Program 1.1: Department of the Treasury (continued)
Revenue Group provides policy advice and designs legislative proposals to give effect to Government decisions to improve the efficiency, fairness and transparency of the Australian tax and retirement income systems while minimising their compliance and administration costs. Tax and retirement income policy advice is formulated through an integrated process that, at times, includes consultation with business and community bodies, and close cooperation with the ATO and relevant Commonwealth departments.
During 2012-13, Revenue Group developed legislation giving effect to measures that were announced in the 2012-13 and 2013-14 Budgets and the 2012-13 Mid-Year Economic and Fiscal Outlook.
Revenue Group established a Law Design Practice during 2012-13 to provide greater focus on the implementation of legislation in the Government’s taxation and retirement income reform agenda.
The Treasury also provides secretariat services to the Board of Taxation. The Board publishes its own annual report at www.taxboard.gov.au.
Revenue Group’s key deliverables are to provide advice on:
- tax and retirement income policy proposals and measures, including their impacts on government finances and economic growth, their distributional impact and their overall efficiency and effectiveness;
- implementation of the Government’s taxation and retirement income reform agenda;
- a modernised tax treaty network and revised international tax rules, which enhance Australia’s international attractiveness for investment while addressing risks from harmful tax jurisdictions and furthering Australia’s interests in the Pacific and Asia; and
- Australia’s participation in the development of international tax standards at international forums, including the OECD, G20 and the Global Forum.
Revenue Group’s key outcomes were:
- providing quantitative work for the 2012-13 MYEFO and 2013-14 Budget including;
- developing tax revenue estimates and analysis;
- costings underpinning taxation proposals; and
- demographic and labour force projections.
- advising and developing legislation on corporate tax reform including:
- improving transparency;
- introducing monthly PAYG instalments for large entities;
- introducing a new tax loss concession to remove barriers to investment in nationally significant infrastructure projects;
- redesigning Australia’s general anti-avoidance rules; and
- modernising our transfer pricing rules.
- advising on measures, announced in the 2013-14 Budget, to protect the corporate tax system from erosion and related integrity issues, including:
- addressing mechanisms that enable entities to shift profits by artificially loading debt into Australia;
- improving the integrity of our foreign resident capital gains tax regime and addressing the low levels of voluntary compliance with the regime;
- closing loopholes in the Offshore Banking Unit regime to prevent banks shifting profits from domestic banking activities to the Offshore Banking Unit (while continuing to allow genuine offshore banking activities);
- better targeting resource sector concessions to support genuine exploration, by limiting the deduction for purchases of mining rights and information first used for exploration;
- closing loopholes in the consolidation of business entities regime following recommendations from the Board of Taxation; and
- improving the efficiency and integrity of the tax system by preventing sophisticated investors from engaging in dividend washing; and
- the investor manager regime.
- advising on and implementing legislation for personal income tax policy reform, including:
- an increase in the Medicare levy to provide funding for DisabilityCare Australia;
- phasing out the net medical expenses tax offset;
- consolidating the dependency offsets into a single offset;
- removing concessional treatment of ‘in-house’ fringe benefits; and
- changes to the fringe benefits tax on living-away-from-home allowances and benefits.
- advising on and implementing a range of superannuation and retirement income policies.
- advising on and implementing legislation for philanthropy policy, including:
- the Government’s not-for-profit reform agenda;
- establishment of an Australian Charities and Not-for-profits Commission (ACNC);
- governance and financial reporting regulations for charities registered with the ACNC;
- introduction of a statutory definition of a charity;
- continuing negotiations with the states and territories on national not-for-profit reform; and
- specifically listing organisations in the tax law as deductible gift recipients.
- assisting the Parliamentary Budget Office to fulfil its obligations, including:
- supporting the PBO in its establishment phase, including seconding a number of staff; and
- providing data, models and related advice.
- assisting the Government prioritise its tax and retirement income policy legislative agenda.
- developing the Scoping Paper on Risks to the Sustainability of Australia’s Corporate Tax Base and contributing to the OECD’s development of the Action Plan on Base Erosion and Profit Shifting.
