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 high-quality 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 2010-11, 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 2010-11 and 2011-12 Budgets to ensure the budget’s sustainability, including bringing certain alternative fuels used for transport purposes into the fuel taxation regime, removing minors’ eligibility for the low income tax offset on unearned income, phasing out the dependent spouse tax offset, and making changes to the statutory formula method used to value car fringe benefits. Revenue Group also developed medium term revenue projections as an input to the medium term analysis undertaken in Statement 3 of Budget Paper No. 1, Fiscal Strategy and Outlook in the 2011-12 Budget.
The Treasury continued to advise the Government on tax reform initiatives following on from the release of Stronger, Fairer, Simpler: a tax plan for our future, including preparing for the Tax Forum that was held on 4-5 October 2011.
In the 2011-12 Budget, the Government announced improvements to the low income tax offset and a small business tax package including a $5,000 immediate deduction for motor vehicles. The Treasury also advised on a range of other business, personal and indirect tax policy issues, including the temporary flood and cyclone reconstruction levy and assistance provided to small businesses and primary producers affected by the floods and cyclones, the establishment of an Australian Charities and Not-for-profits Commission, better targeting of not-for-profit tax concessions, Stronger Super reforms, taxation of non-renewable resources, and the Clean Energy Future package.
The Treasury represented Australia as the Chair of the Global Forum on Transparency and Exchange of Information on Tax Matters. 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:
- implementation of the Government’s taxation and retirement income reform agenda including introduction of taxation on non-renewable resources, improving retirement incomes and simplifying the tax system;
- the costs and impacts of tax and retirement income proposals, measures and expenditures, including their distributional impact and overall efficiency; and
- Australia’s role as Chair of the Global Forum on Transparency and Exchange of Information on Tax Matters, a modernised tax treaty network and revised international tax rules which enhance Australia’s international attractiveness but address risks from harmful tax jurisdictions while furthering Australia’s interests in the Pacific and Asia.
Revenue Group’s key outcomes were:
- advising the Government on further tax reform initiatives to follow on from the Stronger, Fairer, Simpler package of May 2010, including the Tax Forum that was held on 4-5 October 2011;
- regularly revising tax revenue estimates and analysis, taking into account changes in the domestic economy in the face of continuing global uncertainty, and incorporating these into the overall fiscal outlook and strategy in the Economic Statement, PEFO, MYEFO and the 2011-12 Budget;
- advising on and implementing legislation for business tax proposals, including providing advice and policy support on the taxation of non-renewable resources, amending the taxation of financial arrangements rules, providing advice and developing legislation on improvements to the company loss recoupment rules, providing advice on giving designated infrastructure projects improved access to tax losses, providing advice and developing legislation granting capital gains tax (CGT) relief for special disability trusts, advising on and developing legislation to implement a small business tax reform package and interim changes to the taxation of trust income, developing legislation to exempt from income tax clean up and recovery grants paid to small businesses and primary producers affected by the floods in Australia during the summer of 2010-11;
- advising on proposals for personal tax policy reform, including increasing the tax free threshold as part of the Clean Energy Future package, increasing the amount of the low income tax offset delivered through the year in 2011-12, phasing out the dependent spouse tax offset, removing minors’ eligibility for the low income tax offset on unearned income, implementing the temporary flood and cyclone reconstruction levy, and extending the education tax refund to include uniform expenses, advising on and implementing legislation for philanthropy tax policy, including the first stage of not-for-profit sector reform, undertaking a scoping study for a national not-for-profit regulator, establishing an Australian Charities and Not-for-profits Commission, better targeting of not-for-profit tax concessions, introducing a statutory definition of charity, starting negotiations with the states and territories on national not-for-profit reform, restating the ‘in Australia’ special conditions applying to tax concession entities, improving the integrity of public ancillary funds, as well as specifically listing organisations in the tax law as deductible gift recipients, advising on and implementing legislation for fringe benefits tax and non-cash benefits reform, including amendments to the statutory formula for valuing car fringe benefits, extending fly-in-flyout concessions to Australians working overseas, and developing proposals for reform of the income tax treatment of non-cash benefits;
