Improving disclosure for ESS

The Minister for Revenue and Financial Services has announced the release of exposure draft legislation and explanatory material, which aim to make it easier for employers to provide incentives to their employees through Employee Share Schemes (ESS). This initiative is part of the Government's National Innovation and Science Agenda (NISA). In particular, the Government intends to amend the Corporations Act 2001 and remove the requirement for the Australian Securities and Investments Commission to place eligible ESS disclosure documents on a public register. Comments on the draft legislation were due to be made by 2 November 2016. A consultation paper on options to make ESS more user friendly has also been released. Submissions close on 7 December 2016.

Draft PCG on Fixed Trusts

The ATO has issued Draft Practical Compliance Guideline PCG 2016/D16 on Fixed Trusts. This Draft Practical Compliance Guideline (PCG) sets out the factors the Commissioner will consider when exercising discretion to treat an entitlement in a trust as being a fixed entitlement, which results in a trust being treated as a fixed trust for purposes of the trust loss provisions.

By way of background, a trust will be a fixed trust if the beneficiaries hold `fixed entitlements' to all of the income and capital of the trust. It is well known that it is difficult for many trusts to satisfy the legislative definition of `fixed trust' unless the Commissioner exercises his discretion to treat the beneficiaries' interests as being vested and indefeasible.

The draft PCG is meant to provide taxpayers with greater certainty about when the Commissioner will exercise his discretion, and notes in broad terms, that the Commissioner must consider the following:

  • the circumstances in which the interest is capable of not vesting or being defeated
  • the likelihood of the interest not vesting or being defeated, and
  • the nature of the trust.

The Draft also sets out examples of specific circumstances which will affect the Commissioner exercising his discretion.

CIV non-resident withholding taxes consultation paper released

The Minister for Revenue and Financial Services has released a discussion paper on collective investment vehicle (CIV) non-resident withholding taxes. This follows the 2016-17 Australian Federal Budget announcement to introduce two new internationally recognised CIVs. The new vehicles will also support participation in the Asia Region Funds Passport. Submissions can be until 2 December 2016.

ATO puts trusts on notice with new Taxpayer Alert

As part of the ATO's review of arrangements detected by the ATO's Trusts Taskforce that appear to be designed to exploit the proportionate approach to trust taxation, the ATO has issued Taxpayer Alert TA 2016/12 dealing with trust income reduction arrangements.

The Taxpayer Alert is not concerned with arrangements where differences arise between the trust income and the taxable net income of the trust, merely because:

  • taxable net income includes amounts such as capital gains that are not traditionally regarded as trust income or amounts that do not represent an accretion of value to the trust such as franking credits
  • proper accounting creates differences between when and how amounts are recognised for tax and accounting purposes.

However it is concerned by contrived arrangements that are deliberately structured to reduce the trust income by a significant part of the economic benefit that is reflected in the taxable net income of the trust, including for example, an arrangement where an in-specie capital distribution is purportedly charged against trust income, or a revaluation of a share investment and subsequent receipt of a dividend that creates an accounting loss for the trust.

Federal Court issues New Taxation Practice Note

The Federal Court has issued a new Taxation Practice Note (Tax -1). This sets out arrangements for the management of tax cases within the National Court Framework which relate to tax appeals to the Federal Court, pursuant to Part IVC of the Tax Administration Act 1953 or appeals from the Administrative Appeals Tribunal. The practice note applied from 25 October 2016.

ATO's Annual Report 2015-16

The ATO has released its annual report for the 2015-16 financial year on 1 November 2016. Key highlights in the report include:

  • ATO initiatives to improve client experience, including myTax to streamline tax returns, myDeductions, and business performance check tools.
  • The International Structures and Profit Shifting Program has raised AUD1.2 billion in liabilities since it started in 2013.
  • The ATO has litigated fewer cases in 2015-16; this is attributed to the increased use of alternative dispute resolutions, new settlement guidelines and the use of independent ATO facilitators. The ATO has achieved a litigation success rate of 85 per cent (77 per cent of cases fully favourable to the ATO and 8 per cent of cases partly favourable to ATO). The number of appeals to the Administrative Appeals Tribunal against decisions by the Commissioner has fallen by 26 per cent.
  • An analysis of the estimated `tax gap' for indirect taxes, PAYG withholding and fuel tax credits for the 2014-15 year (the tax gap is an estimate of the difference between what the ATO collects and the amount that would have been collected if every taxpayer were fully compliant). The ATO plans to develop tax gap estimates for all of the taxes and programs it administers.
  • New challenges and risks identified for 2017 include:
    • mounting public concern with the impact of global economic forces on the integrity of the tax system
    • new tax measures, such as the extension of GST to consumer imports of digital services and low-value goods, and a simpler BAS.

Subsequently, the House of Representatives Standing Committee on Tax and Revenue has commenced its review of the ATO's 2015-16 Annual Report, which will focus on topics including:

  • progress on new technology projects, including myTax
  • relationships with tax practitioners
  • how the ATO is monitoring and assisting individuals and very small businesses who are not computerised to handle the new environment
  • how does the ATO benchmark its performance in introducing new IT
  • an update on measuring the tax gap, any new estimates of particular taxes and of total revenue impacts, and an overall timetable for completion
  • the new strategy for addressing the cash economy, and its effectiveness
  • a progress report on dealing with the backlog of draft public rulings, and
  • an update on the indicators of perceptions of fairness in disputes and other performance information as listed in the Committee's previous report.

IGOT Annual Report 2015-16

The Inspector General of Taxation (IGOT) released his annual report on 28 September 2016. Some of the key points in the report include:

  • For the 2015-16 financial year, the IGOT received a total of 2148 complaints of which over 95 per cent have been processed and finalised within the same period the most common complaints related to ATO's debt collection action, delays in processing activity statements and tax returns and the ATO's audit activities.
  • As at 30 June 2016, two IGOT reviews were finalised the Debt collection and Tax practitioners reviews. The Taxpayers' Charter and taxpayer protections review and the employer obligations audit review are currently in progress.

Update on tax transparency initiatives

Released for consultation on 31 October 2016, the Open Government National Action Plan makes the following transparency and accountability commitments in relation to taxation matters:

  • Improve whistle-blower protections in the tax and corporate sectors: Australia will ensure appropriate protections are in place for people who report tax evasion or avoidance, corruption, waste, fraud and misconduct within the corporate sector. Draft legislation is expected in May 2017.
  • Beneficial ownership: Australia will work to improve transparency of information on beneficial ownership and control of companies available to competent authorities.

Consultation paper is expected at the end of this year.

  • Natural resource transparency: Australia will work towards compliance with the Extractive Industries Transparency Initiative (EITI) standard and continue to support the application of EITI principles around the world. Australia's first EITI report is expected to be produced in mid-2018.

Submissions were due to be made by 14 November 2016.

ATO large market engagement Justified Trust

The ATO is using the concept of `justified trust', developed by the developed by the Organisation for Economic Cooperation and Development (OECD), to engage with large market taxpayers. To achieve justified trust, the ATO seeks objective evidence that would lead a reasonable person to conclude a particular taxpayer paid the right amount of tax. Within this content, when engaging with a taxpayer, the ATO has indicated that it will review four key areas:

  • understanding a taxpayer's tax governance framework
  • identifying tax risks flagged to the market
  • understanding significant and new transactions, and
  • understanding why accounting and tax results vary.

ATO Key Taxpayer Engagement approach is coming soon

Following a pilot which is currently being run, the ATO will roll out its key taxpayer engagement (KTE) approach to 130 largest public businesses (those described as higher consequence taxpayers for income tax, GST or excise). The approach has been developed in response to client feedback and Australian National Audit Office recommendations. The ATO expects most engagements will begin in the 2016-17 year.

Senate Economics Estimates update

The Senate Economics Legislation Committee met on 19 October 2016, at which representatives of the Treasury, the ATO and Inspector-General of Taxation were in attendance. Matters discussed included: ATO staffing, the ATO's access to the Panama Papers, petroleum resources rent tax, modelling around the proposed corporate tax rate cuts, and multinational tax avoidance.