- providing a range of secretariat support services including;
- providing secretariat support to the Business Tax Working Group, the Taxation of Native Title and Traditional Owner Benefits and Governance Working Group, the Not-for-profit Sector Tax Concession Working Group and the Tax Issues Entry System Working Group;
- providing secretariat support to the Charter Group convened to advise the Government on a Charter of Superannuation Adequacy and Sustainability, to the SuperStream Advisory Council and to the Government’s Superannuation Roundtable; and
- providing secretariat support to the Board of Taxation.
Analysis of performance
Tax revenue estimates and analysis
The Treasury, in collaboration with the ATO, provided the Government with timely monitoring, analysis and estimation of tax revenues. Significant revisions to expected tax revenue in 2012-13 and over the forward estimates were made at both the economic and fiscal outlook releases through 2012-13 (MYEFO and the 2013-14 Budget), primarily reflecting weaker economic growth driven by lower commodity prices, company profits and capital gains.
A review of the quality of Treasury’s forecasts of the macroeconomy and revenue was published in December 2012. This review was undertaken by a team from within the Treasury, overseen by an independent external reference group.
Development and management of the legislation program
The Law Design Practice was established in Revenue Group in September 2012 with responsibility to coordinate advice to the Government regarding priority setting of legislation, and to ensure that when a policy is being developed, the legislative implications are taken into account from the outset. This new Division is responsible for ensuring that final legislation introduced to Parliament delivers on the Government’s policy intent, both directly and in how it interacts with the rest of the tax and superannuation law. It also ensures that measures are consistent with other laws, and with the legal policy of the Government.
The Law Design Practice has progressed and managed the preparation of tax and superannuation law measures, working with Revenue Group Policy Divisions, the Office of Parliamentary Counsel and the Australian Taxation Of
A total of 39 tax bills containing 73 measures were introduced into Parliament in 2012-13.
Ensuring the integrity of the corporate tax system
Protecting the corporate tax base from erosion and loopholes
The Treasury provided policy advice on a package of measures, announced in the 2013-14 Budget, to improve the sustainability of the corporate tax base. The package addresses a range of aggressive tax minimisation strategies, which were being exploited to take advantage of design flaws, vulnerabilities and unexpected interactions in Australia’s corporate tax laws. The Treasury undertook consultation with the private sector in developing the package, and continues to consult on the implementation of key elements of the package.
The OECD-G20 BEPS project
The Treasury contributed policy advice to the OECD throughout the development of the Action Plan on Base Erosion and Profit Shifting (BEPS). The action plan seeks to ensure that international tax settings are reformed to reflect the changes in global commerce. The Treasury will have ongoing involvement in the implementation of the plan through representatives dedicated to each work stream.
Risks to the corporate tax base
At the request of Government, Treasury developed a scoping paper to assess the risks to the sustainability of the corporate tax base. The increasing use of strategies to exploit gaps and inconsistencies in tax treaties, the increased ‘digitisation’ of industries and the challenges for the international community to effectively curb the harmful tax practices of some jurisdictions, have all highlighted risks in the international tax framework. A specialist reference group comprising representatives with expertise in tax including the tax profession, corporate Australia and civil society groups was assembled to support Treasury’s development of the scoping paper.
Increasing the transparency of tax payable by large corporate entities
The Treasury advised the Government on, and developed legislation, requiring the Commissioner of Taxation to publish limited tax return information of corporate tax entities with total incomes of $100 million or more in an income year. This reform was implemented in the Tax Laws Amendment (2013 Measures No. 2) Act 2013 which received Royal Assent on 29 June 2013. This reform applies to income reported from the 2013-14 income year onwards.
Personal tax and fringe benefits tax policy reform
Increase in the Medicare levy
The Treasury advised on the 2013-14 Budget measure to increase the Medicare levy. From 1 July 2014, the Medicare levy will increase by half a percentage point from 1.5 per cent to 2 per cent. The revenue from increasing the Medicare levy will be directed to funding DisabilityCare Australia. This reform was implemented by the Medicare Levy Amendment (DisabilityCare Australia) Act 2013 and associated Acts.
