Showing posts from 2011

And consolidation makes three...

The Federal Government’s announcement last week (in the media killing-zone that is Friday afternoon) that it plans to introduce retrospective legislation to reverse consolidation tax laws rolled out only last year, further erodes the integrity of the tax system.

The Government’s announcement of yet another retrospective change to tax laws is extremely disappointing. It serves to further undermine the principles on which the tax system is based.

A fundamental principle of the legislative process is that laws which adversely affect taxpayers should not apply retrospectively except in extremely rare situations, such as addressing significant tax avoidance. This is not the case with these changes.

Taxpayers enter into transactions on the basis of the law as it is, not the law as it is rewritten after transactions have occurred. Retrospective changes in tax law are likely to interfere with bargains struck between taxpayers who have made every effort to comply with the prevailing law as …

A transfer pricing overhaul but with more retrospective law changes

The Government's 1 November announcement of an overhaul of transfer pricing laws came as a great surprise to many, including transfer pricing specialists. Since the SNF case, practitioners had expected legislative change but had not expected it to arrive in quite so dramatic a fashion.

To start the onslaught was of course the announcement that the Government would be amending the law (from 1 July 2004) to "clarify that transfer pricing rules in our tax treaties operate as an alternative to the rules currently in the domestic law".

Many taxpayers and tax practitioners who had taken the view that our double tax treaties are a shield, not a sword, may be unpleasantly surprised by any increase in tax payable as a result of this change. Taxpayers that face such an increase will be hoping that the ATO will at least assist in negotiating with overseas revenue authorities in relation to the resulting instances of double taxation.

These issues and more were discussed at a meeting of…

The Green light for carbon pricing

This week the Australian Government successfully passed the Clean Energy legislative package through the Parliament. Whether you call it a ‘carbon tax’ (which it isn’t, despite the Government describing it as such) or a ‘carbon price’, the changes will have economy-wide effects. They also reinforce the public perception that the Greens are a powerful political force in the finely balanced minority Government.

Will the Greens succeed in harnessing the momentum of the carbon package to end the use of fossil fuels and halt coal seam gas extraction? Or will the Opposition succeed in gaining a mandate from the electorate to implement its ‘pledge in blood’ to repeal the legislation?

What is certain is that barring an early election, a carbon price will apply to the 500 largest polluters from 1 July 2012, moving to an emissions trading scheme in 2015. The cost impact on consumers will be either fully, partially, or not at all offset through the tax and transfer system. Low-income househ…

Refund integrity checks - should you be concerned?

The ATO’s “refund integrity check” program has been generating a lot of concern amongst our membership. It has been the top item on TaxVine member feedback for a number of weeks, with many members querying why their clients have been caught up in the checks and the associated delays.

The Commissioner has stated that the integrity checks have identified over 64,000 potential cases of fraud or overstated refunds. The dollars involved are significant – some $269 million thus far. The ATO states that last year’s program was highly successful, with over 70% of refunds stopped for checking resulting in an adjustment to the amount of the refund. It is understandable that the ATO is trying to stop this kind of tax leakage.

The issue for tax agents is that some of their clients who have lodged legitimate refund claims may be unwittingly caught up in the delays. It is realistic to expect that the ATO’s computer system will sometimes take cases offline for investigation that turn out to be perf…

State Taxes in the cross hairs

The countdown is on to the Government's tax forum in October. I will be representing members at the forum and will be contributing strongly to the debate on the priority areas for reform.

There are 125 taxes across all levels of government in Australia, yet just 10 of them collect 90 per cent of all revenue. The other 115 'rats and mice taxes' potentially stand in the way of a simpler tax system.

The tax system should not be getting in the way of people getting on with their lives and getting on with their businesses; efficiency, equity and simplicity are the goals.

Reform of some of the least efficient and worst designed taxes in Australia - State taxes - particularly stamp duty on property conveyances, is a priority area for reform. Why is there a disincentive for people to move homes in order to move closer to locations that give them better work prospects? Huge sums of money being payable as stamp duty on property purchases act as a brake on labour mobility. Insurance du…

The Great Tax Debate

This week saw The Tax Institute in conjunction with the Australian Tax Research Foundation host ‘The Great Tax Debate: Constructing Tomorrow’s Tax System’.

