representatives Standing Committee on Tax and Revenue. The Committee made five recommendations to Government, including the creation of a new Second Commissioner - Appeals to head up a new Appeals area within the Australian Taxation Office (ATO). With respect to this recommendation, the Government has stated that it does not support a legislative approach to the separation of the tax appeals area of the ATO from the compliance area, and that this separation has already been achieved without the need for legislative separation. The remaining recommendations of the inquiry were directed to the ATO, which has yet to make a formal response. Overall, the Government's response is one of ‘business as usual’ (i.e. they have largely rejected all the recommendations), and this may have been a lost opportunity to make real change in this area. 

Data matching – real property transactions

On 8 December 2015, the ATO published a Commonwealth Gazette Notice confirming that it has commenced a new data matching program covering real property transactions (including acquisitions and disposals of real property, and rental bond details) for the period 20 September 1985 (when capital gains tax commenced) to 30 June 2017. The purpose of the program is to ensure that taxpayers are correctly meeting taxation (including capital gains tax) obligations administered by the ATO in relation to their dealings with real property. These obligations include registration, lodgment, reporting and payment responsibilities. Under this data matching program the ATO has formally requested information of relevant transactions from State and Territory Authorities.

Social Security Agreement with India

The Social Security (International Agreements) Amendment (Republic of India) Regulation 2015 was gazetted to commence on 1 January 2016. The Regulation includes provisions on double superannuation coverage for temporarily seconded workers.

ATO extends time for foreign investors to register agricultural land

On 14 December 2015, the ATO extended the time for foreigners who own Australian agricultural land holdings, to register their ownership with the ATO. Under the extension, the deadline for registration has been extended to 29 February 2016. Penalties may apply if foreign investors do not register their interest in agricultural land by this date.

Under the terms of the extension published by the ATO, “the extension applies to all agricultural land holdings that must be registered on or before 29 February 2016. If agricultural land is purchased or the ownership of land is changed on or after 1 February 2016, the ATO must be notified within 30 days”.

For further information on Australia's new foreign investment regime that came into force on 1 December 2015 see this LegalTalk Alert.

Single Touch Payroll

On 21 December 2015, the Assistant Treasurer and Minister for Small Business announced further details regarding the timing of implementation of Single Touch Payroll, and a new $100 nonrefundable tax offset for small businesses for expenditure on Standard Business Reporting (SBR) enabled software (as previously outlined in the 2015-16 Mid Year Economic and Fiscal Outlook (MYEFO)).

Crowd sourced funding for small business

On 21 December 2015, the Assistant Treasurer and Minister for Small Business announced the release of exposure draft regulations regarding Australia's proposed new crowd-sourced equity funding (CSEF) framework. The release of the draft regulations follows the introduction of the Corporations Amendment (Crowd-sourced Funding) Bill 2015 into the House of Representatives on 3 December 2015. According to the Explanatory Memorandum to that Bill, “crowdsourced funding is an emerging form of funding that allows entrepreneurs to raise funds from a large number of investors. It has the potential to provide finance for innovative business ideas and additional investment opportunities for retail investors, while ensuring investors continue to have sufficient information to make informed investment decisions “

The provisions in the Bill remove regulatory barriers to CSEF, it being expected by Government, that the overall ‘per business’ compliance costs for ‘issuers’ that participate in CSEF will decline.

The exposure draft regulations provide additional detail on a range of matters, including:

  • the class of securities that may be offered
  • the minimum requirements for what a CSEF issuer must include in their offer document
  • the prescribed checks intermediaries must undertake before allowing an offer to be made on their platform
  • wording of the mandatory risk warning and retail investor risk acknowledgment that investors must agree to before they may invest in CSEF products.

ATO annual report

The House of Representatives Tax and Revenue Committee tabled its second report into the 2014 Annual Report of the ATO. The mandate given to the Committee allows the Committee to act as a scrutineer of the ATO, a responsibility previously undertaken by the Joint Committee of Public Accounts and Audit (JCPAA). In this report, the Committee considers and comments on the following matters:

  • the ATO’s relationship with tax practitioners through the Tax Agent Portal and Single Touch Payroll,
  • progress with no-touch tax returns
  • Tax Gap estimates
  • client service improvements and correspondence
  • the transfer of complaints functions to the Inspector-General of Taxation
  • the implementation of strategies to address the cash economy and sharing economy
  • the ATO’s pursuit of wind-ups and bankruptcies as a recovery practice, and .
  • transparency and performance reporting.

Superannuation

On 10 December 2015, the Minister for Small Business and Assistant Treasurer announced the release of exposure draft legislation to improve superannuation fund transparency and extend choice of fund arrangements to employees covered by enterprise agreements and workplace determinations from 1 July 2016.

Private Ancillary Funds

On 22 December 2015, the Commonwealth Treasury released exposure draft legislation for amendments to the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011 to, among other things, introduce portability, remove red tape from certain reporting requirements, update the investment strategy rules, reduce the minimum annual distribution rate, and update spent or redundant references. Submissions are due by 12 February 2016.