On 20 September 2018, the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 (Bill) was introduced in the House of Representatives by the Hon. Stuart Robert MP.

According to the second reading speech, the Bill proposes to continue to strengthen integrity rules and close loopholes while ensuring taxpayer’s funds are spent prudently and amending the R&D Tax Incentive to ensure it is well targeted and cost effective.

The Bill proposes to make the following amendments:

Thin capitalisation

Amend the Income Tax Assessment Act 1997 to tighten Australia’s thin capitalisation rules by:

  • requiring an entity to use the value of the assets, liabilities (including debt capital) and equity capital that are used in its financial statements;
  • removing the ability for an entity to revalue its assets specifically for thin capitalisation purposes; and
  • ensuring that non-ADI foreign controlled Australian tax consolidated groups and multiple entry consolidated groups that have foreign investments or operations are treated as both outward investing and inward investing entities.

The amendments relating to the valuation of assets, liabilities (including debt capital) and equity capital would generally apply from 7:30 pm by legal time in the Australian Capital Territory, on 8 May 2018. The amendments relating to non-ADI foreign controlled Australian tax consolidated groups and multiple entry consolidated groups will apply to income years beginning on or after 1 July 2019.

Research and Development (R&D) Tax Incentive (the ‘Incentive’) changes

The Bill proposes to the following amendments to R&D Tax Incentives:

  • overall reform the Incentive to better target the program and improve its effectiveness, integrity and fiscal affordability;
  • ensure R&D entities cannot obtain inappropriate tax benefits and effectively clawing back the benefits of the Incentive to the extent the entity has received another benefit in connection with an R&D activity;
  • improve the administrative framework supporting the Incentive by making information about R&D expenditure claims transparent, enhancing the guidance framework to provide certainty to applicants and streamlining the administrative process.

The Bill also proposes to make additional amendments to other tax legislation as a consequence of the proposed amendments.

Online hotel bookings and GST

The Bill will amend the GST Act to require offshore suppliers of rights or options to use commercial accommodation in Australia to include these supplies in working out their GST turnover. These amendments would apply in relation to supplies where consideration is first received, or before consideration is received an invoice is issued, on or after 1 July 2019.

Significant global entity definition

The Bill will replace the definition of ‘significant global entity’ (SGE) in the Income Tax Assessment Act 1997 with ‘Country by country reporting entities’ so that it:

applies to groups of entities headed by an entity other than a listed company in the same way as it applies to groups headed by a listed company; and is not affected by the exceptions to requirements applying to consolidation or materiality rules in the applicable accounting rules.

The amendments also modify the rules that identify which entities must undertake country by country reporting under the tax law to ensure these rules are aligned with Australia’s international commitments.

The proposed amendments will apply in relation to income years or periods commencing on or after 1 July 2018. However, the amendments do not apply for the purposes of penalties in relation to entities that would not have previously been significant global entities in periods starting before 1 July 2019.