Reigniting the question of 'carrying on a business' & the potentially wasteful imputation system – 2018 Barossa Convention

The question of when an entity is 'carrying on a business' remains something of a maze.

Last September, the Government released the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 exposure draft for consultation. The intended purpose was to see only companies deriving income actively, and not passively, able to access the lower company tax rate of 27.5%.

Neither the draft nor associated explanatory memorandum discussed what it means when a company is carrying on a business.

In October, the bill was tabled in parliament, with the ‘carrying on a business’ requirement removed from the ‘base rate entity’ definition altogether and replaced with a ‘bright line’ test that puts a ceiling on the amount of passive income a company can derive before it can access the lower corporate tax rate.

Case law and recently-released material from the Australian Taxation Office means an entity may or may not be carrying on a business. Further, the changes to the company …

Shaping our tax profession of tomorrow

written by Tracey Rens *

In 2018, The Tax Institute celebrates its 75th anniversary.

Since the Institute’s establishment in 1943, Australia’s tax system has changed dramatically and we have evolved to meet the growing needs of the profession.

For 75 years, we have advocated for a better tax system, helped people connect, shared knowledge, educated young tax professionals and built a vibrant membership.

We are now Australia’s leading educator and professional association in tax, with over 12,000 members. The Institute’s Chartered Tax Adviser (CTA) designation has also become the tax profession’s premier credential.

This, however, doesn’t mean we can be complacent. The Tax Institute and the tax profession need to prepare for the future by embracing change, disruption, innovation and a broader perspective. We need to actively shape the tax profession of tomorrow.

Our vision Towards the end of 2017, the Institute undertook a strategic review, which established the following vision statemen…

Company tax cuts – where might the money go?

written by Robert Deutsch CTA *

The continuing saga regarding corporate tax reductions in Australia seems to have boiled down, at least in a political sense, to just one fundamental question – will a corporate tax reduction give rise to increased wages for workers?

In responding to this question, it is worth remembering that a company either distributes its after-tax profits to its shareholders or uses it in its business. There is nowhere else for the money to go. Distributed income goes to either resident or foreign shareholders and the rest is applied by the directors of the company in what is thought to be the best use of the available funds.

Thus, if we take the case of a company which earns taxable income of a $100m and pays corporate tax of $30m on that taxable income, the remaining $70m could be:

distributed to its resident shareholdersdistributed to its foreign shareholdersreinvested in hard assets, orpaid to employees in the form of wages. 
In relation to the distributed profi…

Andrew Noolan CTA on 'The future of Division 7A'

In a paper presented at last November’s SME Symposium in Sydney, Andrew Noolan CTA looked at some of the issues he and many other practitioners have experienced over the years in relation to Division 7A.

He also covered the developments for 2017.

Andrew is a partner in the Sydney law firm, Brown Wright Stein Lawyers. His clients are accountants and lawyers in public practice who require advice on tax issues that impact their clients. He specialises in tax issues common to the SME and high-wealth-individual sectors.
In the paper, excerpted below, Andrew speculates on what action advisers might need to take in anticipation of the July 2018 changes.
The future of Division 7A In the 2016 Federal Budget papers, Government set out that there would be changes to Division 7A that will apply from 1 July 2018. The purpose of discussing them here is to speculate on how the changes might alter the way that Division 7A needs to be dealt with, and, in one case, to identify what action might need to be t…

The old chestnut – principle-based drafting vs detailed black letter law

written by Robert Deutsch CTA *

I often ponder whatever happened to principle-based drafting, a concept we heard about some 15 years ago and which was meant to be the prevailing mantra in the development of tax legislation.

However, reality has turned out to be much different, such that the legislation these days is developed with often very little said about the principles that underpin the legislation, but instead an elaboration of detailed rules essentially covering the minutiae of almost every aspect of the law.

Two classic examples of this modern trend are the current formulation of the capital gains tax (CGT) rules and the fringe benefits tax (FBT) rules. Capital gains tax covers some 400 plus pages of detailed legislation while the FBT has a more modest, but still formidable, 250-plus pages of detailed legislation (excluding the Regulations).

One cannot help but wonder if all this is necessary. The views of our members in this context are very much welcomed.

Would it not be mor…

HSBC extends preferential banking offers to Institute members

HSBC, a Principal Sponsor of The Tax Institute’s 2018 National Convention, is proud to reach its 12th consecutive year of partnering with the Institute. To celebrate, HSBC has enhanced its wide range of preferential banking offers and benefits to Institute members.
Over the past dozen years, The Tax Institute has participated in HSBC’s Corporate Partner Program, which includes more than 100 major companies and affiliate organisations, including KPMG, Deloitte, Optus, IBM and Telstra, to name just a few.

In fact, the Institute ranks seventh in HSBC’s overall Corporate Partner portfolio, which demonstrates the strength of the alliance, our history of working together, and the popularity of the program’s offers among our members.

The partnership has meant that HSBC works closely with the Institute to support our professional development events and enhance our ability to deliver products and services, as well as provide tangible benefits to members.

Institute member benefits  You, as a m…

Wine equalisation tax reforms – 2018 SA Agribusiness Day

The recent reforms to the wine equalisation tax (WET) system, are ‘root and branch’ reforms that will have a significant impact on most businesses in the wine industry, even going so far as to impact on the way certain wines are made.
These rules, now in effect for the 2018 vintage, are complex, with a number of retrospective issues to consider as well as transitional provisions to be aware of.

Here we speak with Mathew Brittingham CTA, who will present the session ‘Wine equalisation tax – understanding the impact to wine businesses of the new WET reforms’ at the upcoming SA Agribusiness Day, about some of the issues facing South Australian producers and their advisers.

Mathew told us: “There are a number of key issues advisers need to be aware of in relation to these reforms and how they impact wine businesses. In particular, some clients may need to restructure their arrangements to ensure they remain eligible to claim producer rebates, and for those clients who are eligible, how t…