- advising on and implementing legislation for superannuation and retirement income policies, including the superannuation components of the stronger, fairer, simpler tax reform, the Stronger Super reforms, legislation to give effect to the Memorandum of Understanding between Australia and New Zealand to establish a retirement savings portability scheme, and legislation to allow superannuation funds to use tax file numbers to identify members’ accounts;
- advising on, developing and implementing legislation for Australia’s international tax arrangements. This reflects 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 Anti-Tax-Deferral Regimes, and the Johnson Report;
- progressing tax treaty negotiations with key investment partners and concluding tax information exchange agreements with several other jurisdictions;
- contributing to global efforts to address tax transparency and harmful tax regimes, including through representing Australia as the Chair of the Global Forum on Transparency and Exchange of Information on Tax Matters;
- advising on and implementing legislation on a range of indirect tax measures, including recommendations from the Board of Taxation
‘s Review of the Legal Framework for the Administration of the Goods and Services Tax, and replacing the biannual Determination mechanism for exempting taxes, fees and charges from GST, as well as advising the Government on a range of other GST policy issues;
- monitoring the operation and administration of the GST through the activities of the GST Policy and Administration Sub-group;
- advising on and implementing legislation on the taxation of certain alternative fuels, and advising on and developing legislation on the fuel tax arrangements for the Clean Energy Future package;
- providing quantitative advice underpinning taxation proposals included in the 2011-12 Budget, including changes to the fringe benefits tax on cars; phasing out the dependent spouse rebate; changes to excess superannuation contributions caps; removing eligibility for the low income tax offset for minors; increased resources for taxation compliance; and development of the temporary flood and cyclone reconstruction levy;
- providing quantitative advice, including analysis of the distributional considerations and revenue impacts of the Government’s Clean Energy Future package including the carbon pricing mechanism and related household and industry assistance and adjustment programs;
- coordinating the 2010 Tax Expenditures Statement publication and providing quantitative advice on estimates of tax expenditures;
- providing secretariat support to the Board of Taxation, including to its reviews of the tax treatment of Islamic finance products, the consolidation rights to future income and residual tax cost setting rules, the tax arrangements applying to collective investment vehicles, the venture capital limited partnership regime, review of the Tax Issues Entry System and post-implementation reviews into certain aspects of the consolidation regime and of the Tax Design Review Panel recommendations; and
- providing secretariat support to the Superannuation Advisory Committee, which met twice during 2010-11.
Analysis of performance
Further tax reform
The Treasury has been working to foster a more system-wide approach to policy development that recognises the close links between different parts of the tax system. A series of policy workshops, seminars and cross-group collaborations has been used to deepen understanding of these issues.
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 continued to recover from the global financial crisis. Revisions to expected tax revenue in 2010-11 and over the forward estimates reflected gradual recovery in the domestic economy against the backdrop of an uncertain global environment, and were made at each of the economic and fiscal outlook releases through 2010-11 (Economic Statement, PEFO, MYEFO and the 2011-12 Budget). The Treasury provided revenue estimates into the medium-term as an input into the medium-term analysis undertaken in Statement 3 of Budget Paper No. 1, Fiscal Strategy and Outlook in the 2011-12 Budget.
Business tax reform
Taxation of non-renewable resources
The Treasury provided secretariat services and policy advice to the Government’s Policy Transition Group (PTG) responsible for the detailed design of the Minerals Resource Rent Tax and the extension to the Petroleum Resource Rent Tax. Following the Government’s acceptance of the PTG’s recommendations, the Treasury convened the Resource Tax Implementation Group to consult on legislative design and released draft legislation and explanatory material for public consultation.
Amendments to the taxation of financial arrangements provisions
The Treasury provided policy advice, consulted and developed legislation to refine the taxation of financial arrangements provisions. Some of the refinements were included in Tax Laws Amendment (2010 Measures No. 4) Act 2010 which received Royal Assent on 7 December 2010.
