Program 1.1: Department of the Treasury (continued)
Revenue Group aims to contribute to effective taxation and retirement income arrangements that are crucial to the Government’s objectives for the economy and the wellbeing of Australians. Contributing to better tax policy and better tax law are key elements of the Treasury’s role as a central policy agency.
Revenue Group has primary responsibility for providing highquality advice to Treasury portfolio ministers on tax and retirement income policies and legislation. The Treasury designs policy options and legislative proposals to make the Australian tax system more efficient, fair and transparent, and minimise compliance and administration costs. Advice is formulated through an integrated process, which includes consultation with business and community bodies, and close cooperation with the ATO and relevant Commonwealth departments.
During 2009-10, tax and retirement income policy considerations were integral to the Treasury’s advice to assist the Government to improve the tax and transfer system. Revenue Group developed legislation giving effect to measures announced in the 2009-10 Budget to ensure the budget’s sustainability, including superannuation and private health insurance rebate changes that supported the pension reform package and better targeting the tax exemption for Australians’ foreign employment income. Revenue Group also developed mediumterm revenue projections as an input to the mediumterm analysis undertaken in Statement 3 of the 2009-10 Budget.
The Treasury continued to host the Australia’s Future Tax System (AFTS) Review secretariat which supported the panel conducting the comprehensive review of Australia’s tax and transfer system. The secretariat operated in the Treasury until the review’s final report was delivered to the Treasurer in December 2009. Revenue Group then advised the Government on its response to the review’s recommendations, Stronger, Fairer, Simpler: a tax plan for our future . The Government released the review panel’s final report, together with its initial response on 2 May 2010. Key measures included changes to resource and business taxation arrangements, infrastructure funding, and changes to superannuation arrangements.
In the 2010-11 Budget, the Government also announced the introduction of a standard deduction for work related expenses and a tax discount for interest earned on savings. The Treasury also advised on a range of other business, personal and indirect tax policy issues, including: ‘ready-to-drink’ alcoholic beverages and tobacco excise; the signing of new tax treaties with Chile and Turkey; and entry into force of the new treaty with New Zealand. Revenue Group contributed to the preparation of the IGR2010, providing revenue projections for the Government’s tax revenue out to 2049-50.
The Treasury continued to develop enhanced consultation processes for tax and superannuation measures, including establishing a Tax Design Advisory Panel to facilitate consultation at the initial policy design stage of a measure’s development. It also provided secretariat services to the Board of Taxation. The Board of Taxation publishes its own annual report at www.taxboard.gov.au.
Revenue Group’s key deliverables are to advise on:
- the comprehensive review of Australia’s tax and transfer system by the AFTS Review Panel, which provided a final report to the Treasurer by the end of 2009;
- tax and retirement income initiatives which assist taxpayers deal with the impacts of the global financial crisis and advance the Government’s other policy goals, including a simpler and fairer tax system, improved international competitiveness and investment decisions leading to higher productivity;
- the costs and impacts of tax proposals, measures and expenditures, including their distributional impact and overall efficiency; and
- a modernised tax treaty network and revised international tax rules which address risks from harmful tax jurisdictions, promote growth and investment, and further Australia’s interests, particularly in the Pacific and Asia.
Revenue Group’s key outcomes were:
- providing secretariat and other support to the AFTS Review Panel, including examining a broad range of tax and transfer issues, analysing public submissions, organising consultations with a wide range of stakeholders, commissioning research and delivering the final report to the Treasurer in December 2009;
- advising the Government on the recommendations of the AFTS Review, the Government’s response to those recommendations and the Johnson Review;
- regularly revising tax revenue estimates and analysis, taking into account the improving domestic economy despite continuing global uncertainty, and incorporating these into the overall fiscal outlook and strategy in MYEFO and the 2010-11 Budget, as well as providing input into the IGR2010;
- advising on and implementing legislation for business tax proposals, including providing advice and policy support on the taxation of nonrenewable resources, amending the consolidation regime, amending the taxation of financial arrangements rules, making a regulation on term subordinated debt, amending the capital gains tax rules to remove the trust cloning exception, providing limited rollover for assets transferred between certain trusts and removing certain income tax impediments to mergers of superannuation funds, developing the framework for the tax agent services regulatory reform, reforming the taxation of managed investment trusts, implementing legislation to protect investors in forestry managed investment schemes, and implementing the Board of Taxation recommendations on offmarket share buybacks;
- advising on proposals for personal tax policy reform, including a standard deduction for workrelated expenses and the cost of managing tax affairs, a 50 per cent discount for individuals with up to $1,000 interest income, a higher threshold above which taxpayers may claim the Net Medical Expenses Tax Offset, and greater flexibility for holders of first home saver accounts;
- advising on and implementing legislation for philanthropy tax policy, including improving the integrity of public ancillary funds, extending deductible gift recipient status to all volunteer fire brigades and related emergency services, as well as specifically listing organisations in the tax law as deductible gift recipients and income tax exempt;
- advising on and implementing legislation for superannuation and retirement income policies, including the lost members framework, the small business superannuation clearing house provided through Medicare Australia, and legislation to give effect to the Memorandum of Understanding between Australia and New Zealand to establish a retirement savings portability scheme;
