As a result, the Government announced a number of significant tax and superannuation changes.

Tax changes

Living-away-from-home allowance (LAFHA)

• Access to the LAFHA tax exemption for temporary residents will be limited to those who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as “fly-in fly-out” workers;
• individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount;
• permanent residents will not be affected by these changes, unless they are receiving LAFHA in excess of their actual expenses. The Government says the changes will not prevent temporary residents who are “fly-in fly-out” workers in Australia from accessing the tax concession, and will not affect employees who receive allowances for having to travel from their usual place of work for short periods.

Other tax-related changes
Other changes announced include:

Previously announced tax reforms will be deferred by 12 months:

• the start date of the standard deduction for work related expenses will be deferred by 12 months until 1 July 2013;
• the start date of the 50% tax discount for interest income will be deferred by 12 months until 1 July 2013 [this was originally announced in the 2010-11 Federal Budget to start from 1 July 2011 and with a cap of $1,000. After the 2010 election, it was deferred to 1 July 2012 and the cap reduced to $500 but increasing to $1,000 from 1 July 2013.];
• the start date of the phase down in interest withholding tax for financial institutions will be deferred by 12 months until 2014-15 [this was announced on 23 November 2011 - see 2011 WTB 49 [1848]];
• the start date of the new tax system for managed investment trusts will be deferred by 12 months until 1 July 2013.

The Government will restrict the Dependent Spouse Tax Offset to those with spouses born before 1 July 1952. That is, it will extend the phase out of the Dependent Spouse Tax Offset to those aged 60 years and under at 1 July 2012. However, these changes will not affect people eligible for the zone, overseas forces or overseas civilian tax offsets, or whose dependent spouse is an invalid, permanently disabled or a carer. [Thomson Reuters note: The 2011-12 Federal Budget had announced that the Offset would be phased out for those aged less than 40 (ie born on or after 1 July 1971) from 1 July 2011. That was legislated in the Tax Laws Amendment (2011 Measures No 5) Act 2011 so will presumably only apply for one year ie the 2011-12 year. The maximum Offset is $2,355 for 2011-12.]

Directors and phoenix arrangements: The Government deleted Sch 3 to the Tax Laws Amendment (2011 Measures No 8 ) Bill 2011 which contained amendments that would extend the director penalty regime to make directors personally liable for their company’s unpaid superannuation guarantee amounts, and in some instances, would make directors and their associates liable to PAYG withholding non-compliance tax where the company has failed to pay amounts withheld to the Commissioner. When reintroduced in 2012, the MYEFO said this measure will have effect from the day after Royal Assent to the necessary legislation, instead of 1 July 2011 as originally proposed – this would avoid retrospectivity.

Tax Studies Institute: The MYEFO announced that the Government would provide $3m over 3 years 2012-13 to 2014-15 to establish an independent Tax Studies Institute. The Institute will undertake additional research into Australia’s tax and transfer system. Business donations to the Institute will be an allowable tax deduction. The establishment of the Institute was announced by the Treasurer on 5 October 2011 at the conclusion of the Tax Forum.

The Government will reset the Baby Bonus to $5,000 per child from 1 September 2012 and pause indexation of the Bonus for 3 years from 1 July 2012. For babies born on or after 1 September 2012, the rate of the Baby Bonus will be reset to $5,000, from its current rate of $5,437. Indexation of the Baby bonus will be paused from 1 July 2012 until 1 July 2015. The Baby Bonus will continue to be paid in 13 fortnightly instalments, with the first instalment being $846 and the balance being paid in 12 fortnightly instalments of $346.

This article appeared in longer form in Thomson Reuters’ Weekly Tax Bulletin (2 December 2011).  Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here

The ATO said the Tribunal found in favour of the Commissioner on nearly all of the income tax and GST associated with the conduct of the taxpayer’s property development business. It also said the Commissioner properly conceded at the hearing that he had erred in the objection decision in not excluding from the taxpayer’s assessable income the amount of extra GST payable by it on the sale of property to which the margin scheme could not apply.

This article appeared in Thomson Reuters’ Weekly Tax Bulletin (2 December 2011).  Australia’s most comprehensive and informative tax news service, it covers in clear terms all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here

Under the changes, s 47 of the FBTAA has been amended to provide an exemption from FBT for transport from an employee’s usual place of residence to their usual place of employment, from 1 July 2009, where the employee is:

• employed under a fly-in fly-out arrangement; and
• the usual place of employment is a remote location in Australia or overseas, or an oil rig or other installation at sea.