Tax treatment of certain Upper Tier 2 capital instruments
The Treasury provided policy advice, consulted and developed regulations to ensure that certain Upper Tier 2 perpetual subordinated notes are not precluded from being classified as a debt interest under the debt/equity tax rules. The regulations were made on 10 March 2011.
Company loss recoupment rules
The Treasury provided advice on improvements to the company loss recoupment rules announced in the 2011-12 Budget and developed draft legislation to improve the company loss recoupment rules for companies that have multiple classes of shares. These improvements will make it easier for companies to access prior year losses by modifying the continuity of ownership test so that ownership does not need to be traced through certain superannuation entities. They will also remove a range of technical deficiencies in the modified ownership tracing rules for widely held companies. A technical deficiency in the low value asset exclusion under the loss integrity rules will also be removed.
Access to losses for designated infrastructure projects
The Treasury provided policy advice on allowing designated infrastructure projects improved access to tax losses. Infrastructure projects designated to be of national significance will have tax losses associated with the project uplifted at the long term government bond rate and not subject to the same business test or continuity of ownership test.
Special disability trusts
The Treasury provided advice on extending the measure announced in the 2009-10 Budget to encourage the uptake of special disability trusts (SDT). The extensions included backdating the 2009-10 Budget measure, which provides a CGT main residence exemption to SDT, to apply from the 2006-07 income year and providing a CGT exemption for assets transferred into an SDT for no consideration.
Scrip for scrip alignment
The Treasury provided advice and developed legislation to make it easier for takeovers and mergers regulated by the Corporations Act 2001 to qualify for the CGT scrip for scrip rollover. This measure was contained in Tax Laws Amendment (2010 Measures No. 4) Act 2010, which received Royal Assent on 7 December 2010. The legislation carves out takeover bids and schemes of arrangement from the participation requirements of the CGT scrip for scrip rollover where the bid complies with, or the scheme has been approved under, the Corporations Act 2001.
CGT treatment of water entitlements and termination fees
The Treasury provided advice and developed legislation to provide a CGT rollover for taxpayers who replace an entitlement to water with one or more different entitlements. This measure was contained in Tax Laws Amendment (2010 Measures No. 4) Act 2010, which received Royal Assent on 7 December 2010. The legislation allows infrastructure operators to restructure their arrangements with member irrigators without immediate CGT consequences. In addition, the legislation enables taxpayers to include any termination fees they incur in relation to an asset in the asset’s cost base.
Confidentiality of taxpayer information
The Tax Laws Amendment (Confidentiality of Taxpayer Information) Act 2010 received Royal Assent on 17 December 2010. The legislation rationalised multiple secrecy and disclosure provisions from various tax laws into a new framework in the Taxation Administration Act 1953. The disclosure of taxpayer information is prohibited, except in specified circumstances.
Tax agent services regulatory reform
The Treasury continued to provide policy advice and developed options for the regulation of financial planners providing tax agent services within the context of financial planning advice. An options paper was released on 29 November 2010, and on 7 April 2011 the Assistant Treasurer and Minister for Financial Services and S
uperannuation announced that industry representatives agreed to a broad set of principles that would be used to develop detailed regulatory arrangements for financial planners who provide tax agent services as part of financial planning advice.
The Treasury continued to provide policy advice on a range of reforms for small business. Some of these reforms operate from the 2012-13 income year and include increasing the small business instant asset write-off threshold to $5,000 (subsequently increased to $6,500 as part of the Clean Energy Future package), simplifying the depreciation rules for small business and providing an early cut to the company tax rate. In addition, the Treasury is developing legislation on the 2011-12 Budget announcements to provide small businesses with an accelerated initial deduction for motor vehicles and to abolish the Entrepreneurs’ Tax Offset.
Further, the Treasury provided policy advice and developed legislation that provides cash flow assistance to small business and other eligible taxpayers through reduced Pay As You Go income tax instalments for the 2011-12 income year. The measure was included in the Tax Laws Amendment (2011 Measures No. 4) Act 2011 which received Royal Assent on 27 June 2011.