- advising on and implementing legislation for Australia’s international tax arrangements, reflecting efforts to maintain the integrity of the tax base while providing a competitive and modern international tax system, including recommendations from the Board of Taxation’s Review of the foreign source income antitaxdeferral regimes, and the Johnson Report;
- progressing tax treaty negotiations with key investment partners, including enacting a new tax treaty with New Zealand, signing new treaties with Chile and Turkey, and concluding tax information exchange agreements with several other jurisdictions;
- contributing to global efforts to address tax transparency and harmful tax regimes, including the election of Australia as the Chair of the Global Forum on Transparency and Exchange of Information;
- advising on and implementing legislation on a range of indirect ta
x measures, including recommendations from the Board of Taxation’s Review of the Legal Framework for the Administration of the Goods and Services Tax, tobacco excise and ‘ready-to-drink’ alcoholic beverages and advising on GST policy issues, including the Board of Taxation’s Review of the Application of the Goods and Services Tax to CrossBorder Transactions , the Treasury’s Review of the Margin Scheme and the Treasury’s Review of the Goods and Services Tax Financial Supply Provisions ;
- providing quantitative advice, including analysis of the distributional considerations, into the AFTS Review process and the government’s response, the Carbon Pollution Reduction Scheme, the fiscal stimulus and various tax proposals, such as the tobacco excise and increased thresholds for the Net Medical Expenses Tax Offset;
- coordinating the 2009 Tax Expenditures Statement publication and providing quantitative advice on estimates of tax expenditures;
- concluding the Participation Modelling Project and having achieved a step up in the capacity of the Treasury — and more broadly across government — to model the impact on labour market behaviour of tax and transfer policy, including retirement incomes policy and child care policy;
- continuing to develop enhanced consultation processes for tax and superannuation measures, including establishing a Tax Design Advisory Panel to allow the Government, in appropriate circumstances, to develop tax legislation by teams involving the Treasury, the ATO and the private sector (as represented by panel members);
- advising the Government on ways to improve the operation of the running balance account and interest on overpayments provisions in the tax laws and developing legislation to transfer provisions from the Income Tax Assessment Act 1936 to the Income Tax Assessment Act 1997 ;
- providing secretariat support to the Board of Taxation, including to its reviews of tax arrangements applying to managed investment trusts, elements of the taxation of employee share scheme arrangements, application of GST to crossborder transactions, tax treatment of collective investment vehicles, tax treatment of Islamic finance products, review of the Tax Issues Entry System and its postimplementation review into certain aspects of the consolidation regime; and
- providing secretariat support to the Superannuation Advisory Committee, which met three times during 2009-10.
Analysis of performance
Australia’s Future Tax System Review and the Government response
The AFTS Review was announced by the Treasurer in May 2008 to review Australia’s current tax and transfer system and make recommendations to create a tax structure that will position Australia to deal with the demographic, social, economic and environmental challenges of the 21st century.
The Review Panel was chaired by Dr Ken Henry AC (Secretary to the Treasury) and comprised Dr Jeff Harmer AO (Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs), Professor John Piggott (Associate Dean, University of New South Wales), Ms Heather Ridout (Chief Executive Officer, Australian Industry Group) and Mr Greg Smith (Adjunct Professor, Australian Catholic University).
A secretariat was established within the Treasury to support the panel. The secretariat operated in the Treasury until the review panel’s final report, Australia’s future tax system: Report to the Treasurer was delivered to the Treasurer in December 2009.
The Treasury advised the Government on the recommendations and in developing and implementing the Government’s response to the review. The Government released the final report, together with its initial response Stronger, Fairer, Simpler: a tax plan for our future on 2 May 2010.
Tax revenue estimates and analysis
The Treasury, in collaboration with the ATO, provided the Government with timely monitoring, analysis and estimation of tax revenues as the Australian economy recovered from the global financial crisis. Revisions to expected tax revenue in 2009-10 and over the forward estimates, reflected the recovery in the domestic economy despite continued global uncertainty and the lags inherent in the tax system, and were made at both the economic and fiscal outlook releases through 2009-10 (MYEFO and the 2010-11 Budget). The Treasury provided revenue estimates into the medium term as an input into the medium term analysis undertaken in Budget Statement 3 of the Budget. The Treasury provided revenue projections for Government tax revenue out to 204950 for the IGR2010.
The Treasury also undertook other quantitative analysis in preparing advice for government policies, such as the change to the threshold for the Net Medical Expenses Tax Offset and increase to tobacco excise in the 2010-11 Budget. The Treasury’s analysis of interactions in the Australian tax and transfer system was also provided to the OECD for international comparisons in the 2009 Taxing Wages and the 2007 Net Social Expenditures .
Business tax reform
Taxation of non-renewable resources
Following the completion of the AFTS Review, the Treasury advised on the taxation of nonrenewable resources and development of the Resource Super Profits Tax. The Treasury undertook extensive consultation with the mining sector following the announcement of the Resource Super Profits Tax and provided secretariat support to the Resource Tax Consultation Panel. Following consultations with the sector, the Government announced changes to the resource tax arrangements, including the Minerals Resource Rent Tax and extension of the Petroleum Resource Rent Tax.
Tax agent services regulatory reform
The Treasury continued to provide policy advice and develop legislation to implement the new tax agent services regime which started in March 2010. The Tax Agent Services Act 2009, which received Royal Assent on 26 March 2009, established a national statutory body, the Tax Practitioners Board, with an enhanced regulatory function to replace the existing statebased boards and introduced a legislative Code of Professional Conduct for registered agents, along with wider and more flexible disciplinary sanctions.
