Monday, 30 July 2012

LAFHA & Transfer Pricing Committee Hearings

It was another busy week with The Tax Institute appearing before two separate Parliamentary Committee hearings into important tax changes.

Living Away From Home Allowance

On the morning of Thursday 26 July, Elizabeth Lucas ATI (Grant Thornton) joined me and Tax Counsel Deepti Paton ATI in appearing before the House of Representatives Standing Committee on Economics.  The Committee was holding a public hearing for its inquiry into the provisions of the Tax Laws Amendment (2012 Measures No. 4) Bill 2012, specifically around the Living Away From Home Allowance changes.

We argued that as the Bill represents a change in policy intention underpinning the LAFH rules, rather than a mere countering of exploitation of the current rules, this should be clearly stated in the Explanatory Memorandum. Also, the tax treatment of LAFH allowances should be determined either in the context of the income tax laws, or the FBT laws, but not both (as is currently the case under the Bill).  Clarification around transitional relief should also be provided.

You can access a copy of our submission to the Committee.

Transfer Pricing

On Thursday afternoon, Damian Preshaw FTI (KPMG) joined me in appearing before the Senate Economics Legislation Committee, which was inquiring into the provisions of the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No.1) 2012.

We emphasised the importance of tax laws to taxpayer decision making and behaviour. We strongly supported working within a framework of guiding principles when introducing tax laws in order to provide taxpayers with greater certainty in relation to their tax liabilities and affairs. Of these principles, among the most fundamental is that legislative changes should not apply retrospectively except in very specific circumstances.

You can access a copy of our submission to the Committee.

Robert Jeremenko
Robert
Jeremenko
Robert Jeremenko is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Wednesday, 25 July 2012

Transforming Tax Technical Decision Making Initiatives (or TTTDM for short)

I was recently invited by the Taxation Office to take part in consultation on measuring the effectiveness of their "Transforming Tax Technical Decision Making Initiatives" (which goes by the delightful acronym "TTTDM"). The objective of the TTTDM process is to bring technical decision making upfront, engaging tax technical experts much earlier in the process (particularly in regard to tax audits and private ruling requests).

This is an initiative to be applauded, but like all administrative processes, it requires some objective performance indicators to measure whether the change is working. This is where practitioners come in. At the end of an audit or finalisation of a private ruling request, practitioners receive a client feedback questionnaire. The questions will be modified to allow the Taxation Office to extract meaningful feedback to measure whether the TTTDM process has been successful.

The project is very important in ensuring that the huge cost of managing tax disputes is reduced to the maximum degree compatible with a healthy tax system. I urge every practitioner to focus on the feedback and ensure that it is objective and to the point.

It is one small but important way in which we can contribute to the health and well-being of our taxation system.

Ken Schurgott
Ken
Schurgott
Ken Schurgott is President of the National Council at The Tax Institute.

The Tax Institute is 
Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Monday, 23 July 2012

ATO Compliance Program and loss carry-back discussion paper

The press last week was dominated by two issues in the tax space - the ATO's 2012-13 Compliance Program and the release of Treasury's Discussion Paper on "Improving access to company losses". Both of these matters are of significant interest to members.

ATO Compliance Program addresses concerns for 2012-13

The press has been much-enamoured with discussions on which industries ended up on the ATO’s “hit-list” this year. However, aside from the headlines, there were many matters of significant interest to members in this year’s compliance program.

Examples include the ATO’s focus on:

  • improving timely lodgment
  • tax agents fulfilling their own lodgment obligations
  • “inappropriate” outcomes in the context of trusts, division 7A, consolidation and other areas of the tax law
  • the new “trusts taskforce” being set-up in the context of Project Wickenby.

The ATO’s 2012-13 compliance program represents a welcome effort by the ATO to set out areas of concern and focus for the upcoming income year and is a testament to the agency’s commitment to transparency and effective communication with taxpayers and tax agents.

