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That’s a wrap!

Now that the Federal Parliament has risen for the summer break, this is an opportune time to take stock of the key outstanding tax and superannuation measures.

According to the draft Parliamentary sittings for 2019, Parliament is scheduled to next sit on 12 February 2019. The next election must be held by 18 May 2019 for half of the State Senators, and on or before 2 November 2019 for the House of Representatives and Territory Senators (although it is expected that, to avoid holding two elections next year, a general election will be held on either 11 or 18 May 2019).

This has brought forward the timing of the 2019–20 Federal Budget which is ordinarily handed down on the second Tuesday in May; due to the timing of the election, the Budget is currently scheduled for Tuesday 2 April 2019.

This means there are just 10 Parliamentary sitting days between now and the election. Further, there will be no sitting days in June (when the postal and absentee votes will be counted, and the ministers sworn in, etc.), Parliament is in Winter recess during July then returns for the Spring sittings on 12 August 2019. This means that there will be only 10 sitting days in the next eight months.

With limited sitting days next year, the Parliament will be under enormous pressure to clear the backlog of bills while properly considering highly technical tax and superannuation bills in an ideally measured and not rushed manner.

Outstanding tax and superannuation Bills

Single Touch Payroll

The Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 proposes to extend STP reporting to all employers from 1 July 2019.

There has been much public commentary about the apparent passage of the STP legislation through the Parliament on 5 December 2018. Legislation to extend STP to all employers from 1 July 2019 has passed the Senate, but with proposed amendments to other measures (relating to deductible gift recipients (DGRs) contained in the same Bill.

Status of measure

The Bill must return to the House of Representatives to consider the DGR amendments. As the Parliament has risen for the year, the next opportunity for the House to hear the Bill will be 12 February 2019.

If the Parliament does not resume prior to the election, or the Bill is not passed by the Parliament before the election is called, the Bill will be ‘prorogued’ (i.e. it will lapse) and a returning Coalition government or an incoming Labor government would need to reintroduce the Bill and negotiate its re-passage through both houses of the Parliament.

ATO activity

STP reporting has been required for substantial employers (20 or more employees) since 1 July 2018, and the ATO continues to support larger employers in their transition to STP reporting by encouraging employers with deferrals ending to start reporting and promoting STP to those employers who can voluntarily come on board.

The Commissioner has released a video which explains the ATO’s approach to STP for smaller employers.

The ATO has published a list of companies that intend to offer a range of simple to use, low-maintenance, low-cost (less than $10 per month) STP reporting solutions to the micro employer (1–4 employees) market from early 2019. Micro employers will need to report through STP but may not currently have STP-compliant payroll software. See www.ato.gov.au/STPsolutions for more information.

Main residence exemption changes for non-residents

The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 proposes to remove the entitlement to the main residence exemption for taxpayers who are non-residents at the time of the CGT event. The measures were first announced in the 2017–18 Federal Budget on 9 May 2017 and apply to CGT events happening from that date. A transitional rule applies until 30 June 2019 for properties that were held at the time of the announcement.

One of our senior tax trainers, Robyn Jacobson, has been a leading advocate for the past year in lobbying the Government, The Treasury and the independent cross-benchers in the Senate to amend the Bill to remove the draconian, retrospective impact of these measures on Australian expatriates and deceased estates. Further information about the impact of these measures is available in our Banter Blog from 28 March 2018.

Robyn has repeatedly called for one of two concessions to be incorporated into the measures (both are based on existing provisions):

  • reset the cost base of the property to its market value on the day the taxpayer becomes a non-resident so that the capital gain is calculated only on the increase in value since they ceased to be a resident — this approach arguably produces a fairer outcome (as the taxpayer only loses the exemption for the period of non-residency having regard to the increase in its value during this period) and doesn’t require taxpayers to have kept cost base records from when they acquired the property, but by its nature is subjective and valuations could be open to challenge by the Commissioner; or
  • allow a partial exemption for the number of days the taxpayer was a resident and lived in the dwelling as their main residence — this approach is simpler to calculate, but requires the taxpayer to have retained the necessary records to establish the cost base of the property from when they acquired it, which in practice is unlikely.
Status of measure

The Bill was introduced into Parliament on 8 February 2018 and has been before the Senate since 19 March 2018.

As Parliament has risen for the year and does not resume until 12 February 2019, affected property owners will have just four months from when Parliament resumes (with no assurance of certainty from that time) to sell their homes tax-free before the expiration of the 30 June 2019 transitional period. This is not enough time when there is no certainty on the final form of the measures.

In an Accountants Daily article published on 7 December 2018, Robyn continues to express her concerns regarding the significant delays and ongoing uncertainty for Australian expatriates and deceased estates. Robyn is now calling for an extension to the transitional period to 30 June 2020 to provide taxpayers with more time to make the significant financial decision of whether, and when, they sell their property.