The Treasury developed legislation on transitional arrangements through the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 , which received Royal Assent on 16 November 2009 and helped appoint 12 members to the new board.
Confidentiality of taxpayer information
The Treasury continued to provide advice and develop legislation to protect the confidentiality of taxpayer information held by the ATO. The Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2009 was introduced into the House of Representatives on 19 November 2009. The legislation, when enacted, will rationalise a multitude of secrecy provisions in various tax laws and generally prohibit the disclosure of taxpayer information, except in specified circumstances.
Small business tax measures
The Treasury has advised on numerous potential small business tax measures, including the immediate asset writeoff for depreciating assets valued at under $5,000 and the early start to the reduced company tax rate of 29 per cent for small business companies from 2012-13.
Managed investment trusts
The Treasury advised on reforms to the tax arrangements for managed investment trusts, including introducing a new tax system for managed investment trusts, in response to the Board of Taxation’s review. The Government announced the reforms on 7 May 2010. They include allowing qualifying managed investment trusts (those with clearly defined rights) to elect an attribution met
hod of taxation to determine when an investor is liable to taxation.
The Treasury also provided policy advice and developed legislation to allow managed investment trusts to irrevocably elect to apply the capital gains tax provisions as the primary code for taxing gains and losses on disposing of certain assets (primarily shares, units and real property). The measure announced in the 2009-10 Budget implements interim advice that the Board of Taxation provided to the Government during the Managed Investment Trusts Review. The Treasury undertook public consultation on a discussion paper and draft legislation. The measure included in Tax Laws Amendment (2010 Measures No. 1) Act 2010 , received Royal Assent on 3 June 2010.
Restricting eligibility to the Entrepreneurs’ Tax Offset through an income test
The 2008-09 Budget announced the introduction of an income test into the eligibility criteria for the Entrepreneurs’ Tax Offset to reduce the offset that taxpayers with other significant sources of income (income not referable to the relevant small business) could claim. The income test restricts the eligibility of single individuals whose income is over $70,000 and members of families whose incomes are over $120,000. The Treasury undertook public consultation on draft legislation. The measure included in Tax Laws Amendment (2010 Measures No. 1) Act 2010 , received Royal Assent on 3 June 2010.
Extending tax file number withholding arrangements to closely held trusts
The Treasury provided policy advice, consulted and developed legislation and regulations on the 2009-10 Budget announcement to extend the tax file number withholding arrangements to closely held trusts, including family trusts. This measure included in the Taxation Laws Amendment (2010 Measures No. 1) Act 2010 , received Royal Assent on 28 June 2010.
Review of elections in the income tax law
The Treasury developed and released a consultation paper on the Review of Elections in the Income Tax Law . The paper examines the advantages and disadvantages of elections and seeks submissions on a proposed set of guidelines for the future drafting of election provisions.
Unlimited amendment periods
The Treasury provided advice and developed legislation to repeal over 100 provisions that allowed the Commissioner of Taxation an unlimited period to amend a taxpayer’s income tax assessment. This measure, implemented through the Tax Laws Amendment (2010 Measures No. 2) Act 2010 , received Royal Assent on 28 June 2010.
Capital gains tax treatment of water entitlements and termination fees
The Treasury provided policy advice and developed legislation to provide a capital gains tax rollover for taxpayers who replace an entitlement to water with different water entitlements and include these costs in the asset’s cost base so termination fees are recognised when calculating a capital gain or capital loss on an asset. This changed treatment of termination fees applies to all assets, not just those relating to water. These changes, included in the Tax Laws Amendment (2010 Measures No. 4) Bill 2010, were introduced into Parliament on 23 June 2010. The water entitlement rollover is available on an optional basis from 2005-06.
Abolishing trust cloning and providing a capital gains tax rollover for certain trusts
The Treasury provided policy advice and developed legislation to remove the trust cloning exception that allowed assets to be transferred between two trusts with the same terms and beneficiaries without triggering a capital gains tax taxing point, and provide limited capital gains tax rollover for assets transferred between trusts that have the same beneficiaries with the same entitlements and no material discretionary elements (typically referred to as fixed trusts). The measure, included in the Tax Laws Amendment (2009 Measures No. 6) Act 2010 , received Royal Assent on 24 March 2010.
Loss relief for merging superannuation funds
The Treasury provided policy advice and developed legislation to provide temporary loss relief for mergers on or after 24 December 2008 and before 1 July 2011 between complying superannuation funds by permitting the rollover of capital losses and transfer of revenue losses. The measure included in the Tax Laws Amendment (2009 Measures No. 6) Act 2010 , received Royal Assent on 24 March 2010.
Reform of research and development tax concession
The Treasury advised on introducing a new research and development tax incentive to replace the existing one from 2010-11. The Government announced this policy in the 2009-10 Budget. The new incentive will provide a 45 per cent refundable tax offset for companies with turnover less than $20 million and a 40 per cent nonrefundable tax offset for other companies. These changes were included in the Tax Laws Amendment (Research and Development) Bill 2010 which was introduced into Parliament on 13 May 2010.
Forestry managed investment schemes
The Treasury provided policy advice and developed legislation to protect investors in forestry managed investment schemes from an adverse and unintended tax outcome following the collapse of some scheme managers. The amendment ensures investors do not have their previously claimed tax deductions denied, if they do not hold their forestry investments for four years for reasons genuinely outside their control. Such events could include the insolvency of the managed investment scheme manager, the death of the investor, or cancellation of a managed investment scheme interest because the trees are destroyed by fire, flood or drought. Minor amendments were also made to ensure the promoter penalties provisions continue to operate as a robust integrity measure. The measure, included in Tax Laws Amendment (2010 Measures No. 1) Act 2010 , received Royal Assent on 3 June 2010.
