As 2017 draws to a close, it is time to reflect on the current status of newly enacted and outstanding tax measures. It has been a big year for the Federal Government in delivering new tax measures. Progress was made in many key areas, including enactment of the Diverted Profits Tax and a reduced tax rate for small business companies. However, the list of tax measures that are yet to be enacted continues to grow. For companies, this includes key policy commitments such as the reduction in the corporate tax rate for all companies, consolidation integrity measures, and the anti-hybrid rules. For individuals, the proposed increase to the Medicare levy to fund the National Disability Insurance Scheme (NDIS), and some of the Government's Housing Affordability reforms announced in the May 2017 Federal Budget, remain outstanding. So where exactly are things at as we close out the 2017 calendar year? This TaxTalk Alert highlights some of the Federal Government's key legislative achievements for 2017, as well as those areas where we are waiting for the relevant law to be implemented.
Federal Parliament's final sitting day for 2017 was Thursday 7 December. It is not scheduled to resume until the Autumn sittings, which commence on 5 February 2018. Therefore, it is clear that it will be at least a few weeks before we see any legislative progress on outstanding measures. In addition, the Government still has to deliver its Mid-year Economic and Fiscal Outlook (MYEFO) expected on Monday 18 December 2017 which may bring newly announced measures to be added to our list of outstanding tax reforms.
What has been achieved this year? The Government has delivered on many new tax measures in 2017, including enacting many measures that were announced in the May 2017 Federal Budget, as well as several new integrity measures. Some of the key tax measures that were enacted during 2017 include:
Diverted Profits Tax: a 40 per cent tax on profits that are artificially diverted from Australia, applicable for tax benefits for income years starting on or after 1 July 2017 (irrespective of whether the scheme was entered into or commenced to be carried out before 1 July 2017).
Increased penalties for late lodgments and false and misleading statements by significant global entities broadly applicable from 1 July 2017.
Housing integrity package: from 1 July 2017, denial of deductions for travel in connection with, and depreciation on certain items in, residential rental property and a new vacancy fee to apply to foreign persons who acquire an Australian residential property at any time from 7:30pm (AEST) on 9 May 2017.
Housing superannuation package: from 1 July 2018, allowing withdrawal of superannuation (up to certain limits) for a home deposit through the First Home Super Saver Scheme (FHSSS), and allowing individuals aged 65 or over to contribute some of the proceeds of the sale of their family home into superannuation.
Organisation of Economic Cooperation and Development (OECD) updated transfer pricing guidelines embedded into domestic law with effect for income years commencing on or after 1 July 2016.
Changes to foreign resident capital gains tax (CGT) withholding from 1 July 2017, increasing the rate to 12.5 per cent and decreasing the exemption threshold for real property to $750,000.
Implementation of the Commissioner of Taxation's statutory remedial power.
Extension of the immediate deductibility of depreciating assets costing less than $20,000 for small business entities (i.e. those with aggregated annual turnover of less than $10 million) by a further 12 months to 30 June 2018.
Tax rate reduction for companies with aggregated turnover of up to $50 million, phased in progressively from 2016-17 to 2026-27.
Indirect taxes, duties and other taxes Goods and Services Tax (GST) on low value goods imported into Australia from 1 July 2018. Removing double taxation of digital currency for GST purposes from 1 July 2017. Reforming the GST treatment of supplies of precious metals from 1 April 2017. Implementation of the Singapore-Australia Free Trade Agreement. Introduction of the major bank levy from 1 July 2017.
What's still outstanding from Government?
Although the Government has made significant progress on its legislative agenda this year, there are a number of measures that remain outstanding since first announced.
Set out below are some of the key tax and superannuation measures that are outstanding as at 14 December 2017, which no doubt will progress during 2018. Note that this list is by no means exhaustive.
Proposed measure Tax rate reduction for all companies with aggregated turnover of more than $50 million, and the additional integrity measure in relation to passive income.
Tax consolidation integrity
Status and proposed application date
Both measures are currently before Parliament. A reduced tax rate for all companies with aggregated turnover of more than $50 million is proposed to be progressively phased in from the 2019-20 to 2026-27 income years. It is also proposed that for the 2017-18 to 2022-23 income years, an additional condition concerning the extent of certain passive income will be applied.
Exposure draft legislation released for consultation in September 2017.
OECD's hybrid mismatch rules.
Reforms to taxation of financial arrangements (TOFA).
New corporate and limited partnership collective investment vehicle (CIV).
