• ICAA – ICAA CEO Lee White said the Government needs to work towards a sustainable tax system that can provide for Australia in the long term. “The nation’s tax regime is a delicate balancing act. There are no silver bullets. The Government needs to build certainty around Australia’s tax environment by proposing polices that will have a meaningful impact in the long term,” he said.
• CPA Australia – CPA Australia Chief Executive Alex Malley said Treasurer Swan’s determination to lay out a path to surplus has missed the opportunity to further enhance Australia’s competitiveness. “The Budget needed a comprehensive suite of initiatives to support Australia’s transition to a knowledge-based economy capable of competing with any country in the world”, Mr Malley said.
• Institute of Public Accountants – “The Budget is noticeable for what it doesn’t include rather than inclusion of any significant  measures for reform. We need a plan to build and sustain the future wellbeing of the small business sector so that it can continue to make a vital contribution to the Australian economy”, said IPA CEO Andrew Conway.
• Actuaries Institute – The Institute has welcomed Budget proposals which respond to the Institute’s calls for reforms on 2 key areas on its policy agenda: longevity risk and flood resilience. It also noted that the Budget “confirmed the pre-announced changes to remove the inequitable tax treatment of deferred lifetime annuities and give them the same tax treatment as current income streams”.
• Financial Planning Association of Australia – FPA General Manager Policy and Standards Dante De Gori said: “The FPA strongly urged Government to avoid tinkering with superannuation and we are happy to see Treasurer Swan has avoided changes that would reduce incentives and benefits of the superannuation system.” However, the FPA noted that the “Budget did nothing to support small business”.
• ASFA – ASFA said it was pleased to see no new unexpected changes to superannuation in this year’s Federal Budget. However, ASFA CEO Pauline Vamos noted that “some measures have been slightly adjusted as a result of the response to the April announcements, however there is still further work to be done to address any potential issues which may arise on implementation”.

Read the full coverage of the 2013 Federal Budget in Thomson Reuters Weekly Tax Bulletin – Special Edition – Issue 20, 14 May 2013.

Mr Swan said expected tax receipts are down $60bn over the 4 years to 2015-16. Since last year’s Budget, he said expected tax receipts for 2012-13 had been “written down” by $17bn. He said company taxes, CGT, and resource rent taxes “have all been hit”. Mr Swan said almost $170bn had been wiped off tax receipts since the GFC.

In last year’s Budget, the Treasurer said the Australian economy was expected to grow at 3% in 2013-14. In the 2013-14 Budget, that figure has been revised down to 2.75% and 3% in 2014-15.

An outline of the major announcements is given below.

Revenue measures announced

The major revenue measures announced in the Budget included:

• A significant package of measures targeting multinational profit shifting structures: thin cap ratios reduced; CFC changes; foreign exempt income; non-portfolio dividends; etc.
• Changes to Australia’s foreign resident CGT regime.
• Measures to prevent “dividend washing” and doubling up of franking credits.
• Consolidation: loopholes to be closed; new Tax Board recommendations made and Govt responses.
• Restriction on immediate deduction for mining rights and information.
• Changes to OBU regime from 1 July 2013.
• Compliance improvements through third party reporting and data matching.
• Phase-out of medical expense tax offset.
• Baby Bonus to be abolished and replaced from 1 March 2014.

More information on the tax and related announcements is also contained in a number of Budget press releases – see the Treasurer’s website and the Assistant Treasurer’s website.

The 2013-14 Budget Papers are available on the Federal Parliament Budget 2013-14 website.

See the full report in Thomson Reuters Weekly Tax Bulletin – Special Budget 2013 edition.

At first instance, the Federal Court had held that the $9.3m net capital gain was “special income” of the SMSF (which is taxable at 47% instead of 15%). The Federal Court had considered that it was bound by the Full Federal Court decision in Allen v FCT (2011) 195 FCR 416 to conclude that “income derived” in s 273 includes both ordinary and statutory income (eg net capital gains). The Court considered that “derived”, for the purposes of “income derived” in s 273(6), must accommodate how a particular type of assessable income (which can form part of the net income of the trust estate) is included in the assessable income of a beneficiary pursuant to s 97 of the ITAA 1936.

In dismissing the taxpayer’s appeal, the Full Federal Court noted that the taxpayer faced a “formidable task” in persuading the Court that the Full Federal Court decision in Allen v FCT was wrong.

A full case summary of this Full Federal Court decision will be reported in Thomson Reuters Weekly Tax Bulletin. Find out more about subscribing to Weekly Tax Bulletin here.