Phasing out the net medical expenses tax offset
The Treasury advised on the 2013-14 Budget measure to phase out the net medical expenses tax offset (NMETO). The NMETO will be available for taxpayers for out-of-pocket expenses relating to disability aids, attendant care or aged care expenses until 1 July 2019. From 1 July 2013 those taxpayers who claimed the NMETO for the 2012-13 income year will be eligible for the NMETO for the 2013-14 income year if they have eligible out-of-pocket medical expenses above the relevant thresholds. Similarly, those who claim the NMETO in 2013-14 will be eligible for the NMETO in 2014-15. Legislation implementing this measure is being developed.
Removal of concessional treatment of ‘in-house’ fringe benefits if accessed through a salary sacrifice arrangement
The Treasury provided advice and developed legislation to remove the concessional fringe benefits tax treatment for in-house fringe benefits if they are accessed by way of a salary sacrifice arrangement. This measure was implemented by Tax Laws Amendment (2012 Measures No. 6) Act 2013.
Superannuation and retirement income policy reform
2012-13 MYEFO measures
The Treasury provided advice for the Government’s 2012-13 MYEFO measures, and developed legislation for some of the measures. These measures included:
- increasing the number of lost member accounts transferred to the ATO;
- providing greater tax certainty in situations where a fund member who was receiving a superannuation pension dies; and
- reforming the self-managed superannuation fund levy.
Superannuation reforms announced on 5 April 2013
The Treasury provided advice to the Government on the reforms announced on 5 April 2013 to improve the fairness, sustainability and efficiency of Australia’s superannuation system, and developed legislation for some of the measures. The announced changes included:
- better targeting the tax exemption for investment earnings on assets supporting income streams by capping it to the first $100,000 of future earnings from 1 July 2014;
- simplifying the design of the higher concessional contributions cap from 1 July 2013 by setting a cap of $35,000 to anyone who meets certain age requirements;
- allowing individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund, and taxing the excess contributions at the individual’s marginal tax rate plus an interest charge (rather than at the top marginal rate);
- encouraging the take-up of deferred lifetime annuities by giving these products the same concessional tax treatment that applies to assets supporting superannuation income streams;
- further reforming the arrangements for lost superannuation; and
- establishing a Super Council to ensure any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.
The Treasury provided secretariat support to the Charter Group convened by the Government to provide advice on the establishment of the Super Council and the Charter of Superannuation Adequacy and Sustainability.
International tax arrangements
Modernising Australia’s Transfer pricing rules
The Treasury provided policy advice on the development of modernised transfer pricing rules. The rules align more closely with international best practice and provide a mechanism to access and include international guidance (for instance as developed by the OECD) as relevant to Australia.
Reforms that clarified the application of the tax treaty transfer pricing rules, enacted by Tax Laws Amendment (Crossborder Transfer Pricing) Act (No. 1) 2012, were passed by the Parliament on 20 August 2012. Remaining reforms that modernised Australia’s transfer pricing rules to better align with international best practice as set out by the OECD, were enacted by Tax Laws Amendment (Tax Avoidance and Multinational Profit Shifting) Act 2013, which received Royal Assent on 29 June 2013.
Investment Manager Reforms
The Treasury has consulted extensively with industry on the implementation of an investment manager regime (IMR), which is intended to provide clear and comprehensive statutory rules for taxing non-resident investment into Australian and foreign assets. Legislation to clarify the tax treatment of income of foreign managed funds for previous income years, and the foreign conduit income of such funds was enacted through Tax Laws Amendment (Investment Manager Regime) Act 2012 which received Royal Assent on 13 September 2012.
The Treasury continued to progress the Government’s tax treaty negotiation program through negotiations and discussions with a number of countries. Australia’s new tax treaties with Chile and Turkey, and its amended treaty with India, entered into force in the first half of 2013. Negotiations for a revised treaty
with Switzerland were also concluded during this time.
The Treasury provided advice 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. Treasury officials also commenced negotiations with United States officials for an intergovernmental agreement to implement the US Foreign Account Tax Compliance Act (FATCA) in Australia.