The ATO says it will accept returns as lodged during the period up until enactment of the legislation (3 November 2011). It says the returns lodged up until 3 November 2011 were processed in accordance with the law as it applied before the enactment of the new law.

With the enactment of the new law, the ATO says employers employing Australian resident taxpayers in a remote area overseas under a fly-in/fly-out arrangement will need to review their positions. It says employers who have not paid FBT (in accordance with the new law) do not need to review their positions. For employers who have paid FBT, the ATO says they may seek amendments if a reduction in liability results. Interest on overpayment will also be paid.

For Australian resident taxpayers who are employees working in a remote area overseas under a fly-in/fly-out arrangement and have received a payment summary from their employers and have reportable fringe benefits on their individual tax returns, the ATO says an amendment can be requested. For those employees who have not received a payment summary from their employer and consequently do not have reportable fringe benefits, the ATO says no further action is required.

This article appeared in Thomson Reuters’ Weekly Tax Bulletin (2 December 2011).  Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here

The effective date of the proposals, if finalised, would be for annual reporting periods beginning on or after 1 January 2013, with earlier application permitted.

The proposed amendments

The table below sets out the proposed amendments contained in the Exposure Draft.

This article appeared in the Accounting & ASIC Compliance Newsletter (Issue 244, October 2011).  This monthly newsletter keeps you informed of the latest accounting and ASIC developments through incisive summaries and helpful commentary. You’ll find commentary on New Accounting Standards and Pronouncements, Auditors update, ASIC update, Business Law update, a monthly Compliance Timetable informing you of what’s due when and a subscriber query answered section. For more information, click here.

The Australian Accounting Standards Board (AASB) has also issued Australian Accounting Standard AASB 13 “Fair Value Measurement” and AASB 2011–8 “Amendments to Australian Accounting Standards arising from AASB 13”.

IFRS 13 defines fair value, provides guidance on its determination and introduces consistent requirements for disclosures on fair value measurements. The Standard does not include requirements on when fair value measurement is required and therefore does not extend the use of fair value; it prescribes how fair value is to be measured if another Standard requires it.

Some Standards (for example, IAS 40 “Investment Property”) require items to be measured at fair value on an ongoing basis (IFRS 13 refers to this as “fair value on a recurring basis”), some (for example, IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”) require fair value only in certain circumstances (IFRS 13 refers to this as “fair value on a non-recurring basis”) and some (for example, IFRS 3 “Business Combinations”) require fair value only on initial recognition of an item.

Scope

IFRS 13 applies to all transactions and balances (whether financial or non-financial) for which IFRSs require or permit fair value measurements, with the exception of share-based payment transactions accounted for under IFRS 2 “Share-based Payment” and leasing transactions within the scope of IAS 17 “Leases”.

The Standard also makes clear that measurements that have some similarities to fair value but that are not fair value, such as net realisable value under IAS 2 “Inventories” or value in use under IAS 36 “Impairment of Assets” are not within its scope.

IFRS 13 gives relief from its disclosure requirements in respect of the following items:

• plan assets measured at fair value in accordance with IAS 19 “Employee Benefits”;
• retirement benefit plan investments measured at fair value in accordance with IAS 26 “Accounting and Reporting by Retirement Benefit Plans”; and
• assets for which the recoverable amount is fair value less costs of disposal in accordance with IAS 36 “Impairment of Assets”.

Definition of “fair value”

The Standard defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. This is sometimes referred to as an “exit price”.

Determination of fair value

IFRS 13 indicates that an entity must determine the following to arrive at an appropriate measure of fair value:

• the asset or liability being measured (consistent with its unit of account);
• the principal (or most advantageous) market in which an orderly transaction would take place for the asset or liability;
• for a non-financial asset, the highest and best use of the asset and whether the asset is used in combination with other assets or on a stand-alone basis;
• the appropriate valuation technique(s) for the entity to use when measuring fair value, focusing on inputs a market participant would use when pricing the asset or liability; and
• those assumptions that market participants would use when pricing the asset or liability.

Principal (or most advantageous) market

Fair value is the price that would be achieved if an asset were sold (or liability transferred) to a market participant in the principal market (ie the market with the greatest volume and level of activity for that asset or liability). If there is no principal market, the price in the most advantageous market (ie the market in which the entity could achieve the most beneficial price) is used.

In the absence of evidence to the contrary, the market in which the entity normally transacts would be presumed to be the principal or most advantageous market. If location is a characteristic of an asset, the price should be adjusted for costs that would be incurred to transport the asset to or from the principal (or most advantageous) market. However, transaction costs would not be included in a fair value measurement because such costs are not a characteristic of the asset or liability.