Nevertheless this compliance program raises a host of questions for members. We will of course continue to consult with the ATO on these and other matters in the coming weeks and months to gain further insight and understanding on behalf of our members as to the ATO’s intentions and processes.

Improving access to company losses update

Last week saw the release by our Assistant Treasurer of Treasury’s Discussion Paper on “Improving access to company losses”, that is, implementation of the loss carry-back measure announced just prior to Budget this year. Members will recall that this followed the consultation process undertaken by the Business Tax Working Group.

While most of the details in the paper were expected, the inclusion of a proposed integrity measure akin to the current Continuity of Ownership and Same Business Tests was surprising. The Tax Institute advocated strongly in our submissions to the Business Tax Reform Working Group for these tests to be simplified if they are going to continue to be relevant, and will continue to do so in our submission on this Discussion Paper.

Robert Jeremenko
Robert
Jeremenko
Robert Jeremenko is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Wednesday, 18 July 2012

Chartered Tax Adviser – an overwhelming response

The response from members and others in the industry around the launch of the new Chartered Tax Adviser designation in May has been overwhelmingly positive. The news was covered by media outlets like the Australian Financial Review and BRW and a considerable buzz has been generated on social media, including Facebook, Twitter and LinkedIn.

Our membership team has been flooded with calls from members looking to upgrade to Chartered Tax Adviser (CTA) status, as well as from non-members expressing their interest. You would have received communication about your options regarding CTA in the mail. If you haven’t already, please ensure you respond to this as soon as possible to take advantage of the unique opportunity before the due date.

Don’t forget that in order to gain advanced standing for the new Chartered Tax Adviser Exam, qualifying applicants will need to apply before 30 September 2012.

Continuing professional development

2012 is passing by quickly, but there are still plenty of opportunities in the coming months for you to keep your continuing professional development up to date.

Some of the Institute’s most popular professional development conferences are fast approaching, which include the 12th Annual States’ Taxation Conference, the 20th National Tax Intensive Retreat and the National GST Intensive. Also approaching is this year’s Trusts Roadshow which will take a very practical look at managing trusts. Presented by experts from Harwood Andrews Lawyers, the interactive program will explore case studies and examples dealing with key issues. The roadshow will be delivered in most capital cities and as a webinar this August.

We offer many of our popular events, roadshows and convention sessions as webinars. Our webinars offer expert presenters who deliver a live presentation direct to your computer with the ability to interact and have your questions answered. All technical materials are supplied and all you need to access is a computer with internet access and a phone.

New titles on sale now, but not for long

Our Mid-Year Sale has been a roaring success with many practitioners taking advantage of the great savings available. All good things must come to an end however, with the sale wrapping up on 20 July. That does still give you time to grab some bargains, including 20% off the new editions of Discretionary Trust Distributions 2012 and Estate & Business Succession Planning 2012-13 amongst many others.

All the best to our Foundation Tax candidates

And finally, study period two for our Certificate in Foundation Tax commences on 3 July and I would like to wish all candidates undertaking the highly regarded course the best of luck in their studies.

If you are considering undertaking the second semester of our Tax Practitioner Board approved Diploma of Australian Taxation Law—the Certificate in Applied Tax—I would like to remind you that enrolments will close on 17 July so enrol soon to secure your place.

Thank you for your ongoing support, and all the best during this busy time of the year.

Noel Rowland
Noel
Rowland
Noel Rowland is Chief Executive Officer of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Monday, 16 July 2012

Transfer pricing and LAFHA updates

Two particular areas of focus last week in the world of tax policy and advocacy have been changes to: transfer pricing; and the living away from home allowance.

Transfer pricing

The legislation containing the transfer pricing changes announced in November last year has passed the House of Representatives, but before it is considered by the Senate, the Economics Legislation Committee will be inquiring into the Bill.

As The Tax Institute has consistently argued, tax professionals have grave concerns about the use of retrospective legislation to effect tax changes. It is our strongest view that legislative changes should not apply retrospectively except in very specific circumstances and after thorough public consultation.

