In this tax update:
- Bill to implement housing affordability CGT changes
- Changes to small business CGT concessions
- Bill to change residential property GST arrangements
- ATO moving to combat the black economy
- Corporate tax avoidance: ATO's latest targets
Bill to implement housing affordability CGT changes
As part of the 2017–2018 Budget, the Federal Government announced a range of reforms intended to reduce pressure on housing affordability. Legislation has now been introduced into Parliament that proposes to:
- remove the entitlement to the capital gains tax (CGT) main residence exemption for foreign residents; and
- modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property (TARP), the principal asset test is applied on an “associate inclusive” basis.
The Bill also proposes to amend the tax law to provide an additional discount on CGT for affordable housing. The discount of up to 10% will apply if a CGT event happens to an ownership interest in residential property used to provide affordable housing.
The main residence exemption means that CGT doesn’t apply for a capital gain or loss that an individual makes from selling their main residence. A CGT discount applies if the dwelling was their main residence for only part of the time they owned it, or they partly used it to produce assessable income.
Changes to small business CGT concessions
Treasury has released draft legislation to make sure that taxpayers will only be able to access the small business CGT concessions for assets that are used (or held ready for use) in the course of a small business or are an interest in a small business.
The draft also proposes additional conditions to be satisfied from 1 July 2017 when applying the small business CGT concession for capital gains related to a share in a company or an interest in a trust.
This measure was announced in the 2017–2018 Federal Budget. The amendments include additional conditions that must be satisfied from 1 July 2017 to apply the small business CGT concession for capital gains that arise in relation to a share in a company or an interest in a trust (the “object entity”).
Broadly, these conditions require that:
- if the taxpayer does not satisfy the maximum net asset value (MNAV) test, the relevant CGT small business entity must have carried on a business just before the CGT event;
- the object entity must have carried on a business just before the CGT event;
- the object entity must either be a CGT small business entity or satisfy the MNAV test (applying a modified rule about when entities are “connected with” other entities); and
- the share or interest must satisfy a modified active asset test that looks through shares and interests in trusts to the activities and assets of the underlying entities.
The consultation period for the exposure draft ended on 28 February 2018 which is a ridiculously short period considering the back-dated changes.
Bill to change residential property GST arrangements
A Bill has been introduced into Parliament that, when passed, will require purchasers of new residential premises and new subdivisions of potential residential land to pay the goods and services tax (GST) on the purchase directly to the ATO as part of the settlement process from 1 July 2018.
Under the current law, the supplier of the property (eg the developer) is responsible for paying the GST to the ATO when lodging a business activity statement (BAS). This can happen up to three months after settlement.
The new measure was announced in the 2017–2018 Federal Budget. It is intended to speed up the GST payment process, and to deal with the problem of some developers dissolving their business and setting up a new entity to avoid paying GST (a form of “Phoenix” tax avoidance).
Moving to combat the black economy
The Black Economy Taskforce was established in 2017 “to develop an innovative, forward-looking whole-of-government policy response to combat the black economy in Australia, recognising that these issues cannot be tackled by traditional tax enforcement measures
alone”. In May 2017 the taskforce made its initial recommendations, which it based on foreign jurisdiction experiences, consultation with stakeholders and anecdotal evidence it had received.
The black economy includes people who don’t correctly report and meet their tax obligations and people who operate entirely outside the tax and regulatory system.
The Government accepted a number of the taskforce’s recommendations and has now introduced a Bill into Parliament, proposing to combat the black economy by:
- prohibiting the production, distribution and possession of sales suppression tools, which are typically used to remove or alter transaction information recorded by point-of-sale (POS) systems;
- prohibiting the use of electronic sales suppression tools to incorrectly keep tax records; and
- requiring entities that have an ABN and that provide courier or cleaning services to report to the ATO (from 1 July 2018) information about transactions that involve engaging other entities to undertake those services for them.
Corporate tax avoidance: latest
The ATO has provided an update on its latest focus areas and the compliance projects it is undertaking to reduce corporate tax avoidance. These include:
- investigating possible manipulation of the thin capitalisation rules (dealing with foreign investments), including 27 taxpayers’ asset revaluations totalling $78 billion;
- looking into arrangements that move intellectual property assets and rights offshore to multinational entities’ related parties;
- focusing on the treatment of oil and gas industry labour costs associated with high-value asset construction;
- examining the arm’s length conditions operating in pharmaceutical industry arrangements;
- identifying tax professionals and advisers who are promoting unacceptable tax planning; and
- looking at the tax affairs of various major