The Treasury provided policy advice and developed legislation to modify the circumstances when a consolidated group can use tax losses transferred it by an insolvent joining entity. The measure, included in Tax Laws Amendment (2009 Measures No. 4) Act 2009, received Royal Assent on 18 September 2009.
The Treasury provided policy advice and developed legislation to refine the consolidation regime and to clarify its interactions with other parts of the income tax law. The measure, included in Tax Laws Amendment (2010 Measures No. 1) Act 2010 , received Royal Assent on 3 June 2010.
On 3 June 2009, the Government announced that the Board of Taxation would undertake a postimplementation review of aspects of the consolidation regime. The Treasury provided ongoing assistance to the board and the board issued its discussion paper on 9 December 2009.
The 2010-11 Budget announced changes to improve the operation of the joint and several liability rules that apply to consolidated groups. The Treasury issued a discussion paper on the issues on 25 June 2010.
Taxation of financial arrangements
The Treasury provided policy advice and developed legislation to refine, as part of an implementation process, the taxation of financial arrangements stages 3 and 4 legislation. The Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 , which received Royal Assent on 26 March 2009, modernises the taxation of financial arrangements, reduces compliance costs and better reflects economic and commercial reality.
Immediate annuity business of life insurance companies
The Treasury provided policy advice and developed legislation to clarify the circumstances in which the immediate annuity business of life insu
rance companies qualifies as nonassessable nonexempt income. The measure, included in Tax Laws Amendment (2009 Measures No. 6) Act 2010 , received Royal Assent on 24 March 2010 .
General insurance business
The Treasury provided policy advice and developed legislation to transfer the provisions on the taxation of general insurance business from the Income Tax Assessment Act 1936 to the Income tax Assessment Act 1997. The measure, included in Tax Laws Amendment (Transfer of Provisions) Act 2010 , received Royal Assent on 29 June 2010.
Changes to the noncommercial loan rules
The Treasury consulted with the community and provided policy advice on implementing the 2009-10 Budget changes to the noncommercial loan rules in Division 7A of the Income Tax Assessment Act 1936 . The changes broaden the definition of ‘payments’ to include the ‘use’ of an asset, improve the operation of the interposed entity rules and remedy other technical deficiencies. The measures, introduced in the Taxation Laws Amendment (2010 Measures No. 2) Act 2010 , received Royal Assent on 28 June 2010.
Changes to the taxation of the unexpended income of special disability trusts
The Treasury consulted with the community and provided policy advice on tax changes to the unexpended income of special disability trusts. The amendments tax the unexpended income of a special disability trust at the beneficiary’s personal marginal rate of tax, rather than at the highest marginal rate of tax. The measure, included in the Taxation Laws Amendment (2010 Measures No. 3) Act 2010, received Royal Assent on 29 June 2010. This measure, announced in the 2008-09 Budget, applies from 2008-09.
Action against fraudulent phoenix activity
The Treasury developed the Action Against Fraudulent Phoenix Activity proposals paper, which was released for public consultation on 14 November 2009.
Personal tax policy reform
Increasing the flexibility of First Home Saver Accounts
The Government announced changes in the 2010-11 Budget to increase the flexibility of First Home Saver Accounts. These accounts provide a simple, tax effective way for Australians to save for their first home through a combination of government contributions and low taxes.
The Treasury advised on the change to allow savings in a First Home Saver Account to be paid into an approved mortgage after the end of a minimum qualifying period, rather than into a superannuation account, as is currently the case, and is preparing consultation materials on this.
Rebalancing support for private health insurance
The Treasury advised the Government and developed legislation giving effect to the Government’s 2009-10 Budget measure to introduce, from 1 July 2010, three new private health insurance incentive tiers. These tiers would have meant high income earners received less in government payments for their private health insurance, and higher costs if they opted out of their health cover.
The original legislation to put the reforms into effect was defeated in the Senate on 9 September 2009. The Bills were reintroduced into Parliament on 19 November 2009 but were again defeated in the Senate. The Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Bill 2009 and the Fairer Private Health Insurance Incentives (Medicare Levy Surcharge — Fringe Benefits) Bill 2009 were defeated on 24 February 2010 and the Fairer Private Health Insurance Incentives Bill 2009 was defeated 9 March 2010.
Improving employee share scheme arrangements
The Government enacted changes to the tax concessions for employee share scheme arrangements announced in the 2009-10 Budget. The changes target eligibility for the tax concessions and reduce opportunities for tax avoidance. The Treasury undertook public consultation, provided advice and prepared the legislation.
Reductions in personal income tax
The 2010-11 Budget honoured the tax cuts announced in the 2008-09 Budget. The tax cuts, which included changes to the low income tax offset, were included in the Tax Laws Amendment (Personal Income Tax Reduction) Act 2008 , which received Royal Assent on 23 June 2008.
From 1 July 2010:
- the 30 per cent marginal tax rate threshold increased from $35,001 to $37,001;
- the 38 per cent marginal tax rate fell to 37 per cent;
- and the low income tax offset increased from $1,350 to $1,500 and will continue to phase out from $30,000.Taxpayers eligible for the full low income tax offset will not pay tax until their annual income exceeds $16,000.
