2016-17 Federal Budget

The Federal Budget for 2016-17 was handed down on 3 May 2016. An analysis of the Budget can be viewed on PwC's dedicated Federal Budget website.

Board of Taxation’s report on Taxation ofIslamic Finance Products

The Government has released the Board of Taxation's final report on the Tax Treatment of Islamic Finance Products. The Board's review confirmed that access to withholding tax exemptions, stamp duty on asset backed finance products, and uncertainty in relation to the application of general income tax provisions are the main impediments to the provision of Islamic finance products in Australia. In its Report, the Board made a number of recommendations to address these issues including:

  • extending access to the existing interest withholding tax exemption to publicly offered Islamic finance products that exhibit equivalent economic characteristics to debentures or to those debt interests that are currently eligible for the exemption
  • encouraging the States and Territories to provide relief from stamp duty so that it does not arise where there is a synthetic disposal or acquisition that would not have occurred had it not been to give effect to a financial arrangement
  • amending the income tax law to ensure that, in respect of a deferred payment arrangement whose main purpose is the raising or provision of debt finance, the finance gain or loss is treated the same as interest on a conventional borrowing
  • extending the application of the hire purchase provisions (which re-characterise an arrangement as a notional sale and loan), and
  • that, in consultation with industry, the Australian Taxation Office (ATO) provide guidance on the current taxation treatment of Islamic finance products to resolve particular areas of uncertainty.

Relevantly, in the 2016-17 Federal Budget, the Government announced that it will remove key barriers to the use of asset backed financing arrangements. Under the proposal announced in the Budget, the Government will clarify the tax treatment of asset backed financing arrangements and ensure that they are treated in the same way as financing arrangements based on interest bearing loans or investments. This measure is proposed to apply from 1 July 2018.

Senate inquiry into corporate tax avoidance

On 22 April 2016, the Senate Standing Committee on Economics issued its second Report on its inquiry into Corporate tax avoidance - Part 2:  Gaming the system. In this Report, the Committee only made one recommendation and that was that the inquiry be extended to explore the implications arising from the Panama Papers.

The Committee also reiterated its earlier expressed view that greater transparency in tax affairs is important both for addressing profit shifting by multinationals and maintaining public confidence in the integrity of the tax system. Whilst noting the voluntary tax transparency code, the Committee was sceptical that a voluntary code will provide the necessary incentives for multinationals with questionable tax practices to disclose their affairs. As a result of this scepticism the Committee expressed the view that a mandatory tax reporting code should be implemented.

With the dissolution of the Senate and the House of Representatives on 9 May 2016 for a general election on 2 July 2016, this and all other Committees ceased to exist.

Increased funding to tackle foreign bribery

On 23 April 2016, the Federal Government announced $15 million in funding over three years to be used to expand and enhance the foreign bribery investigation teams of the Fraud and Anti-Corruption Centre (FAC), which includes representatives of the ATO, the Australian Crime Commission (ACC) and the Australian Transaction Reports and Analysis Centre (AUSTRAC).

ATO strategies to address the cash and hidden economy

On 26 April 2016, the Australian National Audit Office (ANAO) released a report following an audit of the effectiveness of the ATO's strategies and activities to address the cash and hidden economy. The report concludes that the ATO's strategies and activities are consistent with international approaches and guidance provided by the Organisation for Economic Co-operation and Development (OECD), but recommends the ATO establishes and reports against defined indicators and targets for the measures of success in its Community Participation Framework, and that it also reports on the achievement of indirect revenue targets associated with the Federal Budget funding for ATO cash economy activities.

Senate’s report on Economic Security for Women in Retirement

On 29 April 2016, the Senate Economics References Committee published its report on the review of Economic Security for Women in Retirement. The Committee made recommendations intended to increase female participation in the workforce and improve superannuation savings, including that superannuation tax concessions be re-targeted to ensure that they are more equitably distributed and assist people with lower superannuation balances; the concessional superannuation contributions of lower income earners are not taxed at a higher rate than their ordinary income, and the Government commit to retaining the Low Income Superannuation Contribution beyond 30 June 2017; the current schedule for the increase in the Superannuation Guarantee (SG) rate to 12 per cent be implemented earlier; and that the SG exemption for employees with salary or wages less than $450 in a month be removed.

Revised FIRB tax conditions

The Foreign Investment Review Board (FIRB) has released revised tax conditions that will be applied to foreign residents seeking investment approval in Australia. This LegalTalk Alert provides an overview of the revised conditions.

