Proposed changes to penalties for small business and individuals
On 8 September, the ATO released a consultation paper seeking comments as to how penalties should be applied in situations where there has been a failure to take reasonable care (typically 25% of the shortfall amount) or a failure to lodge an activity statement or return (being 1 penalty unit for every 28 days or part thereof) by these groups of taxpayers.
The ATO proposes to provide one chance before applying a penalty in the following circumstances:
- for certain small business and individual clients, penalties will not be applied for false or misleading statements for failure to take reasonable care for errors made in income tax returns and activity statements
- failure to lodge on time penalties will not be applied for late lodgement of income tax returns and activity statements.
The ATO are interested in hearing from the community regarding this proposal by 24 October 2016. Such a proposal would be welcome by taxpayers who have genuinely attempted to meet their tax obligations.
Draft Independent Review guidelines
The ATO has released a consultation version of its guidelines for Independent Review of a Statement of Audit Position for groups with a turnover greater than $250m.
The guidelines outline the process and criteria for an Independent Review of a Statement of Audit Position Paper.
The ATO are seeking comments on the draft. Having the ability for an Independent Review available is important for taxpayers and it is positive to see the Review and Dispute Resolution group are seeking to improve the guidelines.
Privately owned and wealthy groups
The ATO has released an update on its Reinvention program for privately owned and wealthy groups, which also provides a timeline for the key initiatives planned for the 2016/17 year.
These initiatives aim to provide:
- specially tailored information under the ‘Private Groups’ section on the ATO website
- certainty regarding the use of SMSFs: a new way to approach the ATO to discuss and resolve compliance issues
- increased certainty through safe harbours: based on the boundaries set by the ATO in the application of tax and superannuation law
- improved access to government online services: including the nomination of other representatives to act on behalf of the entity.
These initiatives form part of the ATO’s strategy to improve compliance for privately owned and wealthy groups.
Legislation and Government policy
Budget Savings (Omnibus) Act 2016 No. 55 (Cth)
On 16 September 2016, the Budget Savings (Omnibus) Bill was assented to.
The purpose of the Act is to make a vast amount of minor technical and consequential amendments to various pieces of legislation.
Specifically, the Act amends:
- the Fringe Benefits scheme in A New Tax System (Family Assistance) Act 1999, the Income Tax Assessment Act 1936 and the Social Security Act 1991 to change the way fringe benefits are treated under the income tests for family assistance and youth income support payments and for related purposes
- the Income Tax Assessment Act 1997 to reduce the refundable and non-refundable rates of the tax offset available under the R&D tax offset incentive for the first $100 million of eligible expenditure by 1.5% from 45% to 43.5% for the refundable tax rate and from 40% to 38.5% for the non-refundable tax rate.
Under these amendments, companies with a turnover of greater than $2 million that access the R&D Tax Incentive are set to lose 10 to 15% of the current net after-tax benefit available via the R&D Tax Incentive, as they do not benefit from lower company tax rates. Meanwhile, companies who are in a tax-loss position, who would have previously received 45% of their R&D spend as a refundable offset, will now only receive 43.5%.
Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016 (Cth)
The Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016 (Cth) was introduced into the House of Representatives on 14 September 2016.
The Explanatory Memorandum to the amending Bill describes that the Bill proposes to establish a remedial power for the Commissioner of Taxation (Commissioner) and outline the limitations on the exercise of such power.
Specifically, the Bill inserts new Part 5-10 (Commissioner’s remedial power) into Schedule 1 of the Taxation Administration Act 1953 to allow the Commissioner to make modifications to the operation of a taxation law by disallowable legislative instrument for ensuring that the law can be administered to achieve its intended purpose or object and aims to allow for a more timely resolution of unforeseen or unintended outcomes.
However, before exercising the power under section 370-5, the Commissioner must be satisfied that appropriate consultation has taken place including consultation with a technical advisory group and the Board of Taxation on the implications of the exercise of the power.
The power can only be validly exercised where the modification is not inconsistent with the intended purpose or object of the provision, the modification is reasonable, and has been approved by the Department of the Treasury or the Department of Finance as not having any significant impact on the Commonwealth Budget.
TA 2016/10 AND TA 2016/11
On 15 September 2016 the ATO released Taxpayer Alerts TA 2016/10 and TA 2016/11 dealing with cross border round robin financing arrangements and restructures to avoid the Multinational Anti-Avoidance Law (MAAL) involving partnerships.
TA 2016/10 is concerned with financing structures involving overseas entities where there is a round robin arrangement that involves the generation of interest deductions or the creation of artificial conduit foreign income without any corresponding Australian assessable income. The ATO are currently investigating a number of arrangements and have indicated that it might attract the operation of Part IVA.
TA 2016/11 relates to restructures whereby an entity is interposed between a foreign entity and Australian customers, and that entity treated as the distributor of the products or services. It is then contended that there is no supply being made or income being derived by the foreign entity. The ATO considers such schemes to be artificial and contrived and not legally effective. As such these arrangements will be the subject of closer scrutiny.
Updated PS LA 2005/24
The ATO has also updated PS LA 2005/24 regarding the operation of the General Anti-Avoidance Rules (GAAR). These changes reflect a number of significant court decisions handed down since the practice statement was first issued (2005) and refers to the significant legislative amendments. Interestingly, the ATO advises caution against relying on case law, particularly in respect of interpreting new provisions such as s 177CB (which created two limbs to the tax benefit test, being the annihilation limb and the reconstruction limb).
The ATO have also acknowledged that there is little practical experience in applying the updated GAAR provisions to date, but note that if a taxpayer relies on this practice statement, it will be protected from penalties and interest.
Objections lodged out of time
The SRO in Victoria has also released v3 of draft Revenue Ruling TAA.004v3 regarding objections lodged out of time.
Broadly, the Taxation Administration Act 1997 (TAA) allows a taxpayer who is dissatisfied with an assessment or certain decisions of the Commissioner to lodge a written objection.
The TAA states that an objection must be lodged with the Commissioner within 60 days after the date of service of the notice of assessment, or decision, on the taxpayer, except as provided by section 100. Section 100 allows the Commissioner to permit a person to lodge an objection after the 60-day period.
The purpose of Revenue Ruling TAA.004v3 will be to explain how the Commissioner proposes to apply the discretion in section 100. This will include specifying the process by which a taxpayer may make an application to extend the lodgement period and the factors which the Commissioner will generally consider to be relevant in deciding whether or not to grant permission to lodge an objection out of time under that section.
The SRO is calling for submissions, which must be lodged by Friday 14 October 2016. Hall & Wilcox is currently preparing a submission.
This article was written with the assistance of Ella Simmons, Law Graduate