Senate inquiry on digital currencies

On 2 October 2014 the Senate referred an inquiry into digital currency to the Senate Economics References Committee for inquiry and report by the first sitting day in March 2015.

The Terms of Reference request refers to the following:

  1. How to develop an effective regulatory system for digital currency that:
    1. ascertains the most appropriate definition of digital currencies under Australian tax law
    2. promotes competition and growth of the digital currency industry
    3. ensures ongoing stability in the financial services industry
    4. secures protection of consumers and businesses against illegal activity
    5. incorporates digital currencies into Australia's national security framework, and
    6. ensures the financial stability of the industry.
  2. The potential impact of digital currency technology on the Australian economy, including the: 
    1. payments sector
    2. retail sector, and
    3. banking sector.
  3. How Australia can take advantage of digital currency technology to establish itself as a market leader in this field.
  4. Any other related matters

Submissions close on 28 November 2014.


Competitiveness Green Paper

On 20 October 2014 the Minister for Agriculture announced the release of the Agricultural Competitiveness Green Paper which canvasses a range of agricultural policy issues such as foreign investment, drought, biosecurity, international competitiveness, water and natural resource management. Although the Paper indicates that tax policy changes should be considered in the context of the Tax Reform White Paper, it does seek input on tax proposals to amend income tax ‘averaging provisions’, alter ‘non-commercial loss’ rules, reduce the complexity of depreciation for farm plant and equipment, reduce and better target the Wine Equalisation Tax rebate and change the eligibility boundaries for the Zone Tax Offset. Submissions are due by 12 December 2014.

Providing certainty for superannuation fund mergers

The Commonwealth Treasury has released exposure draft legislation to give effect to a measure which would amend the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that individuals whose superannuation benefits are involuntarily transferred from one superannuation plan to another plan without their request or consent are not disadvantaged through the application of the ‘proportioning rule’ to their benefits. The proportioning rule removes an individual’s ability to reduce their potential tax liability by manipulating the tax free and taxable components of their superannuation benefits. The exposure draft legislation also includes measures to amend the Taxation Administration Act

1953 to remove the need for a roll-over benefit statement to be provided to an individual whose superannuation benefits are involuntarily transferred.

Government response to report on Family Business in Australia

On 7 October 2014, the Commonwealth Treasury has issued the Government’s response to the report by the Parliamentary Joint Committee on Corporations and Financial Services into Family Businesses in Australia. The report included a number of tax related recommendations including that the Board of Taxation, in its review of Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936), and Treasury, in its analysis of options to reform the trust taxation provisions, consider the potential effects of these provisions on the family business sector. The Government has agreed in principle to most of the recommendations of the report.

CGT exemption for compensation and insurance

The Commonwealth Treasury has released exposure draft legislation to give effect to minor amendments to the operation of the capital gains tax (CGT) provisions in the ITAA 1997, namely a measure to ensure a CGT exemption is available to trustees and beneficiaries who receive compensation or damages for certain insurance policies. The amendments also ensure that the CGT exemption available to a trustee of a superannuation entity covers insurance policies related to injuries or illness.

Miscellaneous amendments to taxation laws

The Commonwealth Treasury has released exposure draft legislation on proposed miscellaneous amendments to the taxation laws, including, among other things:

  • an amendment to clarify that sub-section 44(1A) of the ITAA 1936 does not operate for the purposes of determining whether a payment made by a ‘corporate limited partnership’ is a dividend under section 94L of the ITAA 1936 to ensure that a corporate limited partnership can effectively return capital to partners
  • minor technical amendments to the self- assessment system for indirect taxes, and
  • various technical amendments in relation to Petroleum Resource Rent Tax.

Final Budget outcome for the 2013-14 financial year

On 25 September 2014 the Commonwealth Treasurer released details of the Final Budget

Outcome (FBO) for the 2013-14 financial year. According to the Treasurer’s media statement, the FBO for the 2013-14 financial year is a deficit of $48.5 billion.

The Final Budget Outcome for the 2013-14 financial year is located on the Common wealth’s Budget website.

Repeal of small business depreciation concessions and requirement to amend claims

As reported in the October 2014 TaxTalk Monthly, certain capital allowance concessions available to ‘small business’ were removed from the income tax law through the enactment of the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014 (the amending Act), which received Royal Assent on 5 September 2014. The changes to the law (i.e. the removal of the concessions) apply  from 1 January 2014 for ‘small business’ entities with a 30 June tax year end.

In view of the fact that taxpayers may have lodged 2013 - 14 year tax returns applying the tax law that existed prior to enactment of the amending Act (old law), it may be necessary for these returns to be amended so that the capital allowance claim is based on the amended law.

In a recent publication, the Commissioner of Taxation confirms that taxpayers who have claimed the incorrect amount of depreciation by applying the old law will need to submit an amendment request to the Commissioner, and that where the amendment is requested within a reasonable timeframe, shortfall penalties and shortfall interest charges (SIC) will not be applied.

To ensure penalties and SIC are not imposed, the amendment request needs to state:

‘This amendment relates to changes in the threshold for the instant asset write off. The ATO has advised that shortfall interest charges are not to be applied’

The Commissioner goes on to state that if the 2013–14 tax return has not yet been lodged, the new law must be applied in preparing and lodging the return.

