The Abbott Government is committed to restoring integrity in the tax system.
We are progressing the backlog of taxation and superannuation measures that were announced by former governments but not yet legislated.
Following additional consultation with stakeholders and the Australian Taxation Office, we have determined that it is not possible to implement a number of these measures as originally announced.
Accordingly, the Government has decided to:
- not proceed with changes that would have applied to multiple entry consolidated groups;
- modify integrity measures in relation to the foreign resident Capital Gains Tax regime and the consolidation regime; and
- defer the start date of measures relating to managed investment trusts and offshore banking units and the legislative elements of the measure to improve tax compliance through third party reporting and data matching.
More detail is available on the following pages.
The cost to the Budget from these decisions is $358.1 million over the forward estimates.
Further, the Government has considered alternatives to the previous government's better targeting of not-for-profit tax concessions measure. We have concluded that they are not required at this time.
The Government announced it would not proceed with the original better targeting measure in its media release of 14 December 2013.
The Government has not made a decision on a targeted anti-avoidance provision to address certain conduit arrangements and is still seeking advice on this matter.
The Government will continue to consult on the implementation of measures that are proceeding.
Restoring integrity in the tax system
Multiple entry consolidated groups
The Government will not proceed with a proposal to remove inconsistencies in the tax treatment for multiple-entry consolidated groups and ordinary consolidated groups that was originally announced by the previous Government in the 2013-14 Budget.
This is estimated to have a cost to revenue of $140 million over the forward estimates.
A tripartite review, chaired by the Treasury including private sector tax specialists and the Australian Taxation Office was established to consider how to implement the measure.
The review concluded that there is limited scope to address the inconsistencies without a reconsideration of broader international tax policy issues. The review considered options to target specific inconsistencies but recommended against proceeding with targeted measures at this time for a number of reasons:
- as there was insufficient data to assess the revenue risks posed by the inconsistencies;
- the options would not fully address the inconsistencies; and
- the options would introduce significant compliance costs and uncertainties.
In line with the recommendations from the review, the Treasury will shortly start consultation on an amendment to extend a modified form of the unrealised loss rules to multiple-entry consolidated groups and on other measures identified by the review that will clarify certain aspects of the tax law in this area.
The report of the tripartite review is available from www.treasury.gov.au.
Integrity measures for the foreign resident CGT regime
The Government will refine the 2013-14 Budget measure that amends the principal asset test in Australia's foreign resident Capital Gains Tax regime.
This is estimated to have no revenue impact over the forward estimates.
To prevent the double counting of assets, the measure will now apply to interests held by foreign residents in unconsolidated groups as well as in consolidated groups.
For interests held by foreign residents in unconsolidated groups, the amendment will apply to Capital Gains Tax events occurring on or after the date the Exposure Draft is released for public consultation.
For interests held in a consolidated group or a multiple entry consolidated group the measure will continue to have effect from 7.30pm (AEST) 14 May 2013.
Integrity measures for consolidated groups
The Government will refine the consolidation integrity package announced in the 2013-14 Budget, to ensure it operates as intended.
This decision is estimated to have an unquantifiable revenue impact over the forward estimates period.
A measure will be added to the package to address another concern raised by the Board of Taxation in its recent reports into the consolidation regime. The new measure will clarify that accounting liabilities relating to securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves a consolidated group and/or joins a consolidated group. This change will apply to arrangements that commence on or after 7.30pm on 13 May 2014. Transitional rules will apply to arrangements that commence before this time.
The double deductions measure, the churning measure and the deductible liabilities measure will be amended so that they apply to arrangements that commence on or after the date of announcement of the original measure (14 May 2013), rather than to the exit or entry of a subsidiary that takes place on or after the date of announcement.
The deductible liabilities measure will also be amended so that retirement villages' residential loan liabilities are excluded from the measure.
Managed investment trusts
The Government will defer the start date of the new tax system for managed investment trusts by 12 months, to 1 July 2015. This decision is estimated to have a gain to revenue of $75.0 million over the forward estimates.
This deferral will allow industry and the Australian Taxation Office additional time to make the necessary systems changes to implement the new tax system. It will also provide the Government with more time to consult with industry about the implementation of the reforms.
The tax law will also be amended to allow managed investment trusts and other trusts treated as managed investment trusts to continue to disregard the trust streaming provisions for the 2014-15 income year. This will ensure these interim arrangements for managed investment trusts continue to apply until the commencement of the new tax system for managed investment trusts.
The Government has consulted closely on the design and legislation for the new tax system for managed investment trusts. Exposure draft legislation is expected to be available for public comment in June.
Offshore banking units
Reforms to the offshore banking unit (OBU) regime, including a targeted integrity measure, will apply to income years commencing on or after 1 July 2015. This decision was originally announced by the Government on 30 January 2014 and is estimated to have a cost to revenue of $180.0 million over the forward estimates.
Tax compliance - improving compliance through third party reporting and data matching
The Government will defer the commencement of the legislative elements of this measure to 1 July 2016, following feedback from stakeholders. A two year deferral will provide further time to conduct a thorough analysis of stakeholder concerns regarding whether a third party reporting model is the best way of achieving the policy objectives. This decision is estimated to have a cost to the Budget of $113.1 million over the forward estimates period.
The legislative elements of the measure that is being deferred involve the creation of new third party reporting regimes in relation to: taxable government grants and specified other government payments; sales of real property, shares (including options and warrants) and units in managed funds; and sales through merchant debit and credit services.
The elements that do not require legislation will proceed as announced.