Exposure draft law to clarify company tax rate cuts

The Government has released exposure draft legislation for consultation to clarify that passive investment companies cannot access the lower company tax rate of 27.5 per cent.

The exposure draft law proposes amendments, which will apply retrospective effect from the 2016-17 income year, to ensure a corporate tax entity will not qualify for the lower corporate tax rate if 80 per cent or more of its assessable income is of a specifically defined ‘passive’ nature (including non-portfolio dividends and interest). Submissions close 29 September 2017.

Refer to our TaxTalk Alert which considers the proposed changes in further detail.

Extension of time for Senate inquiry report into Corporate Tax Avoidance

The Senate has granted the Senate Economics Committee inquiry on Corporate Tax Avoidance a further extension of time to report by 28 November 2017.

Consolidation integrity measures released for comment

The Government has released for consultation exposure draft legislation regarding the outstanding tax consolidation measures relating to the tax cost setting rules when an entity leaves or joins a tax consolidated group. These measures:

·       Prevent a double benefit from arising in relation to deductible liabilities when an entity joins a group.

·       Disregard deferred tax liabilities when an entity joins or leaves a group.

·       Remove anomalies that arise when an entity holding securitised assets joins or leaves a group.

·       Prevent unintended benefits from arising when a foreign resident ceases to hold membership interests in a joining entity in certain circumstances.

·       Clarify the outcomes that arise when an entity holding an intra-group financial arrangement leaves a group.

·       Clarify the treatment of intra-group liabilities when an entity leaves a group.

Where appropriate, transitional rules ensure that taxpayers who have entered into arrangements prior to commencement are not disadvantaged, are not able to obtain windfall gains, or do not have to change a position they have taken under the current law. Comments on the draft legislation can be made until 6 October 2017. Refer to our TaxTalk Alert which explores the exposure draft law in further detail.

Junior Mineral Exploration Tax Credit

The Government has announced the introduction of the Junior Mineral Exploration Tax Credit (JMETC) which will allow the tax losses in greenfield exploration companies to be distributed as a credit to Australian resident shareholders.

JMETC builds upon the Exploration Development Incentive which ceased on 30 June 2017. Only newly issued shares relating to capital raising for investment in new greenfields exploration activity will be eligible for the JMETC. Credits of up to AUD100 million over four years will be made available from this financial year on a first-in, first served basis, consistent with arrangements to be administered by the Australian Taxation Office (ATO).

Share capital - High Court refused special leave application

The High Court has refused the taxpayer’s special leave application to appeal against the Full Federal Court’s decision in Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v Commissioner of Taxation [2017] FCAFC 71. The Full Federal Court held that a ‘buy-back reserve’ account was not a share capital account such that the debit entry to the buy-back reserve did not record a transaction reducing share capital. Accordingly, the transaction was correctly treated as a dividend that was subject to withholding tax. Refer to the June 2017 edition of TaxTalk Monthly for background.