Legislation and government policy

Federal Government releases innovation statement

On 7 December 2015, Prime Minister Malcolm Turnbull released a four-year, $1.1 billion innovation plan designed to drive innovation in Australia, named the National Innovation and Science Agenda (NISA). Some key points are outlined below.

Tax incentives

Investors in eligible start-up businesses will be able to access a 20% non-refundable tax offset, capped at $200,000 per year, in addition to a 10-year capital gains tax exemption for investments held for three years. Eligible start-ups will be companies which undertake an eligible business, were incorporated within the last three income years, are not listed on any stock exchange, and have expenditure and income of less than $1 million and $200,000 respectively in the previous income year. These incentives are intended to commence on 1 July 2016.

Reform of insolvency laws

The government plans to relax insolvency and bankruptcy laws in favour of start-up businesses. This will include reducing the current default bankruptcy period from three years to one year and introducing safe harbour provisions to protect directors from liability for insolvent trading if a restructuring adviser has been appointed. These changes will be detailed in a proposal paper released in the first half of 2016, with a plan to introduce and pass legislation in mid-2017.

Greater access to company losses

The current ‘same business test’ in Subdivision 165-E of the 1997 Act that denies tax losses if a company changes its business activities, will be converted into a more flexible ‘predominantly similar business test’. This will give start-ups greater scope to claim deductions for tax losses in circumstances where the company has pivoted into new transactions or business activities, or acquired new equity investors. Claims will be available so long as the start-up uses similar assets and generates income from similar sources.

R&D tax incentives

NISA did not include any R&D tax incentives as this is currently being reviewed by the Department of Industry, Innovation and Science as part of the Tax White Paper process. NISA did, however, establish a new independent statutory board, Innovation and Science Australia, which will be involved in this departmental R&D review.

Multinational tax avoidance Bill passes with Amendments proposed by the Greens

The Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (Cth) we reported on last week has been passed and now awaits royal assent. The last minute amendments relating to the income disclosure of private Australian companies and the general financial reporting of significant global entities were passed.

CGT changes Bill introduced to Parliament

The Tax and Superannuation Laws Amendment (2015 Measures No 6) Bill 2015 (Cth) (Bill) was introduced to Parliament last week. The Bill contains two significant CGT changes. Firstly, the Bill aims to simplify the taxation of earn-out arrangements in the sale of a business and its assets. Secondly, the Bill implements a withholding measure that ensures that foreign investors pay sufficient capital gains tax on the sale of particular Australian assets.

Expanding the powers of the Commissioner of Taxation

Last week, the Commonwealth Treasury released an exposure draft piece of legislation (Draft) that potentially expands the Commissioner’s powers to modify the operation of a particular taxation and superannuation law to ensure that they are being administered consistently with their purpose.

The Commissioner’s power is described as a ‘remedial power’ that will be exercised as a power of last resort when all other options available to the Commissioner have been considered and found to be unsuitable. The remedial power would not allow the Commissioner to directly amend the text of the particular piece of legislation. Instead, it provides the Commissioner with the power to draft a legislative instrument to modify the operation of a provision only when the modification would not be inconsistent with the purpose or object of the provision and there would be negligible budgetary impact.

The Commissioner would only be allowed to exercise this power where:

  • the modification is not inconsistent with the purpose or object of the provision;
  • the Commissioner considers the modification to be reasonable, having regard to both the purpose or object of the relevant provision and whether the costs of complying with the provision are disproportionate to achieving the purpose or object; and
  • the Treasury or the Department of Finance advises the Commissioner that any impact on the Commonwealth budget would be negligible.

Treasury is seeking comments on the exposure draft, and the closing date for submissions in 15 January 2015. If you are interested in providing a submission please contact a member of the Hall & Wilcox Tax team.

Payroll exemptions repealed – NSW

Payroll tax exemptions in NSW applying to contractors, specifically door-to-door salespersons and insurance agents, have been repealed. These exemptions will cease to apply from 1 January 2016. It is important that businesses who operate with these types of contractors in multiple states or territories examine their payroll tax obligations, as these exemptions are still available in all jurisdictions except Western Australia, the ACT, and now NSW.

ATO updates

Managed Investment Trust taxation changes and the ATO’s guidance

The Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015 (Cth) is making its way through the Commonwealth Parliament and proposes changes to the taxation of Managed Investment Trusts. The new taxation regime, if passed, will apply from 1 July 2016 and will allow eligible trusts to implement an attribution model of taxation at the investor level rather than the entity level.

The ATO has released multiple draft guidelines explaining how it intends to apply the new taxation regime once it is enacted. It is important to note that if a taxpayer relies on any of the draft guidelines in good faith before they are finalised and the law is enacted as introduced, they will not have to pay any underpaid tax, penalties or interest in respect of matters covered by the guidelines if the guidelines do not correctly state how a relevant provision applies to the taxpayer.

Case law

Macoun v FC of T – tax exempt salary doesn’t lead to tax exempt pension payments

In the previous decision in this case, part of the pension payments of a retired World Bank officer were ruled to be taxable, even though the officer’s salary was tax exempt under Australian law. In this decision, the High Court unanimously held that theInternational Organisation (Privileges and Immunities) Act 1963 and the Specialised Agencies (Privileges and Immunities) Regulations only exempted monthly pension payments that the officer received while he was an officer of the World Bank and from the World Bank, as opposed to a related Retirement Fund.

Additionally, the High Court held that the monthly pension payments were not ‘salaries and emoluments received from the organisation’ under the Privileges Act.