| Here is a round-up of the changes in Legislation this June.
The election has put the brakes on the reforms announced in the Budget leaving advisers to take a risk management approach until the election outcome is known. Of note this month is the release of the new withholding tax forms required for sales of certain property transactions from 1 July 2016. It is vital for practitioners to be up to date with these rules to ensure that clients can effectively manage the cash flow implications that can be triggered under these rules as well as protect them against unwanted penalties for failing to comply with their obligations. From Government Tax transparency code Treasury has released a code for greater public disclosure of tax information by businesses, particularly large multinationals. The code was initiated following the 2015 Budget, when the then Treasurer asked the Board of Taxation to develop a code for greater public disclosure of tax information by businesses, particularly large multinationals. A consultation paper was initially released on 11 December 2016 with the final report released on 3 May 2016. The final report sets out details of a proposed voluntary tax transparency code. The code has been designed having regard to the information requirements of parties such as social justice groups, media, analysts and shareholders as well as the ‘person in the street’ rather than the ATO which already has access to far more detailed information about the tax affairs of businesses. This report takes into consideration existing tax transparency measures (with first reporting in December 2015 for certain entities), balancing the public interest in increased transparency with concerns of businesses in relation to disclosure of information and the type of information that should be disclosed. It is recommended that the code would only apply to medium and large businesses (i.e. turnover of A$100 million or more). More information
Have your say on ways to improve the tax system The Board of Taxation has launched a new initiative which invites the broader community to suggest ideas and comment on ways that the tax system could be improved. The aim is to encourage interested parties to be involved in the process of reducing red-tape and increasing transparency and efficiency in the tax system. Stakeholders with day to day experience in navigating the tax system are encouraged to submit ideas for improvement, which will be prioritised by the community, including tax bodies, tax professionals, businesses or members of the public. More information:
Transactions on Chi-X excluded from new withholding rules Another regulation issued on 5 May 2015 deals with the foreign resident capital gains withholding requirements that take effect from 1 July 2016. Certain categories of transactions are excluded from the scope of the foreign resident capital gains withholding regime, including real property transactions where the first element of cost base (i.e. sale price) is less than $2 million and ‘on-market transactions’, which are transactions that are conducted on an approved stock exchange. This regulation ensures that transactions conducted on the Chi-X Australia Pty Ltd exchange are excluded from the new rules. Transactions conducted on the ASX Limited exchange are already excluded. More information
HELP repayment threshold The 2016-17 repayment income level thresholds at which an individual taxpayer will be required to repay their existing HELP threshold has been issued. The minimum repayment income for the 2016-17 income year is $54,868 More information:
From the ATO Foreign resident capital gains withholding The ATO has issued further information for taxpayers who could potentially be exposed to the new foreign resident capital gains withholding provisions that apply to contracts entered into from 1 July 2016, including:
Once the ATO has processed the applications and issued the relevant certification or variation, this needs to be provided to the purchaser on or before the day of settlement to ensure that either no withholding is required or that the rate is less than 10%. In addition, the ATO has issued a fact sheet for real estate agents that outlines the withholding payment obligations with a series of FAQs that will provide guidance to real estate agents whose clients may be impacted by these requirements. More information
Lodgement deferral requests The ATO has reminded tax professionals that the number of deferral requests it receives increases around peak lodgement dates and they may take up to 28 days to process any deferral requests. No further deferral requests should be applied for the same client within the 28 day processing period, as that could cause delays with the processing of the original request. More information
Changes to practitioner lodgement service The ATO has announced that the Practitioner Lodgement Service (PLS) will be the main electronic lodgement channel from July 2016. The PLS will gradually replace the Electronic Lodgement Service (ELS), which will remain available until 31 March 2017 to ensure that tax professionals have access to an online lodgement service and to allow time for them to transition their practice software to one that is Standard Business Reporting (SBR) enabled. The ATO has also mentioned that the relevant software providers will advise tax practitioners if they need to take any immediate action, when they expect to make this software available to their clients and other action that may be required to make the transition. It may be advisable to confirm this directly with the relevant software provider. The ATO has also provided answers to a number of FAQs to assist tax professionals that may have queries. More information
Latest news on tax law and policy The ATO has provided general information regarding recently announced changes to tax legislation and policy, including the 2016-17 Budget handed down on 3 May 2016 and a link to the relevant budget papers and the proposed effective start date. This is designed to assist taxpayers regarding the status of these changes. The announcement also includes that the Government is currently in a caretaker role and that any announced but not enacted measures will be a matter for the incoming Government to decide. That is, don’t expect progress on most of the measures announced in the 2016-17 Budget until after the Federal Election. More information