The event provided a necessary platform for tax reform discussion ahead of the Government's tax forum in October. We were very pleased with the solid turnout of interested members and non-members, who heard and questioned key thought leaders in our political, business, academic and social welfare sectors. Our facilitator for the day was Ali Moore, from ABC's Lateline. The entire event was also continuously web streamed and watched by over 350 people. The footage from this event will be available to watch on our website very soon.

Independent MP, Rob Oakeshott, joined Opposition Assistant Treasurer, Senator Mathias Cormann, to discuss the politics of tax reform and the Government's tax forum in October. Professor Greg Smith spoke about some key areas of possible tax reform and the need for a national conversation on ref…

What did we learn at the Noosa Tax Intensive?

Last week I had the pleasure of being in Noosa for the National Tax Intensive Retreat. Noosa failed to turn on the sunshine, but that didn’t worry the delegates who realise that tax is strictly an indoor sport! The focus of the retreat was “Trusts: A Brave New World” and 143 delegates gathered to nut out the issues over the course of 7 plenary sessions and 3 workshops. The plenary presentations were excellent. Tony Slater QC FTIA’s opening address on “Why we draft trust deeds the way we do” was a highlight for me – the hour passes very quickly when you are listening to one of the finest orators in the tax field. We all laughed when he gave the advice along the lines of “if you trust deed precedent is older than you are, then perhaps you shouldn’t be using it” but the message was very clear.You need to understand your clients’ circumstances and how they can be addressed in the deed. Don’t assume that the off-the-shelf product will suffice. Reading the trust deed is essential when giving…

Will GST kill the internet star?

If your online purchases of up to $1,000 suddenly had the 10% GST added to them, would that make you shop at a traditional 'bricks and mortar' retail store?

The Productivity Commission this week released its draft inquiry report titled Economic Structure and Performance of the Australian Retail Industry. It examines the implications of globalisation for the retail industry and the appropriateness of current policy settings and finds that regulatory reforms are required for the industry to adapt to the global market.

With regards to tax, the current exemption from GST and duty for imports valued below $1,000 has been found to be only a minor contributing factor to online offshore purchases. However, for reasons of tax neutrality, the Commission recommends that the $1,000 threshold should be reduced, but only when this can be done cost-effectively. This is because where the costs of collecting a tax exceed the benefits of the revenue, that tax should not be collected. Without…

Tax reform in two days? Tell 'em they're dreaming

Now that the long-awaited discussion paper for the Government's tax forum has been released, shouldn't we expect more clarity around goals and more detail about the format?

While it is good to see that the forum will be broken down into sessions around key areas of the taxation system, tax reform is too important to be rushed over a two-day discussion.

At The Tax Institute, we have long called for a measured and structured approach to tax reform. We need a timeline for reform and a process for taking the debate forward beyond the October forum.

What’s missing in the Government’s discussion paper is detail about the format of the forum and the ultimate objectives of the whole exercise. How are 150 different people with at least 300 different points of view on varying aspects of the tax system going to produce a strategic tax reform roadmap for the future?

The discussion paper is a blueprint of some of the key issues already widely canvassed in the Henry Tax Review, which was billed…

How does the carbon price fit within the Tax Act?

There has been a lot of talk about the Government’s carbon pricing mechanism (CPM), including how this new scheme fits within the broader tax agenda. Reform aside, what are the real tax consequences of Australia’s adoption of a CPM?

The first step in understanding the impact of the CPM is to appreciate the mechanics of the proposed system. This is set out in the Government’s plan. I’m not going to provide a detailed description here (many other commentators have already done so, see useful links below). But if you just want the very basics, here is my attempt to explain it in a nutshell.

From 1 July 2012, major polluters will be required to purchase “carbon permits” for every tonne of emissions they produce. In the initial phase, the carbon permits will have a fixed price that is set by the government; after three years, there will be an emissions trading system, where the price of carbon permits will (generally) be determined by market forces. Certain industries are exempt. Some heavy…

We're big enough to debate a congestion tax

Excluding petrol from the carbon tax package doesn’t mean Australian motorists will be any happier with what governments tax them at the bowser and the disconnection with what's spent on the roads.

