Global Tax Alert | 7 November 2013

Australia issues plan for tax announcements backlog

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Executive summary

On 6 November 2013, Australia’s Government announced its plans to address the extensive backlog of Australia’s previous tax and superannuation policy decisions which had been announced – some as far back as 2001 – but not legislated by previous governments.

The announcement includes the following decisions:

  • Not to proceed with seven revenue raising announcements of the previous Government, including taxing superannuation pension earnings and imposing a cap on the deductibility of self-education expenses and confirming the election announcement not to proceed with the fringe benefits tax car benefit changes;
  • To legislate 18 measures as announced, including increases to tobacco taxes, denying research and development tax incentives for companies with incomes of $20 billion or more and implementing the managed investment trust (still from 1 July 2014) and investment manager regime reforms; and
  • To amend three other proposals, including removing from the thin capitalization package of changes and the proposed repeal of section 25-90 dealing with the deductibility of certain interest expenses.

As well the Government will, in an accelerated process through November 2013, review whether or not to proceed with a further 64 measures. Additionally, further integrity measures will be introduced in the coming months.

The “bulk of legislation” for selected measures will be targeted for legislation to be passed by the new Parliament by 1 July 2014.

The media release by Federal Treasurer Joe Hockey and Assistant Treasurer Senator Arthur Sinodinos AO, with the Government’s lists of measures by category, is available at http://jbh.ministers.treasury.gov.au/media-release/017-2013/.

Detailed discussion

Impact for business

The announcement brings increased certainty for businesses, taxpayers and investment decisions flowing from the announcement. Australia’s international reputation has been affected by the delays and inaction on the part of governments to resolve and legislate their decisions. These delays have added uncertainty, made it difficult for businesses to plan transactions and investment decisions.

Businesses will also broadly welcome the government’s immediate decisions as well as its commitment to resolve an unacceptably long and uncertain list of proposals.

Funding overseas investments – get ready for new targeted integrity measure

The Government’s decision not to proceed with the widely criticized plans to limit interest deductions for multinational businesses by repealing section 25-90 of the ITAA 1997 Act is a positive step because among other things it will avoid the resulting complexity for businesses this would have created.

Instead it will “introduce a targeted anti-avoidance provision after detailed consultation with stakeholders” to “address certain conduit arrangements.” Details of this consultation will be announced before the end of the year.

This targeted anti-avoidance provision might draw on features of other countries’ specific anti-avoidance rules to target “debt dumping.” In addition, the OECD base erosion and profit

shifting (BEPS) project involves consideration of measures to target the inappropriate use of debt in international tax structuring.

So it is clear that the use of debt to finance international business expansion remains on the

Government agenda, and businesses need to plan on the basis that new rules of some sort will be developed soon.

Challenge – Identifying in a month the way forward for 64 further measures

The Government has allowed a very short timeframe for the Assistant Treasurer, working with the Board of Taxation and assisted by specialists, to review and recommend whether or not to proceed with another 64 announcements. The Government wants to complete this project by 1 December, for inclusion in the Mid-Year Economic and Fiscal Outlook.

The sweeping out of announcements whose value added is less than their complexity in drafting, embedded compliance costs, unintended consequences and red tape is a positive step. The Government is advised that the fiscal impact of the “vast bulk of these 64 initiatives is expected to be minimal.”

It will also be imperative for business and other taxpayers to closely review the remaining list of measures. Where a taxpayer is impacted either positively or negatively by a proposal, they should ensure that their views are heard or risk these decisions being made without a complete consideration of the likely consequences.

Impact on forward planning and investment decisions

The announcements will affect business strategies and forward planning. It is important therefore to consider the immediate impact of the Government decisions to proceed with, and to terminate, various announcements to ensure that the change of landscape is factored into commercial planning.

When complete, the revised list of proposed changes to the tax and superannuation system will require careful planning, analysis of proposed law and ultimately implementation.

Concessions for discontinued measures

The Government will legislate to protect any taxpayer who has self-assessed the application of any of the announced changes that are ultimately not proceeded with.

Further, taxpayers that have complied with previous announcements that will no longer proceed, and have paid additional tax, will be entitled to a refund.

Implications

It is important for taxpayers to consider and work through the following implications:

  • The measures listed to proceed and those not to proceed, to understand the impact for one’s strategies and investment decisions.
  • The measures being reviewed for their potential impact in order to contribute one’s perspective to the Government decision process. If taxpayers do not identify which of the 64 measures are useful and desirable, the risk is that they will be terminated.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Australia), Brisbane
  • John Seccombe
    +61 7 3243 3669
    john.seccombe@au.ey.com
Ernst & Young (Australia), Melbourne
  • Peter J. Janetzki
    +61 3 8650 7525
    peter.janetzki@au.ey.com
Ernst & Young (Australia), Perth
  • Mathew Chamberlain
    +61 8 9429 2368
    mathew.chamberlain@au.ey.com
  • Craig Robson
    +61 8 9429 2271
    craig.robson@au.ey.com
Ernst & Young (Australia), Sydney
  • Daryn Moore
    +61 2 9248 5538
    daryn.moore@au.ey.com
Ernst & Young LLP, Australian Tax Desk, New York
  • Michael Anderson
    +1 212 773 5280
    michael.anderson@ey.com

EYG no. CM3942