Where the Government considers a deviation from this principle is warranted, it should be thoroughly consulted upon and explained, including in relation to the anticipated impact on revenue. Increasingly we are seeing the Government use revenue concerns as a reason to enact retrospective changes and we will be continuing to present the case against such an approach.

Living away from home allowance (LAFH)

The original policy intent behind the introduction of the LAFH concession was to exempt from FBT a reasonable amount of compensation provided to an employee by an employer who required the employee to live away from home to perform their employment duties. The allowance was to compensate the employee for additional expenses suffered through having to live away from home.

However, excessive amounts of allowances were to be subject to FBT. Therefore, the focus of the provision of a LAFH allowance is compensatory in nature for additional private or domestic expenses incurred for employment purposes.

The Government has made two announcements since November last year, both serving to significantly restrict the availability of the LAFH allowance. The Bill to legislate the changes is to be examined by the House Economics Committee and The Tax Institute will ensure that the Bill and Explanatory Memorandum accurately reflect the intent of the changes and do not unduly add to the compliance burden faced by those complying with the laws.

Robert Jeremenko
Robert
Jeremenko
Robert Jeremenko is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Wednesday, 11 July 2012

Simplification: Is there hope on the horizon?

Just further on my report from last Friday—"Simplification: Has the trust been broken?"—the trust beneficiary reporting rules which commenced in the 2011 income year are not well understood by practitioners and will lead to unpleasantries in the future. This is particularly a problem when trustees change agents. It cannot be assumed that the previous agent has made a TFN report or that the transitional provisions related to the 2011 trust return operate to cover all beneficiaries.

This all sounds like doom and gloom. But there is hope on the horizon albeit a little further away than we might first have anticipated. It is expected that a revised time line for the Div 6 rewrite project will be released soon and it would not be surprising to find that practical reform is at least 2 years away. The problem with the reform is that it appears wedded to the notion of "following the money".

On page 20 of this month's Taxation in Australia journal you will find an article penned jointly with my business accomplice, Andrew Noolan. There I observe that "following the money" means applying the tenets of accretion to trust value as explained in the Commissioner’s draft ruling TR 2012/D1. That draft ruling has attracted enormous criticism from the professional bodies for being a departure from the case law and trust principles. Yet, the notions in the draft ruling underpin the examples given in the Treasury Discussion Paper.

I take "reform" to also embrace simplification. It is feared that adoption of the accretion to value approach will simply add an extra dimension of complexity. Why should this be so? Trusts are perfectly good family controlled commercial entities that have admirable qualities apart from tax advantages. Predominantly discretionary trusts are family arrangements which provide some modest income splitting. However, the complexity of the present rules belies the domestic nature of these arrangements.

Real tax reform would see the accountant’s work load reduced, increased accuracy of tax reporting and diminished costs for all (including the Taxation Office). The Tax Institute will be pressing to keep these goals in the fore front of consultation.

Ken Schurgott
Ken
Schurgott
Ken Schurgott is President of the National Council at The Tax Institute.

The Tax Institute is 
Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Monday, 9 July 2012

Shining a light on lost tax reform

There were plenty of tax change last week: the start of a new financial year; the carbon tax; the minerals resource rent tax; income tax threshold and rate changes; and changes to small business concessions, to name but a few.

But what of the tax changes that seem almost lost in the mists of time - the announcements that have been shoved to the back of the policy cupboard? Now is a good time to take stock of some of the Government's outstanding tax promises and changes that are out of sight and mostly out of mind - these include:

  • Earnouts and instalment warrant changes;
  • Review of elections in income tax;
  • Creation of a Tax System Advisory Board to oversee ATO management;
  • Creation of a Tax Studies Institute;
  • Investigating a tax advice privilege;
  • Board of Taxation's review into Tax Design Review Panel recommendations;
  • Board of Taxation's review into the tax treatment of Islamic Finance products; and

The Tax Institute will continue to speak with the Assistant Treasurer and The Treasury about these and other outstanding items to ensure that tax policy is not glossed over in the increasing focus on the politics of change.