Senior Australians will benefit from these changes. The low income tax offset adds to the tax offset available to seniors, so those eligible for the senior Australians tax offset will have an effective tax free threshold of $30,685 for singles and $26,680 for each member of a couple from 1 July 2010.
Increase in the Net Medical Expenses Tax Offset claim threshold
In the 2010-11 Budget, the Government announced that it will increase the threshold above which a taxpayer may claim the Net Medical Expenses Tax Offset from $1,500 to $2,000 (indexed) with effect from 1 July 2010. The legislation giving effect to this measure was introduced into Parliament in the Tax Laws Amendment (2010 Measures No. 4) Bill 2010 on 23 June 2010 but lapsed with the calling of the election.
Fifty per cent tax discount on up to $1,000 of interest
In the 2010-11 Budget, the Government announced that from 1 July 2011, individuals would receive a 50 per cent tax discount on up to $1,000 of interest, including interest earned on deposits held in authorised deposittaking institutions (banks, building societies and credit unions), as well as bonds, debentures and annuity products. The Treasury provided advice to the Government in developing the policy and is expecting to undertake public consultation later in the year.
On 7 September 2010, the Government announced a 12 month deferral in commencement of the interest discount to 1 July 2012 and a phasein of the interest income threshold, with a $500 threshold from 1 July 2012, rising to $1,000 from 1 July 2013.
Taxpayer standard deduction for the cost of workrelated expenses and managing tax affairs
In the 2010-11 Budget, the Government announced that it would provide individual taxpayers with a standard deduction of $500 for workrelated expenses and the cost of managing tax affairs from 1 July 2012. From 1 July 2013, the Government will increase the standard deduction to $1,000. The Treasury provided advice to the Government in developing the policy and is expecting to undertake public consultation.
Philanthropy tax policy
Improving the integrity of public ancillary funds
In the 2010-11 Budget, the Government announced it would improve the integrity of public ancillary funds. A public ancillary fund is a philanthropic public fund providing money, property or benefits to deductible gift recipients.
This measure will provide trustees of public ancillary funds with greater certainty as to their philanthropic obligations by legislating guidelines, ensuring regular valuation of assets at market rates, increasing the size of compulsory distributions and giving the ATO greater regulatory powers.
The legislation and guidelines are expected to come into effect on 1 July 2011. The Treasury provided policy advice and is preparing materials for consultation. Deductible gift recipient status for volunteer fire brigades and related services The Treasury advised the Government, undertook public consultation and developed legislation to extend deductible gift recipient status to all volunteer fire brigades and related emergency services. Volunteer fir
e brigades aim to prevent, respond to and assist with recovery from firerelated emergencies. Some brigades also provide broader emergency services.
Legislation implementing these changes was included in the Tax Laws Amendment (2010 Measures No. 4) Bill 2010.
Superannuation and retirement income policy reform
2010-11 Budget superannuation measures
The Treasury provided policy advice for the Government’s 2010-11 Budget measures, including:
- increasing the superannuation guarantee rate from 9 to 12 per cent by 2019-20;
- raising the superannuation guarantee age limit from 70 to 75 from 1 July 2013;
- providing a superannuation contributions tax rebate of up to $500 annually for individuals with an adjusted taxable income up to $37,000;
- increasing the concessional contributions cap to $50,000 for those aged 50 or over whose superannuation balances total less than $500,000;
- changes to the superannuation cocontribution scheme;
- facilitating the transfer of state and territory unclaimed superannuation to the Commonwealth;
- extending the range of benefits for superannuation funds to claim tax deductions for insurance premiums to include benefits released to terminally ill members;
- and making minor amendments to improve superannuation legislation.
TransTasman retirement savings portability
The Treasury continues to work with New Zealand officials to finalise legislation to provide a new regime so Australians and New Zealanders can take their retirement savings with them when they move across the Tasman.
Once enacted, the scheme will permit transfers between certain Australian superannuation funds and New Zealand KiwiSaver funds. Participation in the scheme will be voluntary for eligible funds, as well as for individuals wishing to transfer their retirement savings.
The approach will maintain the integrity of the Australian and New Zealand retirement savings systems.
The Treasury developed amending legislation to the Superannuation (Unclaimed Money and Lost Members) Act 1999 to require superannuation providers to transfer the balance of a lost member’s account to the Commissioner of Taxation where:
- the balance of the account is less than $200; or
- the account has been inactive for five years and the provider is satisfied it will never be possible to pay an amount to the member.
Individuals who have their accounts transferred to unclaimed monies will be able to reclaim these amounts directly from the commissioner.
The amendments commenced from Royal Assent on 14 December 2009. Clearing house In the 2008-09 Budget, the Government announced that it would introduce an optional, free superannuation clearing house service for small business. Small businesses could discharge their superannuation guarantee obligations by making a single payment to the clearing house. The clearing house then would distribute the contributions to the relevant superannuation funds, as selected by employees.
The Treasury developed and implemented legislation to enable employers to fulfil their obligations by making payments to Medicare Australia, the approved clearing house, from 1 July 2010.
The Tax Laws Amendment (2010 Measures No. 1) Act 2010 received Royal Assent on 2 June 2010, amending the Superannuation Guarantee (Administration) Act 1992, the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993 to give effect to this measure. The Superannuation Guarantee (Administration) Amendment Regulations 2010 (No. 1) specify Medicare Australia as an approved clearing house.
