Goods and Services Tax (GST)

Unlike last year’s Budget, there are GST announcements in this year’s Budget which are as follows:

  1. The application of the GST will be extended to cross border supplies of digital content and services to Australian consumers with effect from 1 July 2017.

This measure is intended to result in the same GST treatment for supplies of digital content (for example, streamlining or downloading of movies, music and games) and services such as consultancy and legal services, whether they are supplied by a local or foreign supplier. This measure is designed to correct the current GST disadvantage of local suppliers compared to foreign suppliers.  This means that supplies that were previously outside the Australian GST net because they were supplied by an unregistered supplier and were not connected with Australia, will now be taxable.

  1. The Government will not proceed with the previously announced (but unenacted) measure to replace the current GST free treatment for supplies of going concerns and farmland with a reverse charge mechanism.  This measure was initially announced in the 2009/2010 Budget and the Government had previously announced that it would proceed with this measure in December 2013.
  2. The Government will provide funding to the ATO over 3 years from2016/2017 (ie, the next financial year) “to continue a range ofactivities to promote GST compliance”.  The compliance activities willbe focussed on fraudulent GST refunds, under reporting of GSTliabilities, failure to lodge GST returns and outstanding GST debts.

Tax Administration – statutory remedial power for the Commissioner of Taxation

The Commissioner of Taxation will now be provided with a power to make a legislative instrument to modify the operation of the tax law to ensure that the law’s purpose or object is achieved.  It is suggested that this measure (which was announced prior to the night of the Budget) will be a revenue neutral measure and is seen as a necessary response to the ever increasing complexity and volume of tax law which at times has unforseen or unintended consequences.  This statutory remedial power is intended to permit the Commissioner to administer the law consistently with its purpose or object, where it has no more than a negligible budget impact and provided it has a beneficial outcome for affected taxpayers.  A legislative instrument made by the Commissioner is subject to extensive consultations and disallowance by Parliament.

This is a unique measure (in Commonwealth tax law) in that it goes far beyond the typical discretions afforded to the ATO.  Such statutory discretions are generally fairly limited (an example of this kind of limited discretion is legislation which permits a capital gains tax rollover to be made, which would otherwise be out of time to be made, within such further period as the Commissioner allows).  While it appears that there are significant legislative checks applied to this power of the Commissioner of Taxation, care will need to be taken in the way in which Parliament permits the Commissioner to exercise this power and clear guidance will be required to determine what constitutes a “beneficial outcome” for affected taxpayers.  Where this will become particularly difficult is where a particular measure, when read literally, provides a beneficial outcome for one taxpayer, but provides an adverse outcome for another taxpayer.  While an exercise of this power by the Commissioner may permit the law to be administered in a manner consistent with its purpose or object, it is unclear how an impasse between taxpayer positions would be resolved in a fair and equitable manner and which allows this proposed power for the Commissioner to have a real practical application in the smooth operation of our taxation system.

New FBT cap for Meal and Entertainment expenses for not-for-profit employees

Currently, public and not-for-profit hospitals and public ambulance services have a FBT cap on exempt benefits of $17,667, whilst public benevolent institutions (except hospitals) and health promotion charities have a FBT cap on exempt benefits of $31,777. From 1 April 2016, these organisations will have a separate grossed-up $5,000 cap per year in FBT concessions for salary sacrificed meal entertainment and entertainment facility leasing expenses (“meal entertainment benefits”) for employees. The new meal entertainment benefits cap will be in addition to the existing caps.

In addition, all meal entertainment benefits will become reportable benefits (they are currently “excluded benefits”) and will thus count towards an employee’s “reportable fringe benefits amount”.

Establishing a Serious Financial Crime Taskforce

The Government will provide $127.6 million over 4 years to establish a Serious Financial Crime taskforce to investigate and prosecute superannuation fraud, investment fraud, identity crime and tax evasion.

Global Infrastructure Hub

The Global Infrastructure Hub will be exempt from income tax until 30 June 2019 (the end of its mandate). The Hub was established after the G20 Leaders’ Summit in 2014 to promote public and private investment in infrastructure through knowledge sharing, information development, training and implementation of leading practices.

Strengthening the Foreign Investment Network

A range of changes to the foreign real estate and agricultural investment rules will take effect from 1 December 2015, including:

  • Compliance and enforcement functions will be transferred to the ATO;
  • Stricter penalties for breaches of the Foreign Acquisitions and Takeovers Act 1975 and for third parties who knowingly assist breaches;
  • Application fees will be introduced on all real estate, business andagricultural foreign investment proposals. Fees will range from $5,000 to $100,000 depending on the investment type and value;
  • Increased scrutiny on foreign investment in agriculture by lowering thescreening threshold from $252 million to $15 million; and
  • The introduction of a comprehensive foreign ownership land register for agricultural land and real estate.