Interim changes to improve the taxation of trust income
The Treasury consulted with the community and provided policy advice on implementing changes to the taxation of trust income, identified by the Board of Taxation following the High Court’s decision in the Commissioner of Taxation v Bamford (2010) 240 CLR 481. Further, the Treasury provided policy advice and developed legislation to allow trust beneficiaries to continue to use the primary production averaging and farm management deposits provisions in a loss year. Both measures were included in the Tax Laws Amendment (2011 Measures No. 5) Act 2011 which received Royal Assent on 29 June 2011.
Film Tax Offsets
The Treasury provided policy advice and developed legislation to make two changes to the eligibility criteria for accessing the film tax offsets. The minimum qualifying expenditure threshold for the post, digital and visual effects offset was reduced from $5 million to $500,000. The requirement for films with qualifying Australian production expenditure of less than $50 million to have at least 70 per cent of the total of all the company’s production expenditure on the film as qualifying Australian production expenditure, in order to qualify for the location offset, was removed. The measure, included in Tax Laws Amendment (2010 Measure No. 5) Act 2010 received Royal Assent on 29 June 2011.
Natural Disasters — Clean up and recovery grants
The Treasury provided policy advice and developed legislation to exempt from income tax clean up and recovery grants paid to small businesses and primary producers affected by the floods in Australia during the summer of 2010-11 and by Cyclone Yasi. The measure, included in Tax Laws Amendment (2011 Measures No. 1) Act 2011, received Royal Assent on 25 May 2011.
National Rental Affordability Scheme
The Treasury developed legislation and consulted on amendments to the tax law to address issues arising from the interaction between the legislation governing the National Rental Affordability Scheme (NRAS) and the tax law provisions that provide the NRAS tax offset. The amendments introduced the concept of an NRAS consortium and ensured that in certain situations the structure of an NRAS consortium does not prevent the ultimate investors in NRAS from receiving the NRAS tax offset. The amendments were in the Tax Laws Amendments (2011 Measures No. 5) Act 2011, which received Royal Assent on 29 June 2011.
Personal tax policy reform
Clean energy future tax reforms
The Treasury, together with the Department of Families, Housing, Community Services and Indigenous Affairs, advised on the development of a package to assist Australian households with the move to a Clean Energy Future. This package involves tax cuts delivered through simplification reforms to the personal income tax system, which include increasing the statutory tax free threshold.
Increasing the amount of the low income tax offset delivered through the year
The Treasury advised on and amended regulations on the 2011-12 Budget measure to increase the proportion of the low income tax offset that people are able to receive during the year instead of on assessment of their tax returns in 2011-12. This proportion has increased from 50 per cent in 2010-11 to 70 per cent in 2011-12.
Phasing out the dependent spouse tax offset
The Treasury advised on and implemented legislation on the 2011-12 Budget measure to phase out the dependent spouse tax offset.
Removing minors’ eligibility for low income tax offset on unearned income
The Treasury advised on and implemented legislation on the 2011-12 Budget measure to remove minors’ eligibility for the low income tax offset on unearned income. The amendments mean that from 1 July 2011 minors (children under 18 years of age) will no longer be able to use the low income tax offset to reduce the amount of income tax they pay on unearned income, such as dividends, interest, rent, royalties and other income from property.
Taxpayer standard deduction for the cost of work related expenses and managing tax affairs
The Treasury advised the Government and undertook public consultation on the design of the 2010-11 Budget measure to provide individual taxpayers with a standard deduction for work-related expenses and the cost of managing tax affairs from 1 July 2012.
Fifty per cent tax discount on up to $1,000 of interest
The Treasury advised the Government on the design of the 2010-11 Budget measure to introduce a 50 per cent tax discount for interest income. The Treasury developed a public discussion paper that outlined the proposed design of the measure, released for consultation in July 2011.
Superannuation contributions mandated by law no longer limit people’s eligibility for financial assistance
The Treasury advised on amendments to the definition of reportable employer superannuation contributions. The amendments mean that contributions to superannuation that are mandated by law, industrial agreement or trust fund, are not considered income when assessing eligibility for government financial assistance.