Superannuation System Review
The Treasury provided secretariat, quantitative analysis and other support to the Governance, Efficiency, Structure and Operation of Australia’s Superannuation System Review Panel in developing its final report.
Other superannuation measures
The Treasury provided policy advice, developed legislation and implemented other superannuation issues, including:
- amending the Retirement Savings Account Regulations 1997 and the Superannuation Industry (Supervision) Regulations 1994 to allow payments under the pilot Farm Family Support Scheme to be a Commonwealth income support payment for early release of superannuation on severe financial hardship grounds;
- adding selfmanaged superannuation fund Specialist Auditors, of the selfmanaged superannuation fund Professionals’ Association of Australia, to the list of approved auditors for superannuation funds;
- reducing the minimum payment amounts for accountbased pensions by 50 per cent for 2010-11 to assist selffunded retirees affected by the global financial crisis. This extended the drawdown relief provided in 2008-09 and 2009-10;
- developing draft legislation and explanatory material to allow the trustee of a regulated superannuation fund to acquire an asset in specie from a related party of the fund, following the relationship breakdown of a member of the fund;
- and developing draft legislation, explanatory material, and a discussion paper to provide transitional relief for income tax deductibility of total and permanent disability insurance premiums paid by superannuation funds.
The Treasury undertook enhancements to its superannuation costing models so that it could more accurately cost the Government’s decisions to increase the concessional contributions threshold for contributors 50 and over, extend the superannuation guarantee rate to 12 per cent and introduce a low income contribution rebate.
The Treasury redeveloped its models for the IGR2010, providing the demographic, labour force, GDP, tax, age pension, income support, aged care and education projections. The models were also used in the updated projections of the mediumterm budget projections.
International tax arrangements
Thin capitalisation rules
The Tax Laws Amendment (2010 Measures No. 3) Act 2010 amended the thin capitalisation rules for authorised deposittaking institutions to take account of the 2005 adoption of Australian equivalents to International Financial Reporting Standards. This amendment clarifies the treatment of Treasury shares, the business insurance asset known as EMVONA (excess market value over net assets) and capitalised software costs.
Managed investment trusts
The Tax Laws Amendment (2010 Measures No. 3) Act 2010 amended the withholding tax definition of a managed investment trust to include wholesale and government owned trusts, a requirement for certain investment management activities to be carried out in Australia, a trading trust exclusion, a closely held exclusion and recognition of the widely held nature of certain types of investors.
Strengthening Australia’s finance markets
The Tax Laws Amendment (2009 Measures No. 5) Act 2009 amended interest withholding tax provisions of the Income Tax Assessment Act 1936 to extend the exemption from interest withholding tax to Commonwealth Government Securities.
The Government has asked the Treasury to examine and provide advice on the tax treatment of income derived from foreign funds when they use Australian fund managers and on industry’s proposal to introduce an investment manager exemption.
Review into Australia’s foreign source income anti-tax deferral regime
The former Government announced it would reform the foreign source income attribution rules. The reforms will better balance the integrity objective of the rules with other objectives such as efficiency, equity, simplicity and low compliance costs. The reforms maintain the controlled foreign company rules as the primary set of rules to counter tax deferral arrangements, and repea
l the Foreign Investment Fund and deemed present entitlement rules. Legislation repealing the Foreign Investment Fund rules and the deemed present entitlement rules received Royal Assent on 14 July 2010.
Recognising that a small opportunity for deferral may still be present, a more targeted antiavoidance rule (the antirollup rule) is being developed. The proposed antirollup rule will target the most abusive cases of deferral that may occur outside the controlled foreign company rules. Exposure draft legislation and explanatory material dealing with the antirollup rule was released on 28 April 2010. The design of taxation laws that will modernise the controlled foreign company rules was also released by the Treasury as a consultation paper on 16 July 2010. This paper followed on from an earlier paper released on 5 January 2010 which outlined the proposed high level design of the controlled foreign company rules. Public consultation has occurred on the design of these reforms and further consultation will occur on the draft legislation.
Codification of the tax treatment of certain sovereign investments
The Government announced on 20 August 2009 that it would codify the current administrative practice that exempts from Australian taxation certain income arising from investments made by foreign governments. The application of this principle in Australia is limited to income arising from noncommercial investments. The objectives of this project are to encourage investment in Australia through greater certainty surrounding the tax consequences of these investments and to reduce the compliance and administrative costs associated with current arrangements. The Treasury developed a discussion paper detailing the framework rules for the proposed regime and released it on 28 June 2010. This paper expanded on an earlier discussion paper released in November 2009.
Tax treaty negotiations
Australia has a tax treaty network of over 40 treaties. Bilateral tax treaties promote closer economic cooperation by eliminating possible barriers to trade and investment by overlapping tax jurisdictions. Tax treaties offer protection for Australian businesses investing offshore, and reduce or eliminate double taxation of income flows between treaty partner countries. They also create a framework through which tax administrations can combat international fiscal evasion. During 2009-10, the Treasury continued to progress the Government’s tax treaty negotiation program and negotiations were held with Austria, Canada and the Taipei Economic and Cultural Office.
New tax treaties were signed with Chile and Turkey; amending protocols on tax information exchange were signed with Singapore and Malaysia; and the new tax treaty with New Zealand was enacted and entered into force. Work to progress negotiations with several other countries occurred.