Federal fuel excise currently amounts to 38 cents in the litre. The Government receives more than $13 billion from this, yet spends only a fraction of this on roads. The Productivity Commission has been asked by the Government to conduct an inquiry into fuel excise arrangements, including an examination of the merits of a regime based explicitly on the carbon and energy content of fuels. Reports suggest it will also examine whether road-user charges are needed to reduce congestion and discourage driving.

In economic terms, road-user charges (or congestion taxes) impose a surcharge on users of a road transport network in periods of peak demand. The Henry Tax Review suggested this was a way to directly fund transport improvements and new infrastructure projects, as well as enable ta…

Is this real tax reform?

One of life’s certainties, other than death and taxes, is that all Governments indulge in spin. The challenge is working out where facts taper off and at what point the art of persuasion begins.

Accepting the inevitability that the Gillard Government’s proposed Carbon Tax will pass into law later this year, advocates for a simpler, fairer taxation system have a responsibility to argue for policy outcomes that match rhetoric.

That’s why we have to make it clear that the one thing this policy is not is major tax reform.

It is more like a re-working of parts of the tax system that amounts to a series of adjustments around the edges.

Increasing the tax-free threshold to $18,201 from July 1 next year is the headline-grabber. This equates to an effective tax free threshold of $20,542 – an increase of not much more than 25 percent over the current $16,000 threshold – which is hardly the tripling that some are claiming.

There’s something to be said for the changes removing about a million Australi…

We have law (almost!) and some guidance - thankfully all before 30 June

We have law – almost! As I predicted, the No. 5 Bill passed the Parliament by 30 June. It is currently awaiting Royal Assent, which we will understand will happen on or before 30 June. At that point, we will be working with a fully-fledged piece of legislation that applies for the 2011 income year.

The good news is that the ATO has been very quick to engage with the professional bodies and discuss what type of interpretative guidance is required. The ATO has convened two meetings of the NTLG Trusts sub-group, where the immediate problem of giving interpretative advice in a short period of time has been discussed. In a very welcome move, the Commissioner has acknowledged that trustees and their advisors have had scant opportunity to consider how the new law applies, and that special administrative arrangements should be put in place for the 2011 income year.

The special administrative arrangements include adopting a similar practice to that outlined in IT 328 and 329 for present entit…

Will we have law before 30 June 2011?

The one question that keeps cropping up is “will the trusts streaming provisions be law before 30 June 2011?” Some practitioners seem to think that with only 13 days before year end, there is no way the provisions will pass. I am not that pessimistic.

The Bill is currently with the House of Representatives. It was due to be debated yesterday, but unfortunately the House were stuck on other matters. The next sitting day is Monday, and we will be keenly watching to hear the statements that are made in the debate. The Bill has been referred to the Senate Economics Committee, but that is only for the unrelated measures in Schedule 5 (concerning car fringe benefits) and that committee has been asked to report by Tuesday, so it should not hold up the Bill. There are four Senate sitting days next week, and we understand that the Bill will not be met with any opposition. There is then a week to obtain Royal Assent. It is a tight timeframe, but it is not impossible.

Thanks to everyone who has…

Finally! The new measures to allow streaming of capital gains and franked distributions have been introduced into Parliament

Finally! The new measures to allow streaming of capital gains and franked distributions (including franking credits) have been introduced into Parliament. Now that they are making their way through the Parliamentary process, it is quite safe to say there will only be minor amendments, if any at all. The good news for tax practitioners is that we now have a clear idea of what we are working with, and how to achieve certainty for our clients. The bad news is, there is very little time to do it!

Here at The Tax Institute, we have been busy putting together our information and publication packages to ensure you are up-to-speed and ready to advise your clients. You can view the brochure setting out our full offering here.  There’s CPD sessions, publications, live streaming – pick and choose the option that best suits you and your practice.

We will also be running this blog, so members can have an opportunity to share ideas, reveal problems and help each other get through this testing time.