The last Parliamentary Winter sittings were held in the last week of June 2018, and there are quite a few significant tax bills still before Parliament that are on hold until Parliament resumes again on 13 August.
Corporate Tax Cuts – the remaining ‘tranche’:
- The most significant is the bill related to company tax rate cuts, Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017, that would cut the company tax rate from 30 percent to 25 percent across the board. To pass it into law, the government needs eight crossbench votes and so far it has only four. The Finance Minister noted in the last week of June that, despite their best efforts, they have not yet been able to secure the necessary support and have decided to defer consideration of the legislation until after the Parliamentary break (and after five by-elections on 28 July).
- The other Bill related to company tax cuts still outstanding is Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018 which proposes to amend the Income Tax Rates Act 1986 to provide that a corporate tax entity will not qualify for the lower 27.5 percent corporate tax rate if more than 80 percent of its assessable income is income of a passive nature. This proposed amendment applies from the 2017-18 income year. [The test had been whether the company carried on a ‘business’ or not, which was not expected to include passive investment. But then the Commissioner put out a draft ruling: TR 2017/D7, the broad effect of which was to say that, even passive investment is a ‘business’ for a company incorporated for the purpose of making a profit [see related TT Article). So, the original intention, of excluding companies with predominantly passive income, from the lower rate, had to be legislated – which hasn’t made it through yet.]
Other outstanding tax bills affecting large business include:
- Hybrid mismatch: Treasury Laws Amendment (Tax Integrity and Other Measures No. 2) Bill 2018 will implement the OECD hybrid mismatch rules by preventing entities that are liable to income tax in Australia from being able to avoid income taxation, or obtain a double non-taxation benefit. The proposed ALP amendments relate to film tax offsets and not the anti-hybrid measures. I suspect this will pass at the next Parliamentary sitting. These measures will generally apply to income years beginning on or after 1 January 2019 (except for importing payments under structured arrangements, which will be subject to the imported mismatch rule for income years starting on or after 1 January 2020).
- Multilateral instrument: Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 will amend the International Tax Agreements Act 1953 to give legislative effect to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. This Bill has not (at 12.7.18) even passed the Lower House. For the treaty to come into force, Royal Assent is required and then three months must elapse from the date of the depositing of the instrument of ratification (post Royal Assent) with the Secretary General of the OECD. It will enter into force on the day of the month following the elapse of the three months.
- Black Economy: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 will amend:
- Income Tax Assessment Act 1997 and Taxation Administration Act 1953 to prohibit sales suppression tools in relation to entities that have Australian tax obligations; and
- Taxation Administration Act 1953 to require entities that provide courier or cleaning services to report to the Australian Taxation Office (ATO) details of transactions that involve engaging other entities to undertake those services for them.
- CGT, MIT and public trading trust definition: Treasury Laws Amendment (2018 Measures No. 2) Bill 2018 – will change Corporations Act 2001 and the National Consumer Credit Protection Act 2009 to allow for FinTech Sandbox Regulatory Licensing Exceptions and also will amend the ITAA 1997 venture capital and early stage investor tax concession provisions to make minor changes to ensure that the provisions operate as intended. Note, these are not the proposed changes to the law affecting ‘stapled structures’ – in essence imposing a domestic ‘transfer pricing’ regime on the ‘cross staple’ payment to the trust entity. These were announced in the 2018 Federal Budget, and currently are out as a Treasury Consultation Paper – see related TT Article.
- CGT main resident exemption and TARP: Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 was introduced with the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2018, and incudes amendments to the Income Tax Assessment Act 1997 to remove the entitlement to the CGT main residence exemption for foreign residents. There are policy problems with the way this is drafted, that the Senate Committee report did not really address – see related TT Article; and clarify that, for the purpose of determining whether a foreign resident corporate entity’s capital gain is subject to Australian CGT (under Div 855 of the ITAA 1997), the the ‘principal asset test’ is applied on an associate inclusive basis (for the purposes of the Taxable Australian Real Property or TARP test). See the same TT Related Article.
- Minor MAAL amendments: Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018 amends the income tax law to provide that, when determining if the multinational anti-avoidance law (MAAL) applies to a scheme, supplies made and income received by a closely related trust or partnership are treated as being made or received by a foreign entity (see related TT Article); include additional conditions that must be satisfied to apply the small business CGT concessions to capital gains; to ensure that venture capital investment tax concessions are available for investments in fintech businesses.
- $20,000 write off extended. Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill amends the Income Tax Assessment Act 1997 and Income Tax (Transitional Provisions) Act 1997 to extend by 12 months to 30 June 2019 the period during which small business entities can access expanded accelerated depreciation rules.
There was also a private members bill, Taxation Administration Amendment (Corporate Tax Entity Information) Bill 2017 introduced into the Senate by Senator Katy Gallagher in August last year that proposes to amends the Taxation Administration Act 1953 to lower the threshold for the public reporting of corporate entity tax information by the ATO for private corporate entities to $100 million from $200 million. However, the Greens proposed to reduce the threshold to $50 million and this has passed the Senate and now the Bill moves to the House for debate when Parliament resumes.
Many of these Bills will affect large business and it would be prudent to monitor these bills when Parliament resumes on 13 August.
FJM 12.7.18
[KPMG: 2/7/18: Author – Jenny Wong, Tax Month – July 2018]
Comprehension questions (answers available)
- Has the extension of the 25% tax cut already been extended to all companies (regardless of turnover size)?
- Will access to the lower 27.5% rate be by reference to whether the company is carrying on a ‘business’ or not?
- Are the Anti-Hybrid Rules still in Bill from?
- Is the ‘Multi-Lateral Instrument’ Bill in the Senate?
- Will the ‘Black Economy’ bill ban cash transactions in excess of $10,000?
- Does the ‘FinTech Sandbox’ bill also include the changes to the ‘stapled structures’ announced in the 2018 Federal Budget?
- Does the ‘TARP’ Bill also seek to remove the ‘main residence’ exemption from foreign residents?
- Does the MAAL Bill seek to expand the ‘company’ focus to ‘partner’ and ‘trust’ entities?
- Would the $20,00 ‘write-off’ Bill affect purchases already made (viz: from 1 July 2018)?