Checklist for claiming R&D tax incentive The ATO has released a checklist to help assess eligibility for the R&D tax incentive. The ATO has also provided guidance on keeping accurate records to substantiate and demonstrate the eligibility of the R&D activities, how to register their R&D activities with AusIndustry and how to lodge the R&D tax incentive claim for the relevant tax year. Practitioners should be aware that both the ATO and AusIndustry have been active in reviewing claims made under the R&D tax incentive so it is important to work through the rules carefully and keep appropriate records to support the claim that is made. More information
Simpler BAS Following comments made in the Federal Budget, the ATO has announced that it is working towards reducing GST compliance costs for small businesses by reducing the amount of GST information that needs to be disclosed on business activity statements. The ATO will begin testing the proposed changes with small businesses, tax professionals and software developers from 1 July 2016. The simpler reporting for small business should start from 1 July 2017. More information
Property development and trusts The ATO has been focusing on the use of trust structures for property development activities in recent years. One of the ATO’s concerns is that the CGT discount is being claimed in situations where the trust is really engaged in a property development business or a profit making undertaking that should be taxed on revenue account. The ATO has announced that as part of the Trusts Taskforce, 75% of the cases they have reviewed have been escalated for audit. The ATO will continue to target arrangements where it appears that property is being developed for sale at a profit to ensure that the correct income tax and GST treatment is adopted. The ATO has also indicated that it will be reviewing certain arrangements before the property is sold so it will be important to ensure that property development projects are reviewed carefully to check whether they should be taxed on capital or revenue account and adequate records are kept to support the position being taken. More information Real property transfers report Effective from 1 July 2016, all state and territory revenue collection agencies will need to collect and report information to the ATO about transfers of freehold or leasehold interests in real property located in their state or territory on a quarterly basis. The information required to be reported includes identity data of the purchaser/transferee and vendor/transferor, property details, and other transactional information such as the transfer price, contract date and settlement date. It is expected that the ATO will use this data in targeting review and audit activities, especially for those involved in property development activities. More information
Rulings, IDs & determinations
FBT – car parking TD 2016/7 – Fringe benefits tax: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2016 The Commissioner has issued a Taxation Determination confirming that the car parking threshold for the FBT year commencing on 1 April 2016 is $8.48 (replacing the rate of $8.37 which applied for the 2015/16 FBT year). This would be used by employers that wish to verify if there is a commercial car parking station which charges a fee that is greater than the threshold and that is located within a one kilometre radius of the parking space being provided by the employer. Luxury car tax threshold LCTD 2016/1 Luxury car tax: what is the luxury car tax threshold and the fuel-efficient car limit for the 2015-16 financial year? This determination sets out the LCT threshold for the 2016-17 tax year, being $64,132 (increased from $63,184 for the 2015-16 tax year), and the fuel efficient car limit for the 2016-17 tax year, being $75,526 (increased from $75,375 for the 2015-16 tax year). Please note that the thresholds for luxury car tax purposes are different to the thresholds that apply for tax depreciation and GST purposes. Also, the separate fuel efficient car limit is not relevant under the tax depreciation or GST rules. More information Enterprise in Australia for non-residents LCG 2016/1 GST and carrying on an enterprise in the indirect tax zone (Australia) This LCG provides guidance regarding a test within Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 (see below) in relation to when an enterprise is carried on in the indirect tax zone and specific issues in applying this test to non-resident entities. This will impact certain supplies of services and digital products from 1 July 2017. The guidance in this LCG is aimed at determining the extent to which an entity is accountable for GST on supplies or acquisitions. When applying the test, if the non-resident entity has a “GST enterprise presence”, they will be treated the same way as a domestic entity for GST purposes. If they do not have a GST enterprise presence, then the non-resident entity would generally only be subject to GST on supplies to unregistered entities in Australia (i.e. certain supplies of digital products to Australian consumers, not businesses. More information Guidance on new rules for managed investment trusts The ATO has issued 13 Law Companion Guidelines (LCGs) dealing with Managed Investment Trusts (MITs) (LCGs 2015/4 to 2015/15 and LCG 2016/4) which are intended to provide guidance to taxpayers and tax practitioners dealing with MITs under the new rules that have recently been introduced. Practitioners assisting MITs with their tax affairs might like to refer to these documents as well as other guidance material when trying to navigate the new rules. More information
Payments not royalties Commissioner of Taxation v Seven Network Limited [2016] FCAFC 70 The Full Federal Court has dismissed the Commissioner’s appeal from Seven Network Limited v Commissioner of Taxation [2014] FCA 1411 and found for the taxpayer, confirming that payments made by the taxpayer to the International Olympic Committee (IOC) to broadcast the Olympics were not royalties under the Australia/Switzerland Double Tax Agreement (DTA). The Full Federal Court held that the payment was not for any forbearance in respect of the use of any relevant property or right which belonged to the IOC or any other relevant entity, which resulted in it not being a royalty for the purposes of that DTA (as the relevant article referred to “for total or partial forbearance”). As a result, the taxpayer was not required to withhold part of the payments it made to the IOC. The case covered whether the payment was a royalty within the meaning of the specific DTA that applied, however it does provide guidance regarding the interpretation of what a royalty is that could be helpful when dealing with similar issues under other DTAs.