Robert Jeremenko
Robert
Jeremenko
Robert Jeremenko is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Friday, 6 July 2012

Simplification: Has the trust been broken?

Many readers will be aware that your President is a keen student of trust law and the taxation of trusts in particular. As matters have developed since the decision of the High Court in C of T v. Bamford [2010] HCA 10 and the introduction of streaming rules for capital gains and dividends, I get the feeling that we are slipping into the abyss.

The pressure on practitioners has never been greater. The need to deal with trust resolutions before 1 July 2012 has placed extraordinary pressure on advisers to anticipate the accounting outcome of a year’s trading and shape trust distributions according to that anticipation along with the Taxation Office looking over their shoulder. There is no doubt that some practitioners will make mistakes, having been forced to abandon their more practical approach of earlier years to comply with the strict letter of the law, whatever it may be. This situation is untenable.

The very recent decision of the Full Federal Court in C of T v. Greenhatch [2012] FCAFC 84 has added to the uncertainty. Although the decision was made in rather unusual circumstances, the 10% limitation on income from employment denying a deduction for an individual’s own contributions to a superannuation fund, the upshot of the decision appears to be that the notion of general streaming is dead.

The Commissioner has withdrawn IT 92/13 with effect from 29 June 2011. Strictly speaking this ruling condoned streaming of franked dividends only even though it was built on the notion that "income distributed by a trustee of a discretionary trust estate retains the character it had when it was derived by the trustee..." Capital gains and income of another stripe are not covered by the ruling.

It will be interesting to see to what extent the Commissioner abides by his practice to extend the ruling beyond franked distributions when streaming issues arise prior to the withdrawal date. The streaming rules have, aside from their complexity, application limited to capital gains and franked distributions. The interest withholding tax riddle has not been resolved.

Ken Schurgott
Ken
Schurgott
Ken Schurgott is President of the National Council at The Tax Institute.

The Tax Institute is 
Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

Monday, 2 July 2012

Working together during Tax Time 2012

Last week saw the continuation of the very busy workload for many members in the lead-up to 30 June, with the rush to make trustee resolutions and clients seeking last minute tax advice on end of year financial decisions. Many members will have also closed out the books on their own business as of 30 June, providing a chance to take stock of the tough income year just gone by.

And so to the beginning of the next lodgement season; as in previous years, The Tax Institute will be working closely with both members and the ATO throughout Tax Time 2012 to ensure that any problems with systems and processes are brought to the ATO's attention as soon as possible.

Division 7A

Earlier last week The Tax Institute had the opportunity to meet with members of the Board of Taxation to discuss the upcoming Division 7A review. Members may recall that the Assistant Treasurer announced the review at The Tax Institute's Annual NSW Tax Forum in May this year.

With Division 7A being such a bugbear for tax professionals since its inception, combined with the recent actions by the ATO on unpaid present entitlements, it is high time to examine the effectiveness of Division 7A by engaging widely with the tax profession and learning from the experience the profession has had with these provisions.

We will continue our active engagement with the Board on the review and will be looking to members to contribute more of their first-hand experiences of operating with this law. We expect a discussion paper to publicly issue by September this year, but conversations are continuing in the lead-up to that paper.

State tax reform

Also last week The Tax Institute sat down with the Treasurer of the ACT to discuss his long-term tax reform plans including abolishing housing stamp duty and duty on insurance policies. Commercial land tax will also be abolished, with residential land tax being adjusted to reduce tax on properties below median price, to encourage investment in affordable rental accommodation. General rates will rise to make the reforms self-funding.

We discussed the opportunities presented by the ACT plan for engaging with its colleagues in the States on reform. It also provides a fillip for the Federal Government to show leadership on the issue of Commonwealth-State relations and set a national vision for tax reform.

Robert Jeremenko
Robert
Jeremenko
Robert Jeremenko is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.