Highest and best use

The fair value of a non-financial asset is measured on the basis of the highest and best use of the asset by a market participant. In determining the highest and best use, an entity must contemplate whether the use of the asset is “physically possible, legally permissible, and financially feasible”. Unless market or other factors suggest otherwise, an entity’s current use of a non-financial asset is presumed to be its highest and best use.

Some entities may purposely decide not to employ an asset at its highest and best use (eg when an entity holds an asset defensively to prevent others from using it). In such circumstances, IFRS 13 continues to require measurement based on the highest and best use and also requires disclosure of the fact that the asset is not used in that way.

In circumstances in which the highest and best use of an asset is in combination with an asset group (eg a business) but the unit of account is the individual asset, the fair value of that asset would be measured under the assumption that a market participant has, or can obtain, the complementary assets or liabilities.

Liabilities and own equity

The fair value of a liability or equity instrument of the entity is determined under the assumption that the instrument would be transferred on the measurement date, but would remain outstanding (ie it is a transfer value, not an extinguishment or settlement cost).

The Standard provides a hierarchy of methods for arriving at this value, stating that when a quoted price for the transfer of the liability or equity is not available, the fair value of the liability or equity instrument from the perspective of a market participant holding the item as an asset is used in preference to a value determined using a valuation technique.

Regardless of the method used, the fair value of a liability must take account of non-performance risk, including the entity’s own credit risk.

Offsetting market risks or counterparty credit risk

The Standard allows a limited exception to the basic fair value measurement principles for a reporting entity that holds a group of financial assets and financial liabilities with offsetting positions, in particular market risks as defined in IFRS 7 “Financial Instruments: Disclosures” or counterparty credit risk (also as defined in IFRS 7), and manages those holdings on the basis of the entity’s net exposure to either risk. This exception allows the reporting entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position.

The measurement of the fair value of a portfolio of financial assets and financial liabilities on the basis of net exposure does not affect the financial statement presentation of these instruments. The requirements of other IFRSs on offsetting assets and liabilities must still be met in order to present a net position. If those requirements are not met, and hence the assets and liabilities are presented on a gross basis, an entity should allocate any portfolio-level adjustments to the individual assets and liabilities “on a reasonable and consistent basis using a methodology appropriate in the circumstances”.

It should be noted that the IASB issued its exposure draft ED/2011/01 “Offsetting Financial Assets and Financial Liabilities” on 28 January 2011. This ED would provide clarifying guidance in applying the current offsetting principles in IAS 32 “Financial Instruments: Presentation” and proposes additional qualitative and quantitative disclosures about financial assets and financial liabilities subject to offsetting. For more information about the ED, refer to the August 2011 issue of Accounting & ASIC Compliance.

When an entity has elected a policy to apply the exception to a portfolio in which the market risks being offset are substantially the same, the entity should apply the price within the bid-ask spread that is most representative of fair value to the entity’s net exposure to those market risks.

The Standard also indicates that when netting credit risk exposures with a particular counterparty in a fair value measurement, the entity should consider whether market participants would take into account any existing arrangements that mitigate risk exposure (eg a master netting agreement) in the event of default.

Valuation techniques

When transactions are directly observable in a market, the determination of fair value can be relatively straightforward, but when they are not, a valuation technique is used. IFRS 13 describes the following three valuation techniques an entity might use to determine fair value.

• The market approach – an entity “uses prices and other relevant information generated by market transactions involving identical or comparable (ie similar) assets, liabilities or a group of assets and liabilities”.
• The income approach – an entity converts future amounts (eg cash flows or income and expenses) to a single current (ie discounted) amount.
• The cost approach – an entity determines a value which “reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost)”.

A valuation technique should be selected, and consistently applied, to maximise the use of relevant observable inputs (and minimise unobservable inputs).

Premiums and discounts

The Standard permits a premium or a discount to be included in a fair value measurement only when it is consistent with the unit of account for the item. This means that premiums or discounts that reflect size as a characteristic of the entity’s holding (eg a blockage factor reducing the price which could be achieved on disposal of an entire large equity holding) rather than as a characteristic of the asset or liability (eg a control premium when measuring the fair value of a controlling interest) are not included.

Unit of account guidance is outside the scope of IFRS 13. Therefore, entities should look to other IFRSs for unit of account guidance.

Fair value at initial recognition

If the transaction price for an item is determined to be its fair value at that date, then any valuation technique utilising unobservable inputs must be calibrated to show that fair value at initial recognition, thus ensuring that future remeasurements reflect only changes in value subsequent to initial recognition.