Exploration Development Incentive

On 10 October 2014, Treasury released exposure draft legislation for the proposed Exploration Development Incentive (EDI), available to Australian-resident investors in small mineral exploration companies. Under the incentive, investors may be entitled to the EDI tax offset or additional franking credits where the company in which they are a member issues them an exploration credit. Companies may issue credits to their shareholders up to a capped amount in an income year, with the cap based on the company’s exploration expenditure and tax loss for the relevant income year, adjusted by a modulation factor to ensure that the total value of credits provided to all taxpayers in respect of an income year does not exceed $25 million in respect of 2014-15, $35 million for 2015-16 and $40 million for 2016-17.

The incentive is not available in respect of exploration expenditure incurred in income years after 2016-17.

Withdrawal of excess non-concessional superannuation contributions

The Commonwealth Treasury has released exposure draft legislation for the to give effect to the 2014-15 Federal Budget measure to allow individuals the option of withdrawing superannuation contributions in excess of the ‘non-concessional contribution’ cap made from 1 July 2013 and associated earnings, with these earnings to be taxed at the individual's marginal tax rate.

Updated Code of Settlement

The Australian Taxation Office (ATO) has released an updated Code of Settlement which sets out the ATO policy on the settlement of taxation and superannuation disputes, including disputes involving debt. It has issued a Practical Guide to the Code to provide further details and practical examples to assist the ATO and taxpayers in considering settlement. It has also released a set of Model Settlement Deeds for use in simple or complex income tax matters, goods and services tax issues and for issues before the Administrative Appeals Tribunal.

With the updated Code of Settlement, the ATO has withdrawn Practice Statement PS LA 2007/5: Settlements.

Specialised payment systems data matching program

The ATO has published the protocols for its data matching program which will match data obtained from specified providers of payment services (such as BPay) with information reported in tax returns. The collection of the 2013-14 financial year data under this program protocol is expected to occur in the period from October to December 2014.

Skilled migration

On 14 October 2014, the Commonwealth Government announced that it would reform the ‘457 visa programme’ for skilled migrants, while maintaining strong safeguards against abuse.

In its media statement, the Government announced that following an independent review of the 457 programme, the Government will:

  • streamline the processing of sponsorship, nomination and visa applications to reward low risk applicants and refocus compliance and monitoring activities on high risk applicants
  • increase the sponsorship approval period from 12 to 18 months for start-up businesses, to give startups more time to make their businesses sustainable
  • provide greater flexibility in relation to English language requirements for 457 applicants, to ensure that the standards required are appropriate for the industries and occupations being sought
  • retain the Temporary Skilled Migration Income Threshold at $53,900, ahead of a review within the next two years, and
  • leave existing safeguards in place to ensure that the 457 visa programme is not rorted. Specifically, it will continue to be a requirement that a foreign worker receives the same market rates and conditions that are paid to an Australian doing the same job in the same workplace.

The Government also said that it will also expand and improve the Significant Investor Visa

(SIV) programme. At present, SIVs are available for applicants having an eligible investment in Australia of A$5 million, for a minimum of four years.

Changes will include:

  • streamlining and speeding up visa processing, further promoting the programme globally and strengthening integrity measures, to increase the attractiveness of investing and settling in Australia while ensuring Australia’s interests are protected
  • aligning the criteria for eligible investments with the Government’s national investment priorities. The investment eligibility criteria will be determined by Austrade in consultation with key economic and industry portfolios
  • introducing a Premium Investor Visa (PIV), offering a more expeditious, 12 month pathway to permanent residency than the SIV, for those meeting a $15 million threshold, and
  • tasking Austrade to become a nominating entity for the SIV (complementing the current State and Territory governments’ role as nominators) and to be the sole nominating entity for the PIV.

The changes to the SIV will take effect during 2014-15, with the Premium Investor Visa to be introduced from 1 July 2015.

The Government will continue to consider the recommendations of reviews into both the 457 and SIV programme and make further changes where necessary.

Taxpayer unable to withdraw notice to the Commissioner requesting determination of taxation objection

The recent interlocutory decision of Justice Edmonds in McGrouther v Commissioner of Taxation [2014] FCA 1102 (McGrouther) considers the purported withdrawal of a notice (‘section 14ZYA notice’) given to the Commissioner pursuant to sub-section 14ZYA(2) of the TAA. Under that provision, a taxpayer "may give the Commissioner a written notice requiring the Commissioner to make an objection decision". The notice can only be given where the Commissioner has failed to make the objection decision within the time limits specified in subsection 14ZYA(1). Where the Commissioner fails to make the objection decision by the end of 60 days after the written notice is given to the Commissioner, sub- section 14ZYA(3) provides that the Commissioner will be taken to have disallowed the objection under subsection 14ZY(1). This deemed disallowance then has the effect of triggering a right to appeal the adverse objection decision under Part IVC of the TAA.

In McGrouther, Justice Edmonds concludes that a section 14ZYA notice cannot be withdrawn or revoked. The fact that the purported withdrawal had been agreed to by the taxpayer and the Commissioner was of no consequence. The result  in McGrouther was that the Commissioner, who had deferred the examination of the taxpayer  under section 264 of the ITAA 1936 for the purposes of considering the taxpayer’s taxation objection, on the condition that the taxpayer withdraw the section 14ZYA notice in respect of the objection, was deemed to have disallowed the objection 60 days after the written notice had been given. The notice to the Commissioner  withdrawing the section 14ZYA notice was of no effect.

This deemed disallowance of the objection triggered for the taxpayer, a right of appeal to the Federal Court. Once the appeal against an adverse objection decision is before the Court, the parties to the dispute must comply with the Court rules of discovery. Any action by the Commissioner to thereafter apply section 264 needs to be carefully considered so as to ensure that such action is not in contempt of Court.