Asia Region Funds Passport.
Junior Minerals Exploration Incentive to replace the Exploration Development Incentive. Superannuation governance and integrity measures.
Medicare levy increase.
Housing affordability measures - increased CGT discount for Australian resident individuals investing in affordable housing; the introduction of an Affordable Housing Managed Investment Trust (MIT); and removal of CGT main residence exemption for foreign residents. Changes to collection of GST on new residential property.
Whistleblower reforms. Improvements to the operation and administration of the private company deemed
Measures in this package have various application dates, the majority of which are retrospective. Refer to this TaxTalk Alert for further information.
Exposure draft legislation released for consultation in November 2017. Measures proposed to take effect six months after Royal Assent of amending legislation. Refer to TaxTalk Alert for additional information.
Announced in the 2016-17 Federal Budget, and proposed to apply to income years commencing on or after 1 January 2018. Refer to our summary of these proposed reforms on PwC's 2016-17 Budget website.
Exposure draft legislation for the regulatory framework released for consultation in August 2017. The original policy announcement stated a 1 July 2017 start date for the proposed corporate CIV, with the limited partnership CIV to follow on 1 July 2018. Refer to our summary of these proposed amendments on PwC's 2016-17 Budget website.
Exposure draft legislation for the regulatory framework for the Asia Region Funds Passport was released for consultation in August this year. The proposed application date is unknown.
Currently before Parliament. The incentive is proposed to be available for eligible investments in greenfields minerals exploration companies in the 2017-18, 2018-19, 2019-20 or 2020-21 income years. Refer to this TaxTalk Alert for further information.
A range of measures relating to the governance of superannuation funds are currently before Parliament. These include:
Requiring registrable superannuation licensees to have at least one-third independent directors.
Ensuring employees under workplace determinations or enterprise agreements have ability to choose their fund.
Integrity measures relating to salary sacrifice contributions. Application dates for these measures vary.
Proposed increase in the Medicare levy rate from 2 per cent to 2.5 per cent for the 2019-20 and later income years, and increases in other taxes (such as fringe benefits tax) that are linked to the Medicare levy. These measures are currently before Parliament.
Exposure draft legislation was released for consultation on the affordable housing concessions in September 2017. The measures are proposed to apply to MITs from 1 July 2017, with the increased CGT discount to apply from 1 January 2018. Refer to this TaxTalk Alert for further details. Exposure draft legislation was released for consultation in July 2017 in respect of the removal of the main residence exemption from 7:30pm (AEST) on 9 May 2017. Refer to this TaxTalk Alert for further details.
Exposure draft legislation was released for consultation in November 2017. The legislation is proposed to apply from 1 July 2018. Refer to this TaxTalk Alert for further details.
Currently before Parliament. Proposed to apply from 1 July 2018.
Announced in the 2016-17 Federal Budget, and proposed to apply from 1 July 2018. Refer to our summary of these proposed changes on PwC's 2016-17 Budget website.
dividends rules (Division 7A).
OECD's Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS MLI).
The Australian Government signed the BEPS MLI on 7 June 2017. Its application date is unknown, and will depend on when Australia and other jurisdictions ratified the Convention. Refer to this TaxTalk Alert for further details.
Integrity measure for CGT small business concession to ensure that they can only be accessed in relation to assets used in a small business or ownership interests in a small business.
Announced in the 2017-18 Federal Budget, and proposed to apply to income years commencing on or after 1 January 2017.
Similar business test to improve access to tax losses by companies and certain widely held trusts.
Currently before Parliament. Proposed to apply broadly to income years starting on or after 1 July 2015 (i.e. available in relation to tax losses made by companies or listed widely held trusts for income years (loss years) beginning on or after 1 July 2015).
Understanding the impact of new tax laws is not always easy, but it is important to manage risk in complying with new tax reporting and regulatory requirements.
Equally important is keeping track of announced measures and their status, particularly their date of effect, as often by the time a new measure is enacted into Australian law, the start date for the measure has passed.
Determining the implications of law changes and keeping track of their status is also critical for companies preparing financial statements (such as for the period about to end on 31 December 2017). In particular, companies are required to measure current and deferred income taxes based on the tax laws that are enacted or `substantively enacted' (generally on passage through both Houses of Parliament) as at the reporting date.
Parliament will resume sitting on 5 February 2018. It is hoped that the outstanding measures can be progressed quickly in the New Year to provide taxpayers with much needed certainty, particular with respect to those measures with retrospective start dates
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