Reduce penalties for voluntary disclosure by SMSFs involved in dividend stripping arrangements

On 10 November 2015, the Australian Taxation Office (ATO) published a statement confirming that it would not apply penalties to a self-managed superannuation fund (SMSF) that implemented a dividend stripping arrangement substantially similar to that described in Taxpayer Alert 2015/1 (TA 2015/1) in the income tax years ended 30 June 2011 to 30 June 2015, where the SMSF ‘selfamends’ its annual return before the earlier of 15 February 2016 and the commencement of compliance action by the ATO. Interest charges on taxes underpaid will however continue to apply.

The ATO ‘offer’ of zero penalties does not extend to arrangements more complicated in their structure and intent than the arrangement described in TA 2015/1, and such arrangements and the imposition of penalties will be considered by the ATO on a case-by-case basis.

The process for self-amending an annual return is detailed in the ATO’s publication.

If you have any queries in relation to TA 2015/1 and its relevance to your SMSF, contact your usual PwC adviser.

Inspector-General of Taxation: Annual Report

The Inspector-General of Taxation (IGT) has released his Annual Report 2014-15 which includes an overview of completed work by the IGOT this year (including reviews of tax disputes, valuations and penalties, a follow up review of ‘u-turns’ and follow up work on other reviews), the work program for 2015-16 and the successful transfer of the tax complaint handling function from the Commonwealth Ombudsman to the IGT from 1 May 2015.

Inspector-General of Taxation: Review of ATO's audit of employer obligation

s The IGT has released the Terms of Reference for his review into the ATO's audits of employer obligations (including obligations under the superannuation, Pay As You Go and Fringe Benefits Tax regimes). In relation to easing the compliance burden for employers the focus areas listed in the Terms of Reference are:

  • The distinction between ‘employee’ and ‘contractor’ for Federal taxation and superannuation purposes, its coherence with business practices, state taxation and other legal requirements as well as the interactions with Australian Business Number (ANB) and Goods and Services Tax (GST) registrations.
  • Simplification of reporting, withholding and payment obligations for employers as well as certain contractors.
  • The effectiveness of the ATO’s use of existing third party data to reduce the compliance burden for employers.
  • Guidance and tools for employers to discharge their employee-related taxation and superannuation obligations, including the level of protection afforded to those relying upon the information provided.
  • Information and support for employees to understand their rights, entitlements and avenues for redress where they become aware of potential non-compliance by their employers.

Focus areas relating to the ATO’s conduct of its compliance activities are:

  • The effectiveness of the ATO’s risk assessment and verification processes to detect and address non-compliance of employer obligations in a timely manner.
  • The ATO’s consideration of relevant employee entitlements protection and business viability impacts when undertaking compliance actions.
  • The effectiveness of the ATO’s actions to address phoenix activities.
  • The ATO’s conduct during employer obligations compliance activities, including the:
  1. proportionality and use of information gathering powers
  2. access and use of available third party information to verify compliance
  3. appropriateness of auditor communications
  4. pathways for escalating and resolving issues before such activities are finalised
  5. sustainability of audit and penalty decisions
  6. costs for employers and employees. and
  7. the feedback given to employees who notify the ATO of potential employer non-compliance.
  • The ATO’s administration of alienation of personal services income provisions and its interaction with other compliance activities including those relating to employer obligations.
  • The extent to which aspects of the administrative penalty regimes encourage or hinder voluntary compliance and selfreporting of non-compliance by employers.

The IGT has called for submissions which can be made until 11 December 2015. For further information contact your usual PwC adviser

Inspector-General of Taxation: Review of Taxpayers' Charter and taxpayer protections

The IGT has announced the Terms of Reference for his review into the Taxpayers’ Charter and taxpayer protections. Under this review, the IGT will seek to identify opportunities to improve taxpayer protections and avenues for redress, with a focus on:

  • the framework for taxpayer protections
  • compensation and other avenues for redress
  • model litigant rules
  • protection of taxpayer's rights in cross-border information exchanges between revenue authorities.

The IGT has called for submissions which can be made until 18 December 2015. For further information contact your usual PwC adviser.

Commissioner of Taxation: Annual Report

The Commissioner of Taxation has published his 2014-15 Annual Report. The Report includes the ATO's key statistics and achievements for the last financial year, and provides indications of the ATO's operating program for the years ahead. This program includes working with Treasury to simplify tax law and contribute to deregulation targets to further reduce compliance costs, implementing digital service initiatives, building analytics capability to enhance ATO risk-based, differentiated client experience, and driving action in the international tax arena.

Small Business CGT roll-over

On 5 November 2015, the Commonwealth Treasury released exposure draft legislation to give effect the 2015-16 Budget proposal to allow ‘small business’ to change their legal structure without incurring a capital gains tax (CGT) liability. Although the Budget announcement referred to a roll-over of a CGT liability, the exposure draft also extends the relief to the transfer of trading stock, revenue assets and depreciating assets. Submissions on the exposure draft can be made until 4 December 2015.

Tax Accounting

On 12 November 2015, the Australian Securities and Investments Commission (ASIC) announced its areas of focus for 31 December 2015 financial reports of listed entities and other entities of public interest. Tax accounting policy choices are highlighted as an area of focus for 31 December 2015, to ensure that:

  • there is a proper understanding of both the tax and accounting treatments, and how differences between the two affect tax assets, liabilities and expenses
  • the impact of any recent changes in legislation are considered
  • the recoverability of any deferred tax asset is appropriately reviewed. For further information on tax accounting matters, contact Ronen Vexler on 61 (2) 8286 0320 or at ronen.vexler@au.pwc.com.

Initial reactions on Financial System Inquiry

The release of the Government's response to the final Financial System Inquiry report has proved to be the largest overhaul in nearly two decades for the financial system, starting almost immediately. Key recommendations call for lower credit card and bank fees, better superannuation options, improved financial products and advice, increased innovation and a focus on leveraging new technologies, and robust banks reducing the risk of tax payer bailouts. View PwC's snapshot of the headline recommendations and our initial reactions and insights.

Reforms to insurance industry

On 6 November 2015, the Assistant Treasurer announced that the Government will introduce a package of reforms for the life insurance industry to commence from 1 July 2016. The package will include amendments to the Corporations Act 2001 to facilitate the rationalisation of legacy products in the life insurance and managed investment sectors, with further analysis of the tax implications to be explored as part of the Tax Reform White Paper process.