Regulatory Roundup – June 2016

How will the multinational “diverted profits tax” work?

The concern about large multinational companies artificially sending profits offshore to dodge paying Australian tax had in the recent past been dubbed with a name associated with the practice. The expected “Google” tax came to fruition on Budget night in May, although it is not planned to take effect until July 1, 2017.

The new tax, to be known as the diverted profits tax (DPT), is aimed at large multinational corporations that artificially divert profits from Australia, and is planned to be charged at a rate of 40%. This is to be levied on profits that have been artificially shifted to jurisdictions with the result that less than 80% tax is paid than would otherwise have been paid in Australia. This feature is in accord with Treasury’s consultation on the proposed design of the tax.

The measure will apply to companies with global revenue of $A1 billion or more. Companies with Australian revenue of less than $25 million will be exempt, unless they are artificially booking their revenue offshore.

In the consultation statement, Treasury said: “By imposing a penalty rate of tax, requiring the DPT to be paid on assessment and broadening the ATO reconstruction powers, the DPT will … address information asymmetries and allow for speedier resolution of disputes including under our transfer pricing rules.”

Treasury’s consultation on its proposed framework for the new tax (see above link) closes on June 17, 2016. The DPT initiative also includes setting up a new “tax avoidance taskforce” within the ATO.
The government also announced it will increase administrative penalties from July 1, 2017 for companies with global revenue of $1 billion or more that fail to adhere to tax disclosure obligations. Penalties relating to lodging documents to the ATO will be increased 100-fold — from $4,500 to $450,000.

Britain was one of the first countries to introduce a tax on the diverted profits of large international businesses, which took effect from April 1, 2015. The British DPT is charged at 25% where a foreign company “exploits the permanent establishment rules”, or where a British company with a local taxable presence creates a tax advantage by using transactions or entities that “lack economic substance”.

Australia’s corporate tax rate is presently 30%, which effectively means that large businesses to which the new rules are applicable that transfer profits to jurisdictions with a tax rate of less than 24% (that is, 80% or less of the Australian rate) would be caught by the penalty charge.

However Budget night also saw the announcement of an intention to gradually reduce the headline corporate tax rate, which under current plans will fall to 25% by financial year 2026-27. Although no specific statement regarding the operation of the DPT under these circumstances has been issued, it is assumed the proportional trigger of 80% will remain, which would mean less multinationals would be caught by the DPT as other jurisdictions’ tax rates will more than likely not move in unison with Australia’s.



Student loans: Thresholds increase, and new rules

The Higher Education Loan Program (HELP) covers a range of student loans that are paid back through the tax system over time. Once you start making money, after a certain level of income is reached, a proportion of the loan repayment is added to your tax payments. And the more you earn, the higher your repayments.

These compulsory repayments go up on a scale, and the threshold levels are reviewed (that is, increased) usually annually. The repayment rates for the 2016-17 income year are:

HELP compulsory repayments
2016-17 Repayment income Rate
Below $54,868 Nil
$54,869-$61,119 4%
$61,120-$67,368 4.5%
$67,369-$70,909 5%
$70,910-$76,222 5.5%
$76,223-$82,550 6%
$82,551-$86,894 6.5%
$86,895-$95,626 7%
$95,627-$101,899 7.5%
$101,900 and above 8%

The above rates have increased due to movements in average weekly earnings figures. And don’t forget, your “repayment” income will include the value of fringe benefits you have received that are disclosed on your payment summary and super contributions your employer makes that exceed the compulsory level.

You don’t have to include any HELP information with your tax return, as the ATO will already know what you earn and what you owe, and will show it all on your tax assessment notice.

Most likely your employer is taking out tax each week (PAYG withholding amounts), and with this they have to withhold an additional amount to cover your HELP repayment. (It could in fact be a good idea to check that your workplace is taking HELP debt repayments into account in PAYG arrangements, just so you don’t end up with a potentially large sum to repay on the year end tax assessment.)