SG Amnesty

On 24 May 2018, the Government announced a proposed Superannuation Guarantee (SG) Amnesty to allow employers to allow non-complying employers to self-correct any unpaid SG amounts dating back to 1992. Our Banter Blogs titled The New Superannuation Guarantee Amnesty from 13 June 2018, SG Amnesty — Q&A from 14 August 2018 and The SG Amnesty: What should employers do? from 14 September 2018 explain the proposed measures.

We take the position in our most recent blog that employers should consider making a voluntary disclosure of unpaid SG amounts without waiting to find out whether the SG Amnesty becomes law because:

  • they will either get a better deal on penalties if the new law doesn’t pass (although the amount won’t be deductible, but that is the current law anyway) or be protected under the Amnesty if it does pass; and
  • it is an inescapable fact that the superannuation funds of the affected employee(s) have been deprived of the outstanding SG amounts which employers were always required to pay under the law.

Status of measure

The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 won’t be considered again by the Parliament until, at the earliest, 12 February 2019, and given that the Opposition does not support the Amnesty, it is doubtful whether the SG Amnesty will ever pass into law.

We are now more than six months into a 12-month amnesty which expires on 23 May 2019 without any certainty as to whether the Amnesty will be available and whether any disclosures made to the ATO since 24 May 2018 are covered by the Amnesty.

Enterprise Incentives measures

Company losses — similar business test

Schedule 1 to the Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 (‘the Bill’) proposes to supplement the existing ‘same business test’ with an alternative ‘similar business test’ for the purposes of working out whether a company can deduct tax losses incurred and net capital losses made in previous income years. The ‘similar business test’ is proposed to apply to tax losses and net capital losses made from 1 July 2015. On 5 December 2018, the Senate accepted the measures in Schedule 1.

Self-assessment of effective life for intangible assets

Schedule 2 to the Bill proposed to allow taxpayers the choice to self-assess the effective life of certain intangible depreciating assets they start to hold on or after 1 July 2016. However, on 5 December 2018, the Senate agreed to a Government amendment to remove Schedule 2 from the Bill.

Given the proposed application date of 1 July 2016 and the likely further delay in the passage of the Bill, the Government decided not to proceed with the measure, in order to eliminate the current uncertainty for taxpayers. By omitting Schedule 2, the Bill will no longer allow taxpayers to avail themselves of this self-assessment option.

Status of measure

The Bill was introduced into Parliament on 30 March 2017 and has been before the Senate since 22 June 2017. The Bill is now required to return to the House to consider the amendments made by the Senate on 5 December 2018. Accordingly, the Bill remains in limbo until at least 12 February 2019.

Changes to R&D tax offset

The Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 proposes to make significant changes to the R&D tax offset from 1 July 2018 including to:

  • permanently increase the R&D expenditure threshold from $100 million to $150 million;
  • cap the refundability of the R&D tax offset at $4 million per annum;
  • link the R&D tax offset for refundable R&D tax offset claimants (companies with a turnover of less than $20 million) to their corporate tax rates plus a 13.5 percentage point premium;
  • increase the targeting of the R&D tax incentive to larger R&D entities (companies with a turnover of $20 million or more) with high levels of R&D intensity;
  • extend the concept of tax benefits in the general anti-avoidance rule in Part IVA of the ITAA 1936 to include the R&D tax offset;
  • remake and consolidate provisions relating to clawback of R&D recoupments and feedstock adjustments; and
  • introduce a new uniform clawback rule that applies for recoupments, feedstock adjustments and balancing adjustment amounts that are included in an R&D entity’s assessable income.
Status of measure

The Bill was introduced into Parliament on 20 September 2018. As the Parliament has risen for the year, the next opportunity for the House of Representatives to consider the Bill will be 12 February 2019.

Other key outstanding measures before the Parliament

The following key measures are currently before the Parliament.

Measure Commentary
Protecting members’ superannuation The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 proposes, from 1 July 2019, to:

  • cap superannuation fund fees at three per cent per year for administration and investment fees where the balance of the account is below $6,000;
  • prevent trustees from charging exit fees on all superannuation accounts; and
  • prevent trustees from providing opt out insurance to new members aged under 25 years and members with balances below $6,000.

This Bill has been before the Senate since 28 June 2018.

Employees with multiple employers The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 (the same Bill that contains the proposed SG Amnesty) proposes to allow individuals to avoid unintentionally breaching their concessional contributions cap when they receive superannuation contributions from multiple employers.

The amendments achieve this outcome by allowing certain employees with multiple employers to apply to the Commissioner for an ‘employer shortfall exemption certificate’, which prevents their employer from having an SG shortfall if they do not make superannuation contributions for a period (for quarters starting on or after 1 July 2018).

For more information see our Banter Blog titled Multiple employers, SG and the concessional contributions cap from 12 July 2018.

This Bill has been before the Senate since 25 June 2018.