If, on the other hand, the fair value at initial recognition differs from the transaction price the resulting gain or loss must be recognised in profit or loss unless IFRSs specify a different treatment. For financial assets or financial liabilities, both IFRS 9 “Financial Instruments” and IAS 39 “Financial Instruments: Recognition and Measurement” specify how to account for a difference between the initial fair value and the transaction price.

Disclosure requirements

IFRS 13 requires a number of quantitative and qualitative disclosures about fair value measurements. Many of these are related to the following three-level fair value hierarchy on the basis of the inputs to the valuation technique:

• Level 1 inputs are fully observable (eg unadjusted quoted prices in an active market for identical assets and liabilities that the entity can access at the measurement date);
• Level 2 inputs are those other than quoted prices within Level 1 that are directly or indirectly observable; and
• Level 3 inputs are unobservable.

An asset or liability is included in its entirety in one of the three levels on the basis of the lowest-level input that is significant to its valuation.

Disclosures based on this hierarchy are already required for financial instruments under IFRS 7, but IFRS 13 extends them to cover all assets and liabilities within its scope. Required disclosures are highlighted in the table below.

Some disclosure requirements differ depending on whether the fair value calculation is performed on a recurring or non-recurring basis. IFRS 13 defines recurring and non-recurring fair value measurements of assets and liabilities as follows:

• recurring – those that other IFRSs require or permit in the statement of financial position at the end of each reporting period;
• non-recurring – those that other IFRSs require or permit in the statement of financial position in particular circumstances.

Effective date and transition

IFRS 13, AASB 13 and AASB 2011–8 are effective for annual reporting periods beginning on or after 1 January 2013. Early application is permitted. Therefore, entities are allowed to apply the measurement and disclosure requirements as soon as practicable. Entities that choose to adopt the standard early should disclose that fact.

IFRS 13 and AASB 13 should be applied prospectively from the beginning of the annual reporting period in which the Standard is adopted.

This article appeared in the Accounting & ASIC Compliance Newsletter (Issue 244, October 2011).  This monthly newsletter keeps you informed of the latest accounting and ASIC developments through incisive summaries and helpful commentary. You’ll find commentary on New Accounting Standards and Pronouncements, Auditors update, ASIC update, Business Law update, a monthly Compliance Timetable informing you of what’s due when and a subscriber query answered section. For more information, click here.

The amendments are proposed to have effect from the 2012-13 income year. However, it should be noted that the amendments for the instant asset write-off and the simplified depreciation pooling arrangements are subject to the enactment of the Minerals Resource Rent Tax Bills (yet to be introduced into Parliament) and s 3 of the Clean Energy Bill 2011 (introduced into the House of Reps on 13 September 2011).

A summary of the proposed amendments is below:

Instant write-off of an asset

Under the proposed amendments to the ITAA 1997, the small business instant asset write-off threshold will be increased from $1,000 to $6,500. The proposed amendments will implement one of the Government’s responses to the Henry Tax Review in May 2010. The Government had proposed an instant asset write-off threshold of $5,000. This figure was later increased to $6,500 when the Government announced its “Clean Energy Future Plan” in July 2011.

Simplified depreciation pooling arrangements

The proposed amendments will consolidate the long life small business pool and the general small business pool into a single pool to be written off at one rate. The changes will implement one of the Government’s responses to the Henry Tax Review.

Deductions for motor vehicles

The proposed amendments propose to amend the ITAA 1997 to allow small business entities to claim an accelerated initial deduction for motor vehicles acquired from the 2012-13 income year. The proposed amendments will implement the Government’s proposal announced in the 2011-12 Budget.

Entrepreneurs’ tax offset

The proposed amendments propose to abolish the entrepreneurs’ tax offset by repealing Subdiv 61-J of the ITAA 1997. This would implement the Government’s proposal announced in the 2011-12 Budget.

Comments were due to the Business Tax Division, Treasury on 28 September 2011.

This article appeared in Thomson Reuters Weekly Tax Bulletin (16 September 2011).  Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here

The Deputy Commissioner had obtained summary judgment in the Supreme Court of Queensland against Barkworth Olives Management Limited for approximately $81.5m. This amount comprised income tax owing pursuant to assessments issued to Barkworth Olives under s 99A of the ITAA 1936 (in its capacity as trustee of a number of trusts), administrative penalty and general interest charge.