Repayment discounts discontinued
Note also that from January 1, 2017, the government will remove the upfront HECS-HELP discount of 10% for eligible students that pay their student contributions upfront and the voluntary HELP repayment bonus of 5%.

Heading overseas?
And if you intend to take an overseas sojourn, be aware that you may have to make room in the bags your student debt as well. The rules were recently changed so that HELP (and Trade Support Loan) recipients who intend to be overseas for more than 183 days in any 12 month period are now required to inform the ATO within seven days of leaving the country.

Information required will be contact details including international residential and email addresses. If you are already overseas, and have been since January 1, 2016, you have until July 1, 2017 to update these details.




Four years to get it right, says ATO

The ATO is reminding taxpayers that for tax periods starting on or after July 1, 2012, there is a four-year time limit to amend or revise their activity statement assessment. This is called the “period of review”.

“The period of review begins the day you lodge your activity statement,” the ATO says. “During this time, there is no limit to the number of amendments you can make. However in most cases, once the period of review expires, you can’t make further amendments.”

Unlike tax periods starting before the above date, there’s no provision to extend the period of review by notifying the ATO of an entitlement to a refund. This is why it’s important to request an amendment during the period of review. If not, you may not get a refund.

Refreshed period of review
When you amend an assessment during the period of review, the four-year period refreshes. Note however that this refreshed period applies only for the “particular” (transaction) amended, not the whole assessment. It begins after the last amendment is made to the transaction concerned. During the refreshed period, the “particular” may only be amended again once.

Claiming credits
You also need to claim GST and fuel tax credits for your clients within four years of the due date of lodgement of the activity statement in which the credits could have first been claimed. Generally, unclaimed entitlements to the credits cease after this period.




Simpler activity statements on the way (and considerations on eInvoicing)

The ATO says it has listened to the concerns of tax professionals, small businesses, industry associations and software providers, and is working towards reducing GST compliance costs for small businesses.

“We are reducing the amount of GST information required for the business activity statement (BAS) to simplify GST record keeping and reporting requirements,” the ATO says.

From 1 July 2017, small businesses will only need to report the following GST information on their BAS:

– GST on sales (1A)

– GST on purchases (1B)

– Total sales (G1)

The requirement to report export sales (G2), other GST free sales (G3), capital purchases (G10) and non-capital purchases (G11) will be removed.

“A simpler BAS will provide small businesses with significant time and cost savings by simplifying account set up, GST record keeping and BAS preparation,” the ATO says. “Businesses will be able to more easily classify transactions and prepare and lodge their BAS.”

The ATO also contends that a simpler BAS will support greater use of existing automation functions and potential digital solutions as they evolve.

Although separate from the latest Federal Budget announcements, Minister for Small Business Kelly O’Dwyer mentioned the simplification of GST administration measures in a media release about the latest Budget announcements.

“Small businesses will also benefit from changes to simplify BAS reporting requirements,” O’Dwyer said. “From 1 July 2017, all small businesses with less than $10 million turnover will be able to easily classify transactions, and prepare and lodge their BAS.”

O’Dwyer said this simpler approach means that small businesses can work with their tax professionals on growing their business, not form filling. “A trial of the new simpler reporting arrangements will commence on 1 July 2016.”

And as part of the “FinTech” agenda, the government will also undertake a detailed implementation study into the costs and benefits of adopting electronic invoicing (eInvoicing) “so that small businesses spend less time re‑entering invoice data for government and more time developing and growing their business”.

According to the Digital Business Council, eInvoicing could improve efficiency over the traditional paper invoicing process by 60% to 80%, with widespread adoption leading to significant regulatory savings. The findings of the implementation study will be considered in early 2017.


DISCLAIMER: All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Taxpayers Australia Incorporated, each of its directors, councillors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Taxpayers Australia Ltd (ABN 96 075 950 284).