Treasury consultation on encouraging venture capital investment in Fintech

Released in March 2016, the Commonwealth Government’s FinTech statement is committed to encouraging investment in FinTech firms by ensuring that tax concessions are available for venture capital investments in FinTech startups, including banking and insurance activities. On 3 May 2016, the Commonwealth Treasury commenced its consultation process by formally asking interested parties to make submissions with respect to the availability of venture capital tax concessions for investment in FinTech, banking and insurance activities, including ideas on how to ensure that tax concessions are available for the right FinTech startup activities. The closing date for submissions is 3 June 2016.

Private and Public Ancillary Fund Guidelines

The Commonwealth Government has made amendments to the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011, which set minimum standards for the governance and conduct of ancillary funds and their trustees. The new Guidelines commenced on 5 May 2016.

Deductible donationsfor environmental organisations

On 4 May 2016, the House of Representatives Environment Committee presented its Report into the Register of Environmental Organisations, a Government scheme that enables eligible environmental organisations to receive tax-deductible donations. The Committee identified key areas of possible reform including measures relating to the operation of the Register, activities undertaken by organisations listed on the Register, and the integrity of the current regulatory framework for registered organisations.

Extractive Industries Transparency Initiative

On 6 May 2016, the Commonwealth Government announced that Australia will join the Extractive Industries Transparency Initiative (EITI), an international standard for increased transparency and accountability in the oil, gas and mining sectors. Countries implementing the EITI disclose information on taxes and other payments made by companies in these sectors to governments as well as other information such as licences, contracts, production and exports.

Parliamentary committee report on innovation

On 3 May 2016, the Joint Select Committee on Trade and Investment Growth tabled its Report - Inquiry into Australia's Future in Research and Innovation. The Committee recommended the identification of potential new innovation industries; a review of overseas assistance models to inform additional ways of encouraging commercialisation of Australian innovation; a timely review of the National Innovation and Science Agenda (NISA) initiatives; and careful examination of possible measures to encourage the innovation sector, including that Treasury undertake a close examination of a patent box scheme and a proposal for an Advanced Manufacturing Tax.

Senate report on 2015 Annual ATO report

On 5 May 2016, the Standing Committee on Tax and Revenue tabled the  2015 Annual report of the  Australian Taxation Office: first report. The recommendations made in the report include that the ATO make a clear public statement of its timetable for the transition to the new tax agent platform; the ATO issue notices of assessment whenever an assessment is finalised; and that for future draft public rulings the ATO consider a provision that they cease on a certain date or when they are made redundant by legislation.

Senate report on external scrutiny ofATO

On 5 May 2016, the Standing Committee on Tax and Revenue tabled its report into the External scrutiny of the Australian Taxation Office. To increase transparency, the Committee recommended that the Auditor General, Commonwealth Ombudsman, and Inspector-General of Taxation (IGOT) examine ways to increase the profile of their co-ordination activities, and improve explanations in reports of why each review is conducted and how it fits in with past and other current reviews. The Committee also recommended that communication before, during and after reviews be improved.

In addition, the Committee recommended that the IGOT examine opportunities to conduct targeted reviews based on complaints and emerging issues in tax administration, and to work with the ATO to develop a mutually efficient system for such reviews. It also recommended that the Standing Committee on Tax and Revenue consider expanding its biannual inquiries into the ATO to include scrutiny of the IGOT, or alternatively to conduct a separate dedicated regular inquiry into the IGOT's annual report.

High Court grants taxpayer special leave

The High Court has granted the taxpayer special leave to appeal against the Full Federal Court decision in Blank v Commissioner of Taxation [2015] FCAFC 157. In that case, the Commissioner assessed the taxpayer on monies received in respect of the taxpayer’s participation in an employee incentive plan. At first instance, Justice Edmonds held that the amounts received were amounts of ordinary income, and were not amounts received on capital account for disposal of rights acquired under the incentive plan.

The majority in the Full Court refused the taxpayer’s appeal. Justice Pagone dissented from this decision, since in his view the amounts were received for disposal of a bundle of rights, and were not amounts received as income according to ordinary concepts.

On 16 May 2016, the Chief Justice of the High Court granted leave for the taxpayer to appeal the Full Court’s decision. On behalf of the taxpayer, Counsel submitted that “Justice Pagone was clearly correct in his Honour’s conclusion because the shares and associated rights were capable of being turned to pecuniary account in the relevant sense, and the relevant sense is the sense indicated by Lord Reid in Abbott v Philbin.”