Key News Summary – there is growing momentum to leave the October 2018 Consultation Paper approach, to reforming ‘Division 7A’, in favour of something more sensible – including reverting to the approach suggested by the Board of Taxation, in its 2014 Report.


 

The Tax Institute said that in their opinion, the Government’s approach in the October 2018 Consultation Paper (see related Tax Technical article) reflects an attempt to only selectively adopt some of the recommendations of the Board of Taxation Post-Implementation Review of Division 7A, of Part III of the ITAA36, dated November 2014.

  • The Board’s Division 7A Report made wide ranging recommendations precisely because one of the criticisms of the evolution of Division 7A was the constant ‘band-aiding’ of the Division. Indeed, the whole sorry history of Div 7A, since its inception in 1997, is set out this Tax Technical article (courtesy of Pointon Partners – probably Robert Gordon).
  • The Board therefore specifically rejected this as an approach and recommended a package of measures that could be adopted as a replacement to Division 7A.
  • The Board of Taxation’s recommendations were made after extensive consultation and engagement with practitioners, the ATO, Treasury officials and taxpayers. In our opinion, the Consultation Paper should clearly outline why recommendations have not been adopted.
  • In their opinion, the measures in the Consultation Paper represent another band-aid fix to Division 7A.
  • The Government needs to reconsider this approach and revisit the recommendations made by the Board of Taxation in 2014. [See BoT 2014 Report and related Tax Technical article]
  • We would strongly encourage the government not to continue the errors of the past by, once again, applying band-aid fixes to the Division.

The word I hear around town, is as follows.

  1. The approach floated in the most recent consultation paper, is causing consternation, not only because of the endless ‘band-aid’ approach continuing, but it is also because it dropped the cap, based on the company having sufficient ‘distributable surpluses’, so a brand new company, with only paid up capital, could borrow $1m, lend it immediately to a shareholder, and it would all be a deemed dividend.
  2. The Governments most recent ‘thought bubble’ (so disconnected from the 2014 Board Report) is a result of some underling in Treasury deciding to ‘re-invent’ the program, gloriously disconnected from the prior processes.
  3. The new Assistant Treasurer: Stuart Bruce, however, read the Board’s 2014 Report, and said something the effect of: ‘what’s wrong with the approach in this 2014 report of the Board?
  4. As a result, some of the members of the Board, back in 2014, who were involved in making its report, have been scuttling between meetings, trying to get a more sensible version back on the table.
  5. As the say in the classics: ‘Here endeth the lesson’.

[Tax Institute website: Div 7A band-aid continues; LTN 245, 19/12/18; Tax Month – December 2018]

FJM 27.1.19

CPD (comprehension questions)

  1. When was the ‘consultation paper’ that is causing all the consternation issued?
  2. What does the Tax Institute think is wrong with the approach in this consultation paper?
  3. What else is wrong with it?
  4. In what way is the better approach, being touted, ‘back to the future’?
  5. Who seems to be a key instigator of this ‘back to the future’ approach

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