Tax information exchange agreements
The Treasury has led Australia’s contribution to 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.
A Treasury official represented Australia as Chair of the Global Forum on Transparency and Exchange of Information until 31 December 2012. The Forum has overseen substantial progress in the removal of secrecy and provisions preventing the exchange of information on tax matters between jurisdictions.
Other international tax agreements
Australia ratified the Multilateral Convention on Mutual Administrative Assistance in August 2012. The convention has been signed by nearly 60 jurisdictions and provides for assistance between national revenue authorities in three areas: the exchange of taxpayer information, the recovery of outstanding tax debts and the service of documents.
Australia has also announced that it will participate in a pilot program to automatically exchange information with other countries broadly using the principles of the US FATCA.
The Treasury represented Australia on the OECD’s Committee on Fiscal Affairs and its associated working parties dealing with international tax matters, particularly in relation to the Base Erosion and Profit Shifting (BEPS) project, 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.
Productivity Commission Inquiry into the Retail Industry
In response to the Productivity Commission’s recommendations relating to the appropriateness of current indirect tax arrangements in its report on the Economic Structure and Performance of the Australian Retail Industry the Government established the Low Value Parcel Processing Taskforce (the taskforce) to investigate new approaches for the handling and administration of low value imports of goods. The Treasury assisted the taskforce with its report which was provided to Government in July 2012.
In releasing its interim response to the taskforce report, the Government indicated it will develop business cases and possible implementation plans for reforms to low value parcel processing. The Treasury has been assisting in the development of these business cases and plans.
Tax Expenditures Statement
The Treasury coordinated the 2012 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 taxation policy.
ANAO review of Tax Expenditures Statement
On 9 May 2013, the Australian National Audit Office (ANAO) tabled an audit report, Preparation of the Tax Expenditure Statement, in the Parliament. The report assesses the extent to which the Treasury has improved the management of tax expenditure estimates by implementing the six recommendations from the original 2007-08 ANAO audit and the three subsequent recommendations by the Joint Committee of Public Accounts and Audit (JCPAA). The ANAO found that two of the previous recommendations have been fully implemented and that the remaining recommendations have been partially addressed. The report made one new recommendation — that the Australian Taxation Office (ATO) and the Treasury review and standardize the methodology for allocating reliability ratings to tax expenditures. The ATO and the Treasury have agreed to this recommendation.
The Treasury is committed to ongoing improvement of the TES, including progressing recommendations made by the ANAO and the JCPAA, in line with available resources and Government priorities.
Tax policy consultation
The Treasury implemented a program of high-level stakeholder consultation meetings to engage the taxpayer community in a wider conversation about strategic tax policy issues. Two consultation meetings were held in 2012-13 with representatives from the tax industry, and business and community groups.
The Treasury updated the Government’s Forward Work Program on a monthly basis and made it available publicly. The document is published to inform taxpayers and their advisers about the Government’s current and forthcoming consultation process on tax measures. It outlines discussion papers, and exposure drafts of legislation and regulation that are currently open for consultation as well as those currently in preparation.
In addition, the Treasury engaged with members of the Tax Design Advisory Panel, which comprises lawyers, accountants, academics and economists. This panel provides advice on:
- consideration of tax and superannuation issues; and
- the design and implementation of relevant changes to the tax system.
The operation of the panel has been extended until 30 June 2014.
Miscellaneous amendments and technical corrections
Measures making miscellaneous amendments and technical corrections to the taxation laws were included in the Tax Laws Amendment (2012 Measures No. 6) Act 2013 and the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013, which both received Royal Assent on 28 June 2013.
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. The Treasury provided support to the Tax Issues Entry System Working Group which met four times during 2012-13.
Secretariat support to the Board of Taxation
The Treasury provided secretariat support to the Board of Taxation, including to the:
- review of the tax arrangements applying to permanent establishments;
- post-implementation review into certain aspects of the consolidation tax cost setting process;
- post-implementation review into Division 7A of Part III of the Income Tax Assessment Act 1936;
- review of the debt/equity tax rules; and
- review of the thin capitalisation arm’s length test.