Tax policy advice was provided on various international agreements the Government is negotiating, including free trade agreements, film coproduction agreements, and proposed agreements with potential tax privileges and immunities. The Treasury also contributed to international tax treaty policy development and capacitybuilding through its work with the OECD’s Committee on Fiscal Affairs.
Tax information exchange agreements and international transparency
Tax information exchange agreements
Australia continued to make significant progress in securing tax information exchange agreements with low tax jurisdictions, including signing tax information exchange agreements with Anguilla, Aruba, the Bahamas, Belize, the Cayman Islands, Cook Islands, Dominica, Gibraltar, Guernsey, the Marshall Islands, Monaco, Samoa, San Marino, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Turks and Caicos Islands, and Vanuatu. Tax information exchange agreements provide a legal basis for bilateral exchange of tax information, for both civil and criminal tax purposes, and are important to combat offshore tax evasion.
Australia has been active in international efforts to address tax transparency and the use of secrecy for tax evasion purposes. Australia participated in the ministerial conference on the fight against international tax fraud and evasion hosted by the French and German Governments in Berlin in mid-2009 and is involved in G-20 and OECD efforts to improve global exchange of information for tax purposes. In August 2009, the Global Forum on Transparency and Exchange of Information was reinvigorated with a renewed mandate to conduct peer reviews of its members’ commitment to international standards on tax transparency commitments. These standards have been endorsed by the United Nations and provide for the removal of secrecy and other interests that may prevent the exchange of information on tax matters between jurisdictions.
The peer reviews commenced in early 2009 and will continue until 2012 when it is anticipated that most of the Global Forum’s 94 member countries and jurisdictions, would have undergone some level of review. It is expected that the outcome of these reviews will be made public. As an active contributor of the work of the Global Forum, Australia is one of the first countries to undergo a comprehensive review of its implementation of the international standards on tax transparency and exchange of information. The review commenced in March 2010 and is scheduled to conclude in early 2011.
The Treasury represented Australia on the OECD’s Committee on Fiscal Affairs and its associated working parties and forums dealing with international tax matters, particularly on developing comprehensive tax treaty policy and the harmful tax practices initiative. In addition, the Treasury represented Australia at the annual meeting of the United Nations Committee of Experts on International Cooperation in Tax Matters. The Treasury provides the current Chairman of the Global Forum for Transparency and Exchange of information for tax purposes. The Treasury also provided an instructor to an OECD course on tax treaty issues.
Indirect tax policy reform
Review of the legal framework for the administration of the GST
The Treasury conducted consultations and developed amendments to implement the recommendations agreed to by the Government arising from the Board of Taxation’s review of the legal framework for the administration of the GST. These amendments were included in Tax Laws Amendment (2009 GST Administration Measures) Act 2009, Tax Laws Amendment (2010 GST Administration Measures No. 1) Act 2010, Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 and Tax Laws Amendment (2010 GST Administration Measures No. 3) Act 2010. The Treasury is developing further legislation to implement the remaining agreed recommendations.
Excise and customs duty
The Treasury developed legislation to increase tax on ‘ready-to-drink’ beverages and to change the definition of beer and wine products for tax purposes. On 27 April 2008, the excise and exciseequivalent customs duty rates applying to ‘other excisable beverages not exceeding 10 per cent by volume of alcohol’, that is ‘ready-to-drink’ beverages, were increased from $39.36 per litre of alcohol content to the full strength spirits rate of $66.67 per litre of alcohol content, by tariff proposal. The subsequent legislative amendment to the Excise Tariff Amendment (2009 Measures No. 1) Act 2009 and the Customs Tariff Amendment (2009 Measures No. 1) Act 2009 received Royal Assent on 27 August 2009.
The Treasury also developed legislation to increase tobacco excise and exciseequivalent customs duty (concurrently with the Australian Customs and Border Protection Service). The Excise Tariff Amendment (Tobacco) Act 2010 and the Customs Tariff Amendment (Tobacco) Act 2010, w
hich received Royal Assent on 28 June 2010, increased the excise and exciseequivalent customs duty rates applying to tobacco, cigars, cigarettes and snuff by 25 per cent, on and from, 30 April 2010.
Board of Taxation review of the application of GST to crossborder transactions
On 11 May 2010, the Government also announced its intention to reform how GST applies to crossborder transactions. This followed a review by the Board of Taxation which was provided to the Assistant Treasurer in February 2010. The Treasury provided support to the board and assisted in preparing the initial discussion paper released in July 2009.
GST and crossborder transport and telecommunications supplies for global roaming
The Treasury conducted consultations and developed amendments to implement the Government’s decisions on the tax treatment of crossborder transport supplies and telecommunications supplies for global roaming in Australia. These amendments were included in Tax Laws Amendment (2010 GST Administration Measures No. 3) Act 2010.
Review of the GST margin scheme and financial supply provisions
The Treasury conducted reviews of the GST margin scheme and the GST financial supply provisions during 2009, issuing a discussion paper on each review and consulting broadly. It subsequently provided advice to the Government on amendments to the GST law. In response, the Government announced a series of reforms in these areas on 11 May 2010.
Carbon Pollution Reduction Scheme
The Treasury provided ongoing advice on the Carbon Pollution Reduction Scheme household assistance measures to be delivered through the tax and transfer systems, including changes due to revisions in the estimated carbon price. Special consideration was given to the distributional impact of the scheme on the cost of living and assistance measures which would most effectively help those disproportionately affected during the transition to the scheme.