Denying deductions against Government assistance payments
The Treasury advised the Government on its response to the High Court decision in Commissioner of Taxation v Anstis and developed legislation to give effect to the 2011-12 Budget measure to disallow deductions against government assistance payments. This will mean that from 1 July 2011, individual taxpayers will be precluded from claiming a tax deduction for expenses they incur in gaining a government assistance payment.
Temporary flood and cyclone reconstruction levy
On 27 January 2011, the Government announced the introduction of a temporary levy in response to the damage caused by the natural disasters that occurred in early 2011. The Treasury advised the Government on the development and implementation of the temporary flood and cyclone reconstruction levy, which was included in the 2011-12 Budget.
Including uniform expenses for the education tax refund
The Treasury provided advice to the Government and implemented legislation on the measure to extend the education tax refund to include school uniforms, commencing in 2011-12.
Rebalancing support for private health insurance
The Treasury continued to advise the Government on its measure, announced in the 2009-10 Budget, to means test the private health insurance rebate and increase the Medicare levy surcharge.
Reform of the car fringe benefits rules
The Treasury advised the Government on the 2011-12 Budget measure to reform the current statutory formula method for dete
rmining the taxable value of car fringe benefits. The reform replaces the current statutory method of different rates determined by distance travelled with a single rate that applies regardless of the distance travelled. The reform implemented another recommendation of the Australia’s Future Tax System review.
Reform of the income tax treatment of non-cash benefits and the extension of the fringe benefits tax exemption for fly-in-fly-out arrangements to Australians working overseas
The Treasury advised the Government on the measures announced during 2010-11 to extend the existing fringe benefits tax exemption for fly-in-fly-out arrangements to Australians working overseas in remote areas. Prior to these changes, transport from an employee’s usual place of residence to their usual place of employment (where this occurs in a remote area in Australia) is exempt from fringe benefits tax provided under a fly-in-fly-out arrangement.
The extension of the domestic concession to overseas remote areas brought the treatment of Australians working in remote areas overseas in line with Australians working in remote areas of Australia.
The Government also announced that it has tasked the Treasury with preparing a discussion paper on reforming the income tax treatment of non-cash benefits to resolve long outstanding anomalies with the current rules.
Philanthropy tax policy
Scoping study for national not-for-profit regulator
In the 2010 election period, the Government committed to undertaking a scoping study for a national ‘one-stop shop’ regulator for the not-for-profit sector. As part of the scoping study, the Government released a consultation paper on 21 January 2011 which sought stakeholder comment on the goals of national regulation, the scope of national regulation and the functions and form of a national regulator. The Treasury was tasked with undertaking the scoping study and a Final Report (Final Report: Scoping study for a national not-for-profit regulator) was presented to government in April 2011.
The Treasury advised the Government on the first stage of its not-for-profit reform agenda announced in the 2011-12 Budget. The reforms include:
- establishing the Australian Charities and Not-for-profits Commission from 1 July 2012 — the Commission will initially be responsible for determining the legal status of groups seeking charitable, public benevolent institution, or other not-for-profit status for all Commonwealth purposes. The Commission will also implement a ‘report-once use-often’ reporting framework for charities, provide education and support for the sector on technical matters, and establish a public information portal by 1 July 2013;
- introducing a statutory definition of ‘charity’ — the definition will apply across all Commonwealth agencies from 1 July 2013 and is based on the 2001 Report of the Inquiry into the Definition of Charities and Related Organisations, taking account of the findings of recent judicial decisions;
- better targeting the not-for-profit tax concession — to reform the use of tax concessions by unrelated businesses run by not-for-profit entities;
- starting negotiations with the states and territories on national regulation and a new national regulator for the sector, as the greatest reduction in red tape can only be achieved with national coordination; and
- undertaking further reviews of the regulation of the not-for-profit sector, including reviews of the company limited by guarantee entity structure, not-for-profit fundraising, and the governance obligations appropriate for not-for-profit entities — the need for these reviews was identified through the scoping study for a national not-for-profit regulator.