GST and commercial residential premises This case dealt with issues relating to the supply of commercial residential premises and whether GST applied to supplies made by the owner of a hotel. In this case the hotel was owed by a unit trust, but was operated by a discretionary trust under the terms of a management agreement between the two trusts. The unit trust sought a refund of GST paid in prior years on the basis that it had been making input taxed supplies of residential premises. The taxpayer was arguing that the discretionary trust was actually providing the accommodation to guests of the hotel which meant that the owner of the hotel was not making supplies of commercial residential accommodation. The ATO rejected this argument. The AAT agreed with the ATO, finding that the unit trust (i.e., the owner of the hotel) was making supplies of commercial residential accommodation. While the discretionary trust had been engaged to operate the hotel, it was doing this in its capacity as agent for the owner of the hotel. As a result, the owner of the hotel was treated as providing the accommodation to guests and as it owned or controlled the hotel it was making taxable supplies of residential accommodation.
Legislation Tax and Superannuation Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2016 This Bill increases the Medicare levy low-income thresholds for certain categories of individuals and families in line with changes in the consumer price index. The phase-in limit for individuals and taxpayers eligible for the SAPTO have also been increased. The Bill received Royal Assent on 4 May 2016 and the changes are effective from the 2015-16 tax year onwards. Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 This Bill was introduced on 16 March 2016 and received Royal Assent on 5 May 2016. The Bill contains tax incentives for early stage investors and venture capital investment and were originally announced as part of the Governments National Innovation and Science Agenda in December 2015. The incentives are designed to encourage new investment in Australian early stage innovation companies with high growth potential by providing investors with a tax offset and capital gains exemption for their investments. A non-refundable carry-forward tax offset of 20% of the value of the investment subject to a maximum offset cap amount of $200,000 will be available. In addition, investors may disregard capital gains realised in shares in qualifying investments that have been held between one and ten years. Investors must disregard any capital losses realised on shares held for less than ten years. These amendments apply in relation to shares issued on or after 1 July 2016, although some investors in early stage venture capital limited partnerships (ESVCLP) that became unconditionally registered on or after 7 December 2015 may qualify for an ESVCLP tax offset from that date.
Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015 Income Tax (Attribution Managed Investment Trusts – Offsets) Bill 2015 Income Tax Rates Amendment (Managed Investment Trusts) Bill 2015 Medicare Levy Amendment (Attribution Managed Investment Trusts) Bill 2015 A package of four Bills received Royal Assent on 5 May 2016, which made long awaited changes to the taxation treatment of certain categories of managed investment trusts. In addition to establishing a new class of attribution managed investment trusts (AMIT) and confirming tax treatment of certain transactions for AMITs, this Bill also makes changes to the withholding provisions that apply when a MIT makes a fund payment to an entity that has a place of payment or address outside Australia. In addition, changes have also been made to exclude certain superannuation funds and exempt entities from the application of the 20% tracing rule for public trading trusts.
Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 This Bill was another that received Royal Assent on 5 May 2016 before the Government dissolved and contains changes to the imposition of GST on digital products and services acquired by Australian consumers as well as changes to the Farm Management Deposit rules. Effective from 1 July 2017, certain supplies of digital products and services to Australian consumers (not businesses) by overseas suppliers will be subject to GST in Australia, even if the supplier does not have a physical presence in Australia. These rules would apply to supplies of music, games, apps, movies and –books as well as certain professional services. The changes to the FMD rules will be effective from 1 July 2016, and include:
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June Essential Tax Summary – Tax Transparency Code; HELP Repayment Threshold; Lodgement Deferral Requests; Property Development and Trusts & GST and commercial residential premises
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