Monitoring outcomes of the household payment components of the Government’s fiscal stimulus package and evaluating observed impacts in comparison to forecasted impacts.
Tax Expenditures Statement
The Treasury coordinated the 2009 Tax Expenditures Statement publication and provided quantitative advice in respect of the estimates of tax expenditures (that is, the value of concessional taxation treatment) associated with areas of taxation policy where concessional treatment is applied. The 2009 Tax Expenditures Statement also incorporated changes as a result of recommendations from a performance audit undertaken by the Australian National Audit Office in 2007-08. Such changes included preparation of estimates under the revenue gain approach, rather than the traditional revenue forgone approach to measuring tax expenditures.
Participation Modelling Project
The Participation Modelling Project concluded in 2009, having achieved a step up in the capacity of the Treasury, and more broadly across government, to model the impact on labour market behaviour of tax and transfer policy, including retirement incomes and child care policy.
Published material was included in Economic Roundup and Treasury Working Papers on the relationship between female labour force participation and child care, and on added worker and discouraged worker effects for married women.
The Treasury continues to increase capacity through further development of quantitative modelling and analysis to identify the revenue, distributional and labour force participation effects of government policy proposals.
Consultation for tax and superannuation measures
During 2009-10, the Treasury continued to develop enhanced consultation processes for tax and superannuation measures, including establishing a Tax Design Advisory Panel. This allows the Government, in appropriate circumstances, to develop tax legislation by teams involving the Treasury, the ATO and the private sector, as represented by members of the panel.
Consultation on tax and retirement incomes policy continued to be extensive, with public consultation on new measures occurring at both the policy design and legislative design stages. The Treasury published discussion papers, draft legislation and draft explanatory materials on its website for comment. The default minimum period for consultation is four weeks, although on occasions this is reduced, for example, where the priority is to introduce legislation.
The Treasury also published submissions made to consultation processes on its website, except when confidentiality was requested.
In addition, the Treasury also posted consultation summaries on its website for a number of new legislative measures introduced into Parliament. These outline the issues raised in consultation, changes resulting from consultation and, where possible, reasons why certain suggestions were not adopted. Consultation summaries also invite feedback on the consultation process to inform the Treasury, so it continuously improves its consultation practices and arrangements.
Running account balance and progress towards a single Income Tax Assessment Act
Running balance accounts discussion paper released
On 20 May 2010, the Assistant Treasurer released a discussion paper on streamlining and improving the operation of the running balance account and interest on overpayments provisions in the tax laws, as a first step to rewriting those provisions to provide flexibility to manage tax debts and entitlements, and be more useful for taxpayers. Comments on the discussion paper were due by 8 August 2010.
Progress towards a single Income Tax Assessment Act
The Treasury progressed towards achieving a single Income Tax Assessment Act following the passage into law of the Tax Laws Amendment (Transfer of Provisions) Act 2010. This Act rewrote provisions relating to income tax collection and recovery; forgiveness of commercial debts; luxury car leases; the farm management deposit scheme; and taxation of general insurance companies. The rewrite also expanded the use of security deposits and increased associated penalties.
Secretariat support to the Board of Taxation The Treasury provided secretariat support to the Board of Taxation, including to its reviews of tax arrangements applying to managed investment trusts, elements of the taxation of employee share scheme arrangements, application of GST to crossborder transactions, tax treatment of collective investment vehicles, tax treatment of Islamic finance products, review of the Tax Issues Entry System and its postimplementation review into certain aspects of the consolidation regime.
Technical corrections and minor improvements
Measures making technical corrections and amendments to the law and other minor improvements included in the Tax Laws Amendment (2010 Measures No. 1) Act 2010, received Royal Assent on 3 June 2010.
Issues raised through the Tax Issues Entry System are addressed in minor amendment packages. The Tax Issues Entry System website (www.ties.gov.au) is jointly operated by the ATO and the Treasury and allows tax professionals and the general public to raise issues on the care and maintenance of the tax system.
Secretariat support to the Superannuation Advisory Committee
The Treasury provided secretariat support to the Superannuation Advisory Committee, which met three times during 2009-10.
Policy evaluation frameworks
The Treasury, in collaboration with the ATO, has enhanced its procedures for assessing and quantifying the compliance cost impacts of new tax measures. The procedures improve the quality of advice provided to ministers and respond to increasing community and government concern to balance the benefits of tax regulation and the efficiency, compliance and adminis
tration costs of its implementation.
The Treasury has enhanced its longterm fiscal models, including further developing its longterm costing capacity to examine offsets to the Government’s increase to pension payments. The models were used in mediumterm projections of the Government’s fiscal position.
Management of legislation program
Advice to the Government on tax policy and legislation was timely, influential and high in quality, enabling the Government to make informed decisions in responding to the global financial crisis and developing a range of other business, personal, indirect, international and personal income tax measures.
The Treasury published the Government’s updated forward work program on the Treasury website in February 2010. The program sets out the consultation planned for announced tax measures and also indicates the legislation planned for the next parliamentary sittings.
Fortyseven of the 57 tax and retirement income legislative prospective measures (82 per cent) introduced into Parliament during 2009-10 were introduced within 12 months of being announced. Nine of the 19 retrospective measures (47 per cent) introduced during 2009-10 were introduced within six months of announcement. Another four measures introduced during 2009-10 were not announced previously.