Superannuation and retirement income policy reform
2011-12 Budget superannuation measures
The Treasury provided policy advice for the Government’s 2011-12 Budget measures, and developed legislation for and implemented some of the measures. These measures included:
- improving the regulation of the self managed superannuation fund (SMSF) sector and increasing the SMSF levy by $30 with effect from the 2010-11 income year;
- developing a facility for the online registration of SMSF auditors;
- reducing the minimum payment amounts for account-based pensions by 25 per cent for 2011-12 to phase out the draw-down relief provided in 2008-09, 2009-10 and 2010-11;
- providing eligible individuals with the option to have excess concessional superannuation contributions taken out of their superannuation fund and assessed at their marginal tax rate, rather than incurring excess contributions tax;
- extending the pause to the indexation of the income threshold for the superannuation co-contribution scheme; and
- allowing superannuation fund trustees and retirement savings account providers to make greater use of tax file numbers to locate member accounts and facilitate the consolidation of multiple member accounts.
Consultation on Stronger, Fairer, Simpler superannuation reforms
The Treasury consulted on implementation issues for the Government’s announcements to provide higher concessional contributions caps for those aged 50 or over with superannuation balances of less than $500,000 and on the introduction of a new low income earner government contribution for those with income less than $37,000.
Trans-Tasman retirement savings portability
The Treasury continues to work with New Zealand officials to finalise legislation to allow Australians and New Zealanders to 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 schemes. 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.
Super System Review
The Treasury provided advice to help the Government deliver a comprehensive response to recommendations of the Super System (Cooper) Review. The response covers:
- creating a new simple, low cost default superannuation product (MySuper);
- raising the standards and duties of those involved in the superannuation system, particularily those managing default superannuation funds in which the majority of Australians have their superannaution savings invested;
- providing the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the ATO with improved regulatory powers (including the setting of prudential standards, and registration of self managed superannuation fund auditors); and
- making the processing of everyday transactions easier, cheaper and faster (SuperStream).
Revenue Group worked with Markets Group in providing this advice.
The Treasury assisted the Government in undertaking consultations with stakeholders on the implementation of the reforms.
- The Peak Consultative Group was chaired by Mr Paul Costello and comprised of representatives of key industry, employer and consumer groups, as well as representation from relevant Government agencies to provide input on the design and implementation of the reforms. The Peak Consultative Group met on a regular basis from February 2011 to May 2011.
- The Peak Consultative Group was supported by several working groups to allow for more detailed discussions with relevant private and public sector experts on the practical and technical design, and implementation issues.
Following the conclusion of consultations, the Treasury provided advice to the Government on implementation details.
The Treasury developed legislation and implemented new rules for SMSF investment in collectables
and personal use assets that ensure the investments are not made for current day purposes.
Other superannuation measures
The Treasury provided policy advice and developed legislation on other superannuation issues, including:
- streamlining the process for superannuation funds claiming deductions for the cost of total and permanent disability insurance premiums; and
- allowing the proceeds of crime to be recovered from superannuation.
International tax arrangements
International tax arrangements
The International Tax Agreements Amendment (No. 1) Act 2011 modified the structure of the International Tax Agreements Act 1953 (the Act) to streamline it and remove the majority of the existing schedules to the Act. The modifications do not alter the entry into force or application of Australia’s tax treaties, but removes duplication as copies of tax treaties are available publicly. The amending Act also gave the force of law in Australia to recently signed bilateral agreements with Aruba, Chile, the Cook Islands, Guernsey, Malaysia, Samoa and Turkey.
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 repealed 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 anti-avoidance rule (the anti-roll-up rule) is being developed. The proposed Foreign Accumulation Fund rule will target the most abusive cases of deferral that may occur outside the controlled foreign company rules. A further round of exposure draft legislation dealing with the Accumulation Fund rule was released on 17 February 2011. This follows on from the initial exposure draft legislation that was released on 28 April 2010. Exposure draft legislation to modernise the controlled foreign company rules was also released on 17 February 2011. This legislation follows on from two Treasury consultation papers released during the previous year. Public consultation has occurred on these reforms with the legislation continuing to be developed.
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 non-commercial 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. A discussion paper detailing two proposed options was released for public comment on 20 April 2011. These options were developed following two previous discussion papers that were previously released in June 2010 and in November 2009.