• The changing face of Pt IVA — Matt Budge, Partner–Corporate Tax, PricewaterhouseCoopers, reflects on how Australia’s approach to tax avoidance has evolved, and discusses whether the proposed changes will affect the way in which clients approach business arrangements.
• Foreigners don’t vote: the removal of the CGT discount for non-residents — Chris Evans (UNSW) and Gordon Cooper (Cooper & Co) take a closer look at the Government’s exposure draft legislation which proposes to remove the CGT discount for foreign resident individuals (including individuals who are beneficiaries of trust estates). Essentially any individuals who were a foreign resident or a temporary resident on 8 May 2012 and/or any time thereafter, will generally be entitled to no CGT discount or only a reduced CGT discount. The article examines how the proposed legislation would (or would not) work. [Chris Evans and Gordon Cooper are the authors of Cooper and Evans on CGT (4th edition) 2012, published by Thomson Reuters.]
• Small business CGT concessions – net asset value test — The small business CGT concessions are intended to offer small business taxpayers a range of unique tax concessions. However, despite being targeted towards taxpayers that are typically less sophisticated, the rules are riddled with complexities that may not appear obvious at first glance. Clive Bird, Director-Tax, Moore Stephens, takes a look at the “maximum net asset value” test and also discusses the recent Full Federal Court decision in Bell v FCT [2013] FCAFC 32, which explored some of the nuances in the test.
• Is your client carrying on an enterprise? — The concept of an “enterprise” is critical to the operation of the GST system. An entity cannot be registered for GST unless it is carrying on an enterprise. Further, any supply it makes cannot be a taxable supply unless it is made in the furtherance of its enterprise. Finally, an entity cannot claim input tax credits unless it makes an acquisition in the course of its enterprise. Clive Bird, Director-Tax, Moore Stephens, says that without understanding whether a taxpayer is carrying on an enterprise, it is impossible to determine a taxpayer’s GST position.

Tips:

• Are you looking for ways to maintain your technical reading? Collect CPD points by reading Thomson Reuters inTAX magazine.
• Do you want to write tax-technical articles, but don’t know where to start? Talk to Lisa Lynch, editor of inTAX magazine – direct tel: 02 8587 7643 or email: lisa.lynch@thomsonreuters.com.

Subscribe to Thomson Reuters inTAX magazine.

Currently, the 15% flat tax on concessional contributions (paid by the receiving superannuation fund) provides high income earners with a larger tax concession than those on lower marginal tax rates. The draft legislation will impose an additional 15% tax on “Division 293 taxable contributions” under proposed Div 293 of the ITAA 1997 for taxpayers above the “high income threshold” of $300,000. That is, the effective contributions tax will be doubled from 15% to 30% for concessional contributions made on behalf of individuals above the $300,000 threshold. When finalised, the amendments will apply to contributions from 1 July 2012.

$300,000 high income threshold

The extra 15% tax under proposed Div 293 will be payable by individuals whose combined “income for surcharge purposes” (less reportable superannuation contributions) and “low tax contributions” (ie concessional contributions up to the cap of $25,000) exceed $300,000 for an income year. Thomson Reuters Weekly Tax Bulletin (Issue 18, dated 3 May 2013) notes that the adoption of “income for surcharge purposes” for the purposes of the high income threshold test will effectively prevent individual’s from attempting to manipulate their taxable income (eg via salary packaging arrangements or negative gearing) to reduce or avoid the extra tax.

A taxpayer’s “low tax contributions” will essentially be her or his “concessional contributions” (as modified by the special rules for certain defined benefit interests) less any excess concessional contributions for the year. Importantly, this means that the extra 15% contributions tax will not apply to concessional contributions which exceed a taxpayer’s concessional contributions cap of $25,000. Such excess concessional contributions are already effectively taxed at the individual’s top marginal tax rate in any event.

Special rules for defined benefits

Special rules will apply for individuals above the $300,000 threshold who have defined benefit interests, State higher level office holders in respect of interests in constitutionally protected funds, certain Commonwealth justices and judges, and temporary residents who depart Australia. The Government’s desire to ensure that judges, senior public servants, politicians and defined benefit interests are subject to the extra 15% tax is the reason for the bulk and complexity of the 50 pages of draft legislation required to implement the proposed measure. However, the additional tax on defined benefit interests will be deferred until after the first benefit eventually becomes payable from the superannuation interest (subject to certain exceptions). This reflects the fact that money generally cannot be released from defined benefit interests until a superannuation benefit is paid from the scheme (generally upon retirement).

Further details on the tax treatment on superannuation contributions are set out in Thomson Reuters Australian Tax Handbook 2013 and the Australian Superannuation Handbook 2012-13. Stay up-to-date with all tax and superannuation developments by subscribing to Thomson Reuters Weekly Tax Bulletin and Latest Tax News.

The paper notes that there is growing concern (in Australia and globally) that many of the key rules of international taxation may not have kept pace with the evolution of the global economy.

To this end, the paper outlines the challenges for the international tax framework due to the changing global economy and considers possible policy responses. A key issue is whether tax concepts developed for the industrial age are still applicable in the era of the digital economy. Related issues are the cumulative impact of actions by individual countries to maintain competitiveness and the ability and willingness of multinational enterprises to exploit gaps in the international tax rules. Another issue in the paper is the quality and availability of evidence of base erosion and profit shifting in Australia, and what additional data might be needed to determine the extent of the problem.

