The Budget papers contain further developments in relation to various tax and superannuation measures that have been announced by former governments but not yet legislated. These are set out under the headings below.
Exempt income of charities: no change
The previous Government announced in the 2011-12 Budget that the tax concessions provided to charities and other not-for-profits organisations would be targeted only at those activities, which directly further the entity’s altruistic purpose. The present Government announced it would not proceed with this measure, but would explore simpler alternatives to address the risks to revenue (item 33 in the media release).
The Acting Assistant Treasurer stated that such measures are not required “at this time”, ie the Government will not seek to introduce any measures relating to this.
Deduction relating to foreign source income (s 25-90)
The Government has not made a decision on a targeted anti-avoidance provision to address certain conduit arrangements. The previous Government proposed to repeal s 25-90, with effect from 1 July 2014. The present Government has said it would not proceed with this measure, but will instead consult on a targeted integrity rule (item 19 in the media release).
The Government advises that it is still seeking advice on this matter.
Multiple entry consolidated groups
The Government will not proceed with changes that would have applied to MEC groups. The media release states that the proposal was to “remove inconsistencies for multiple-entry consolidated groups and ordinary consolidated groups …. originally announced by the previous Government in the 2013-14 Budget”. Unfortunately, the announcement is not linked to the items that were listed in the Treasurer’s Media Release of 6 November 2013 – however, Treasury officials confirmed to Thomson Reuters on the night that it was item 6.
The decision follows a tripartite review involving Treasury, the Tax Office and tax specialists. The review concluded that it was not feasible to review inconsistencies without “a reconsideration of broader international tax policy issues”.
Treasury will “shortly” start consultation on an amendment to extend a modified form of the unrealised loss rules to multiple-entry consolidated groups as well as other measures identified by the review.
Principal asset test and foreign residents
The previous Government announced that it would refine the proposed 2013-14 Budget measure to amend the principal asset test. The current Government confirmed in item 9 of its press release dated 6 November 2013 that it intended to proceed with this measure.
To prevent the double counting of assets, the measure will now apply to interests held by foreign residents in unconsolidated groups as well as in consolidated groups.
For interests held by foreign residents in unconsolidated groups, the measure will apply to CGT events occurring on or after the date draft legislation is released. For interests held in a consolidated group or MEC group, the measure will have effect from 14 May 2013 (ie the date it was first announced).
Consolidated groups: changes to integrity measures
The Government intends to “refine” the consolidation integrity package announced in the 2013-14 Budget. The Government confirmed in item 6 of its media release dated 6 November 2013 that it intended to proceed with this measure. One new measure will be added, while some other measures will be modified.
First, the new measure will clarify that accounting liabilities relating to securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves a consolidated group and/or joins a consolidated group. This change will apply to arrangements that commence on or after 7:30pm on 13 May 2014. Transitional rules will apply to arrangements that commence before this time.
Second, the double deductions measure, the churning measure and the deductible liabilities measure will be amended so that they apply to arrangements that commence on or after the date of announcement of the original measure (ie 14 May 2014), rather than to the exit or entry of a subsidiary that takes place on or after the date of announcement.
The deductible liabilities measure will also be amended so that retirement villages’ residential loan liabilities are excluded.
MITs: deferral of start date of new system
The Government confirmed in November 2013 that it intended to implement the proposal to implement a new tax regime for managed investment trusts (item 10 of the Treasurer’s Media Release). The start was announced at that time as 1 July 2014.
The Government will defer the start date by 12 months, ie to 1 July 2015. This is intended to provide more consultation time and allow both industry and the Tax Office additional time to make necessary systems changes.
The law will also be amended to allow MITs to continue to disregard the trust streaming provisions for the 2014-15 income year. This is intended to allow the interim arrangements to continue until the new system is implemented.
Exposure draft legislation is expected to be available in June 2014.
Offshore Banking Units
The Budget papers reiterated the decision to proceed with reforms to the OBU regime. The start date for the changes will be deferred to income years commencing on or after 1 July 2015, as had been previously announced on 30 January 2014: see 2014 WTB 5 .
Third party reporting and data matching
The Government is to defer the start date of the measures designed to improve tax compliance through third party reporting and data matching. It was first announced as starting on 1 July 2014. The revised start date is 1 July 2016.
The delay will provide time “to conduct a thorough analysis of stakeholder concerns regarding whether a third party reporting model is the best way of achieving the policy objectives”. The proposed legislation is extensive and will affect: (i) taxable government grants and other specified government payments; (ii) sales of real property, shares (including options and warrants) and units in managed funds; and (iii) sales through merchant debit and credit services. Certainly any concern expressed by stakeholders is justified as the potential ramifications are significant and arguably have not been fully understood by affected businesses.
Source: Budget Paper No 2 [p 18]; Acting Assistant Treasurer’s media release dated 13 May 2014
[WTB 20, 13/5/14]