The primary judge rejected Barkworth Olives’ argument that para 254(1)(e) of the ITAA 1936 qualified what would otherwise be the conclusive nature of the assessments under s 170 of the ITAA 1936, noting that the contended effect of para 254(1)(e) was an issue that could be raised in separate objection proceedings.

Barkworth Olives appealed the decision on the basis that para 254(1)(e) of the ITAA 1936 meant it was not personally liable for the amounts specified in the notices of assessment because it had not received any of the money that comprised the income that was the subject of the s 99A assessments. The Qld Court of Appeal dismissed the taxpayer’s appeal.

The ATO said the decision confirms that s 254 of the ITAA 1936 does not limit the personal liability of a trustee assessed to tax pursuant to ss 99A or 99 of the ITAA 1936. Further, it says s 254 does not qualify the operation of ss 177 or 5-5 of the ITAA 1997 in respect of a personal liability.

The ATO notes “the Commissioner will not accept that s 254 of the ITAA 1936 limits the personal liability of a trustee where that trustee is expressed to be liable to tax under a provision of Div 6″.

This article appeared in Thomson Reuters Weekly Tax Bulletin (2 September 2011).  Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here

The new electronic form will allow fund members with lost super to request their benefits be transferred through a portal on the ATO website, making it simpler and easier for people to claim their lost super.

On 23 September 2011, the Government released draft legislation for public consultation that would amend the SIS Act and RSA Act to permit regulations to allow the ATO to administer the electronic portability form. The draft legislation is available on the Treasury website.

Key features of the proposed changes are:

• Regulations may prescribe a scheme for electronic portability of superannuation benefits administered by the Commissioner.
• The Commissioner would have general administration of the prescribed scheme and related TFN provisions. APRA would retain general administration of the portability arrangements.
• The Commissioner will be able to request a fund member’s TFN for the purposes of the prescribed scheme.
• The Commissioner will be able to disclose a member’s TFN to a fund trustee for the purposes of the prescribed scheme.
• The Commissioner will be able to require the member’s TFN to be included on the transfer request.

Comments

Consultations will close on 14 October 2011 and comments should be sent to: The Manager, Benefits and Regulation Unit, Personal and Retirement Income Division, The Treasury, Langton Crescent, PARKES ACT 2600; Email: superamendments@treasury.gov.au. Enquiries should be directed to Frances McGee on (02) 6263 4011.

This article appeared in Thomson Reuters Weekly Tax Bulletin (30 September 2011).  Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here

From June 2012, APRA will require superannuation funds to identify and disclose, on a standardised basis, the risk of negative returns over a 20-year period for each of their investment options. At APRA’s request, the FSC and ASFA formed a working group to develop guidance for super fund trustees on complying with this requirement.

ASFA CEO Pauline Vamos said the Standard Risk Measure Guidance Paper would help super trustees approach risk disclosure on a consistent basis and assist fund managers to better understand trustees’ requirements. The methodology for determining an investment option’s rating according to the Standard Risk Measure will be supported by a structured review process and both APRA and ASIC will review its operation as part of their normal activities.

The bodies noted the start date for disclosing risk on a standardised basis is consistent with the Government’s shorter Product Disclosure Statement regime, which will commence on 22 June 2012.

In addition, the bodies noted that ASIC expects that by no later than July 2012, trustees will use the Standard Risk Measure in PDSs to describe the risk characteristics of the investment strategies offered in the statements. It is also expected that APRA will be asking trustees to substantiate how they have formulated their risk measures, they said.

The guidelines entitled Standard Risk Measure Guidance Paper for Trustees are available on the ASFA website.

This article appeared in Thomson Reuters Weekly Tax Bulletin (5 August 2011).  Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here

The ATO says last financial year it identified over 1,280 taxpayers involved with illegal schemes to access super early and imposed penalties and additional tax totalling $9.4m. It says in severe cases taxpayers may also be prosecuted and receive jail time. It says taxpayers involved in early access schemes may also inadvertently be victims of identity fraud and theft of super benefits by the promoters.

In partnership with the Commonwealth Director of Public Prosecutions and ASIC, the ATO says 4 promoters of such schemes had been successfully prosecuted and received jail sentences over the last 12 months.

Further, the ATO says there are legal ways for taxpayers to access super early in limited circumstances (financial hardship or compassionate reasons). It advises that taxpayers should contract their super funds directly if they believe they have met the requirements for early access of super benefits.

This article appeared in Thomson Reuters Weekly Tax Bulletin (12 August 2011).  Australia’s most comprehensive and informative tax news service, it covers, in clear terms, all tax and related developments from cases, new legislation, tax rulings and major announcements to detailed practitioner articles. To find out more, click here