The paper considers that a range of possible policy responses may be required, including:

• actions countries might take on their own initiative (unilateral) and together with other countries (bilateral and multilateral);
• actions within the current international tax architecture and those that require fundamental reforms of that architecture; and
• measures taken in the short term to address current pressure areas and actions that will require consideration and implementation over the longer term.

A further Treasury Scoping Paper is also scheduled for release in June 2013 ahead of the OECD’s consideration of its Action Plan in late June 2013 and the G20 Finance Ministers meeting in July 2013. Keep up to date with the latest tax developments by subscribing to Thomson Reuters Weekly Tax Bulletin.

The April 2013 edition of inTAX magazine features the following tax-related technical articles:

Rental income and deductions: Tax law versus general law partnerships — Gino Malacco, Tax Partner, Hall Chadwick Chartered Accountants, comments on the recent AAT decision of AAT Case [2013] AATA 8, Re Harbutt and FCT. In that case, the AAT affirmed amended assessments issued to a taxpayer for the 2003 to 2005 income years to include as his income 100% of the rental income and deductions in relation to a commercial property owned by the taxpayer. Malacco concludes that in the absence of a general law partnership (or the very limited circumstances in which a resulting trust arises), net rental income and losses must be distributed strictly in accordance with legal entitlement.

Taking an interest in your interest — Trusty old s 8-1 of the ITAA 1997 had said for many years that interest is tax deductible to the extent it is incurred in gaining or producing assessable income, or incurred in carrying on a business for that purpose, and is not of a capital, private or domestic nature. Therefore, provided there is some sort of view to making money, you should be alright, right?  Well perhaps not always. Matt Budge, Partner – Corporate Tax, PwC, discusses situations where interest is not always deductible.

Changes to CGT relief for loss or destruction of property — With much of Australia (again) now having been dramatically affected by fire and flood, Kirk Wilson, Senior Tax Writer, Thomson Reuters, says it is very timely to review a previous announcement by the Government that it would amend the law in relation to CGT relief for taxpayers affected by natural disasters who receive government assistance in some form.

Division 7A and marriage breakdown — The all pervasive world of tax has a bad habit of rearing its head in unwelcome situations. This fact is demonstrated by the potential for tax issues to arise in cases of divorce and marriage breakdown. One area of the tax law that is frequently relevant in these situations is Div 7A. Stephen O’Flynn, Director, Moore Stephens, explains why Div 7A issues can arise, and also explores potential strategies for mitigating its application.

Buy the asset or buy the entity? How will stamp duty impact your decision? — Stamp duty continues to be an essential consideration for all taxpayers considering buying a business.  However, quite often it is not given the attention that it deserves until it is too late.  Stephen O’Flynn, Director, Moore Stephens, discusses how different duty outcomes can eventuate depending on which structure is chosen.

Tips:

• Are you looking for ways to maintain your technical reading? Collect CPD points by reading Thomson Reuters inTAX magazine.
• Do you want to write tax-technical articles, but don’t know where to start? Talk to Lisa Lynch, editor of inTAX magazine – direct tel: 02 8587 7643 or email: lisa.lynch@thomsonreuters.com.

Subscribe to Thomson Reuters inTAX magazine.

While ASIC found that the majority of the SMSF advice was adequate, it identified pockets of poor advice (primarily in relation to recommendations to set up an SMSF to gear into real property). ASIC also found issues in the following areas:

• advice was not sufficiently tailored to the needs and objectives of the investor;
• insurance recommendations were absent or inadequate;
• an inappropriate single asset class was proposed;
• suitable alternatives to an SMSF were not considered; and
• inadequate consideration of the investor’s long-term retirement planning (and succession planning) objectives.

ASIC Commissioner Peter Kell expressed concern about the apparent rise in aggressive advertisements pushing property purchases through SMSFs. Mr Kell said ASIC does not want to see SMSFs become the vehicle of choice for property spruikers. To this end, he warned that ASIC will take regulatory action where it finds examples of unlicensed SMSF advice or misleading marketing. ASIC also expects advice providers to explain that each trustee is liable for managing the SMSF and that there are serious consequences if trustees do not properly fulfil their duties.

Further details on the roles and responsibilities of SMSF trustees are covered in The Essential SMSF Guide 2012-13 (by Tony Negline). See also Thomson Reuters SMSF Solution – Checkpoint.

But whether there are or not, there are bound to be other tax changes – maybe thin cap changes or changes affecting corporate depreciation deduction claims.

Whatever happens, don’t forget that prior to the dissolution of Parliament before the Election, it is likely the House of Reps will have 22 sitting days, and the Senate only 12 sitting days, during which to debate and pass any legislation that seeks to implement Budget (or earlier superannuation) announcements. Time will be very short. The Parliamentary session after Budget Day will be extremely interesting to say the least.

Keep up-to-date with the latest tax news developments with Thomson Reuters Latest Tax News.