Treasury has announced a number of tax reform proposals, including a new tax system for managed investment trusts, measures to restore integrity to the tax consolidation rules, changes to the scrip for scrip roll-over rules and new “look through” CGT treatment for earnout arrangements. In addition, the Government has released a discussion paper which discusses options in relation to a new tax system that supports higher economic growth and living standards. We will continue to monitor developments in relation to these reform proposals.
Proposed new tax system for managed investment trusts
The Government has released Exposure Draft Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015 which proposes a new tax system for certain managed investment trusts (MITs) to modernise the tax rules for eligible MITs (referred to as attribution MITs orAMITs) and increase certainty for both MITs and their investors. The key features of the proposed new tax system include:
- an attribution model for determining member tax liabilities, which allows amounts to retain their tax character as they flow through an AMIT to its members;
- the ability to carry forward understatements and overstatements of taxable income, instead of re-issuing investor statements;
- deemed fixed trust treatment under the income tax law;
- upwards cost base adjustments to address double taxation; and
- legislative certainty about the treatment of tax deferred distributions.
Submissions on the Exposure Draft legislation closed on 23 April 2015.
Proposed measures to restore integrity to tax consolidation rules
The Government has released Exposure Draft Tax and Superannuation Laws Amendment (2015 Measures No.4) Bill 2015: Consolidation which is aimed at ensuring the ongoing integrity of the income tax consolidation regime. The key proposed measures include:
- removing a double benefit (or double detriment) that can arise in respect of certain liabilities held by a joining entity that is acquired by a consolidated group;
- removing anomalies that arise when an entity joins or leaves a consolidated group where the entity has securitised an asset;
- preventing the tax costs of a joining entity's assets from being uplifted where no tax is payable by a foreign resident owner on the disposal of the joining entity in certain circumstances;
- clarifying the operation of the Taxation of Financial Arrangements provisions when certain intra group assets or liabilities emerge from a consolidated group because a subsidiary member leaves the group; and
- removing anomalies that arise when an entity leaves a consolidated group holding an asset that corresponds to a liability owed to it by the old group because the value of the asset taken into account for tax cost setting purposes is not always appropriate.
Submissions on the Exposure Draft legislation closed on 19 May 2015.
Proposed changes to the scrip for scrip roll-over rules
The Government has released Exposure Draft Tax and Superannuation Laws Amendment (2015 Measures No.3) Bill 2015: scrip for scrip rollover which makes it harder for companies and trusts to avoid capital gains tax when they sell subsidiary companies other than as part of a genuine merger, takeover or restructure of their business. The proposed amendments will:
- expand the significant and common stakeholder tests to include any entitlements that interest holders have to acquire additional rights;
- provide that a capital gain arising on the settlement of a debt owed by an acquiring entity to its parent company as part of the scrip for scrip acquisition is no longer disregarded;
- extend the application of the cost base allocation rules regardless of whether the interest is issued to the group’s parent company or to another member of the group;
- introduce a new condition on the availability of scrip for scrip roll-over relief in downstream acquisitions; and
- extend the application of the restructure provisions to trusts restructures.
Submissions on the Exposure Draft legislation closed on 20 May 2015.
Proposed “look-through” CGT treatment for earnout arrangements
The Government has finally released Exposure Draft Tax and Superannuation Laws Amendment (2015 Measures No.4) Bill 2015: CGT treatment of earnout rights which proposes changes to the treatment of the sale and purchase of businesses involving earnout rights (ie rights to future financial benefits linked to the performance of an asset or assets after the sale), after the measures were first announced as part of the 2010-11 Federal Budget. Under the proposed amendments:
- capital gains and losses arising in respect of eligible earnout rights will be disregarded; and
- instead, financial benefits received under the earnout rights will affect the capital proceeds and cost base of the underlying asset or assets to which the earnout arrangement relates.
Submissions on the Exposure Draft legislation closed on 21 May 2015.
Time to “re-think” our tax system
The Treasurer has released a Re-think - Tax discussion paper which discusses options in relation to a new tax system that supports higher economic growth and living standards.
Submissions on the discussion paper close on 1 June 2015. Submissions will inform the Government’s tax options Green Paper which is due to be released in the second half of 2015. The Government will seek further feedback on those options before putting forward policy proposals for consideration by the Australian people in 2016.
See also the Treasurer’s media release dated 30 March 2015.