Non-arm’s length income of superannuation entities and LRBAs The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 also contains proposed amendments from 1 July 2018 to:

  • ensure that the non-arm’s length income rules for superannuation entities apply in situations where a superannuation entity incurs non-arm’s length expenses in gaining or producing the income;
  • the total superannuation balance rules to ensure that, in certain circumstances involving limited recourse borrowing arrangements, the total value of a superannuation fund’s assets is taken into account in working out individual members’ total superannuation balances.

This Bill has been before the Senate since 25 June 2018.

Venture capital The Treasury Laws Amendment (2018 Measures No. 2) Bill 2018 proposes to make some changes from 1 July 2018 to the venture capital and early stage investor tax concession provisions to ensure that the provisions operate as intended.

This Bill has been before the Senate since 26 June 2018.

Thin capitalisation and significant global entity changes The Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 (the same Bill that contains the changes to the R&D offset) proposes to:

  • amend the thin capitalisation provisions from 7.30 pm (by legal time in the ACT) on 8 May 2018 to remove the ability for an entity to revalue its assets specifically for thin capitalisation purposes; and
  • extend the circumstances in which an entity is a significant global entity from 1 July 2018.

This Bill has been before the House of Representatives since 20 September 2018.

Stapled structures The Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 proposes to improve the integrity of the income tax law for arrangements involving stapled structures from 1 July 2019 (with generous transitional arrangements).

This Bill has been before the House of Representatives since 20 September 2018.

AMITs and MITs The Treasury Laws Amendment (2018 Measures No. 5) Bill 2018 proposes to make some technical amendments to the attribution managed investment trusts (AMITs) and managed investment trust (MITs) rules from the 2018–19 income year.

This Bill has been before the Senate since 18 October 2018.

Draft tax and superannuation measures

The following measures are in exposure draft or discussion paper form and are yet to be introduced as Bills into Parliament.

Measure Commentary
Div 7A On 22 October 2018, the Government released for consultation a paper titled Targeted amendments to the Division 7A integrity rules which seeks feedback in relation to the Government’s proposed amendments to improve the integrity and operation of Div 7A from 1 July 2019. The proposals are summarised in our Banter Blog titled Some movement on Div 7A … at last! from 26 October 2018.

TaxBanter made a submission to The Treasury raising our various concerns with the proposed measures. Some of our observations are set out in our Banter Blog.

It is questionable whether — given draft legislation is yet to be released for consultation and the limited sitting days — the measures will be enacted prior to 1 July 2019.

Limiting deductions for costs of holding vacant land On 15 October 2018, the Government released for comment exposure draft legislation titled Treasury Laws Amendment (Measures for a later sitting) Bill 2018: Limiting deductions for vacant land, and accompanying explanatory material, which proposes to deny deductions for expenses associated with holding vacant land from 1 July 2019.
Small business CGT concessions and Everett assignments On 12 October 2018, the Government released for comment exposure draft legislation titled Treasury Laws Amendment (Measures for a later sitting) Bill 2018, and accompanying explanatory material, which proposes to deny access to the small business CGT concessions for partners that alienate their income by creating, assigning or otherwise dealing in rights to future income of the partnership (i.e. arrangements that merely result in the transfer of income or capital that a partner receives from the partnership to other entities without making the other entity a partner). The measure is proposed to apply from 7.30 pm (legal time in the ACT) on 8 May 2018.
Circular distributions On 12 October 2018, the Government released for comment exposure draft legislation titled Treasury Laws Amendment (Measures for a later sitting) Bill 2018: Extending anti-avoidance rules for circular trust distributions, and accompanying explanatory material, which proposes to extend to family trusts a specific anti-avoidance rule for closely held trusts engaging in circular trust distributions, for income years starting on or after 1 July 2019.
$10,000 economy wide cash payment limit On 25 May 2018, the Government released a consultation paper titled Introducing an Economy-Wide Cash Payment Limit which seeks views on a proposed cash payment limit of $10,000 for payments to businesses for goods and services.

The cash payment limit is proposed to apply from 1 January 2020.

Director penalty notices On 16 August 2018, the Government released for comment exposure draft legislation titled Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2018, and accompanying explanatory material, which proposes to:

  • extend the estimates regime in Div 268 of Schedule 1 to the TAA so that the Commissioner can collect estimates of GST, LCT and WET in addition to estimates of PAYG withholding and SGC liabilities; and
  • allow the Commissioner to impose director penalties in relation to the GST, LCT and WET liabilities of a company in addition to the PAYG withholding and SGC liabilities of a company.

Applies from the first day of the quarter after Royal Assent.

Additional CGT discount for affordable housing On 14 September 2017, the Government released for comment exposure draft legislation titled Treasury Laws Amendment (Reducing the Pressure on Housing Affordability Measures No. 2) Bill 2017: additional CGT discount and providing affordable housing through MITs, and accompanying explanatory material, which proposes to introduce tax-related measures designed to encourage investment in affordable housing for members of the community earning low to moderate incomes.

The measures include a proposal to increase the CGT discount from 1 January 2018 by up to 10 per cent for investors disposing of a property used for affordable housing (taking the CGT discount from 50 per cent to 60 per cent).

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