Investor Manager Reforms
Following a review and report of the Australian Financial Centre Forum (Australia as a Financial Centre: Building on Our Strengths 2009), the Government announced in principle support for the development of an investment manager regime (IMR). The IMR is intended to provide clear and comprehensive statutory rules for taxing nonresident investment into Australian and foreign assets.
On 17 December 2010, the Government announced amendments to clarify the treatment of previous income years. On 19 January 2011, the Government announced as part of the proposed IMR, that it would clarify the tax positions of foreign funds which engage the services of Australian investment advisors to invest in non-Australian assets.
The Government has also asked the Board of Taxation (a non-statutory advisory body charged with contributing a business and broader community perspective to improving the design of taxation laws and its operation) to report on the design of an IMR. The Board is expected to report to the Government in September 2011.
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 2010-11, the Treasury continued to progress the Government’s tax treaty negotiation program and negotiations were held with India and Switzerland.
New tax treaties with Chile and Turkey, and an amending Protocol with Malaysia, were enacted and given the force of law in Australia. 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 co-production agreements, and proposed agreements with potential tax privileges and immunities. The Treasury also contributed to international tax treaty policy development and capacity-building 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 Liechtenstein, Mauritius, and Montserrat. Tax information exchange agreements provide a legal basis for bilateral exchange of tax information, for both civil and criminal tax purposes, and are an important measure 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, and is involved in G20 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. Australia was elected as chair and also participates on the peer review group which is responsible for assessing member compliance with the international standards. 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 101 member countries and jurisdictions would have undergone some level of review. As these reviews are approved by the Global Forum they will be made public. As an active contributor to the work of the Global Forum, Australia was one of the first countries to undertake a comprehensive review of its implementation of the international standards on tax transparency and exchange of information. The review commenced in March 2010 and concluded in early 2011. The review found that Australia meets the international standards but made a number of recommendations including to improve record keeping in respect of nominees.
The Treasury represented Australia on the OECD’s Committee on Fiscal Affairs and its assoc
iated 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 meetings of the United Nations Committee of Experts on International Cooperation in Tax Matters and 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 application of the GST
The Tax Laws Amendment (2010 Measures No. 5) Act 2011 implemented further measures from this review. The Treasury is consulting on remaining measures and drafting of other measures is proceeding.
Review of the GST financial supplies provisions
Consultation on measures arising from this review took place in late 2010. Drafting on these measures is proceeding, consistent with a scheduled start date of 1 July 2012.
Review of the application of the GST to cross-border transactions
The Treasury released a consultation paper on implementing measures from this review in February 2011. Drafting on these measures is proceeding, consistent with a scheduled start date of 1 July 2012.
12 month export period for recreational boats
The measure was implemented in the Tax Laws Amendment (2011 Measures No. 3) Act 2011, which received Royal Assent on 27 June 2011.
Australian taxes, fees and charges
The Tax Laws Amendment (2011 GST Measures No. 2) Act 2011, which received Royal Assent on 27 June 2011, implemented a new self assessment mechanism for exempting Australian taxes, fees and charges from the GST.
Review of GST governance arrangements
A review of the governance arrangements for monitoring the operation and administration of the GST was undertaken and a number of improvements to the existing arrangements were agreed to by the States and Territories.
Excise and customs duty
The Treasury developed legislation to phase in excise and excise-equivalent customs duty on liquefied petroleum gas, liquefied natural gas and compressed natural gas used for transport purposes, over a five year transitional period, beginning 1 December 2011 and ending 1 July 2015. The legislation also ensures that current arrangements for renewable diesel, biodiesel, methanol, and ethanol continue. The Taxation of Alternative Fuels Legislation Amendment Act 2011, the Excise Tariff Amendment (Taxation of Alternative Fuels) Act 2011, the Customs Tariff Amendment (Taxation of Alternative Fuels) Act 2011 and the Energy Grants (Cleaner Fuels) Scheme Amendment Act 2011 received Royal Assent on 29 June 2011.
Clean Energy Future package
The Treasury provided policy advice and developed legislation on the fuel tax arrangements under the Clean Energy Future package. The Clean Energy Future package was announced by the Government on 10 July 2011.
Securing a clean energy future
The Treasury provided ongoing advice on the Government’s Clean Energy Future package. This included advice on the impact of the changes on the consumer price index and price changes faced by different household segments. Advice was also provided on the design and quantum of household assistance delivered through the transfer system and personal tax reform. Special consideration was given to the distributional impact of the scheme on the cost of living and assistance measures which would most effectively help the most vulnerable households during the transition to the scheme.
Tax Expenditures Statement
The Treasury coordinated the 2010 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.
Consultation for tax and superannuation measures
During 2010-11, the Treasury continued to develop enhanced consultation processes for tax and superannuation measures.
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 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.
The Tax Design Advisory Panel allows the Government, in appropriate circumstances, to develop tax and superannuation legislation by teams involving the Treasury, the ATO and the private sector, as represented by members of the panel.
Progress towards principle-based tax design and miscellaneous amendments
Principle-based tax design
The Australia’s Future Tax System report recommended that the Government commit to a principle-based approach as a way of addressing the growing volume and complexity of tax legislation, and as a way of helping those laws be interpreted consistently with their policy objectives. On 5 August 2010, the then Assistant Treasurer in an address to the Australian Economic Forum re-affirmed the Government’s commitment to principle-based tax design.
The principle-based approach aims to design and express law using operative principles that focus on intended outcomes, rather than prescribing in detail all the possible circumstances intended to be captured.
Miscellaneous amendments and technical corrections
Measures making miscellaneous amendments and technical corrections to the taxation laws were included in the Tax Laws Amendment (2011 Measures No. 2) Act 2011, which received Royal Assent on 27 June 2011.
Issues raised through the Tax Issues Entry System are addressed in miscellaneous 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.
Tax advice privilege and the Tax System Advisory Board
Tax advice privilege
On 15 April 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation released a discussion paper on the appropriateness of establishing a tax advice privilege. The paper considers an Australian Law Reform Commission recommendation to shield certain tax advice documents from the information-gathering powers of the Commissioner of Taxation, and canvasses the implications of establishing such a privilege. Comments on the discussion paper were sought by 15 July 2011.
Tax System Advisory Board
During the 2010 election period, the Government announced that it would establish a Tax System Advisory Board. On 21 January 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation released a discussion paper outlining different ways the Government could establish the Board. Submissions closed on 11 March 2011. The Government formed a Consultation Panel to consider the submissions and provide advice about the best way of proceeding with this commitment, and asked for advice by 30 June 2011.
Secretariat support to the Board of Taxation
The Treasury provided se
cretariat support to the Board of Taxation, including to its reviews of the tax treatment of Islamic finance products, the consolidation rights to future income and residual tax cost setting rules, the tax arrangements applying to collective investment vehicles, the venture capital limited partnership regime, review of the Tax Issues Entry System and post-implementation reviews into certain aspects of the consolidation regime and of the Tax Design Review Panel recommendations.
Secretariat support to the Superannuation Advisory Committee
The Treasury provided secretariat support to the Superannuation Advisory Committee, which met twice during 2010-11.
Management of legislation program
Advice to the Government on tax policy and legislation was timely, influential and of high 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 Government’s updated forward work program for tax measures was published on the Treasury website in February 2011. The program sets out the consultation planned for announced tax measures.
A total of 25 tax bills containing 63 measures were introduced into Parliament in 2010-11. Of these, six bills containing 18 measures had been introduced into Parliament previously but lapsed when Parliament was prorogued for the 2010 election.
Legislation was introduced for 45 measures not previously introduced into Parliament. Twelve of 22 prospective measures (55 per cent) were introduced within 12 months of being announced, and eleven of 16 retrospective measures (68 per cent) were introduced within six months of announcement. Another seven measures were not announced before being introduced.
The measures introduced into Parliament included seven international tax agreements. Tax agreements are tabled with the Joint Standing Committee on Treaties for a public consultation process and reporting to Parliament before introduction, adding an average of about six months to the time taken from announcement to introduction.