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Forward tax agenda

It may come as a surprise to some that this year’s Federal Budget contained a number of significant tax announcements quite soon after the Government kicked off the process for development of its Tax Reform White Paper. This poses an interesting dilemma for the Government – to undertake a process of comprehensive reform in the midst of political pressure to respond to high profile issues such as continued budget deficits and revenue shortfalls at both the Federal and State levels, housing affordability, and perceived “tax avoidance” by multinational corporations.

The release of the Tax Discussion Paper on 31 March 2015 marked the formal start of the Tax Reform White Paper process to create ‘a better tax system that delivers taxes which are lower, simpler, fairer’. This process will involve:

  1. Consultation on the issues and questions raised in the Discussion Paper. Submissions in response to the Discussion Paper can be made by 1 June 2015. Read more about the Discussion Paper in PwC’s publication, Tax Reform White Paper process begins with release of Discussion Paper.
  2. An Options (Green) Paper is due in the second half of 2015. This will take into account the submissions received on the Tax Discussion Paper and will outline a range of tax reform options which will also be subject to further consultation.
  3. The Tax Reform White Paper, which will outline the Government's tax reform proposals which it will take to the Federal Election, due in late 2016.

It is clear that the process for tax reform is a long one, which requires the engagement of the community to generate support for comprehensive change. As this process progresses, however, the Government cannot ignore issues with the current tax system that undermine its integrity or contribute to other problem areas.

PwC strongly supports the development of a better tax system for Australia, and remains committed to joining the national conversation on tax reform. However, in the meantime, the challenge for the Government is to exercise restraint in tinkering with the current system, and ruling out certain tax changes. Comprehensive tax reform can only occur if all options are on the table.

Pipeline of tax measures

In addition to the measures announced in this year’s Federal Budget, below is a summary of other significant tax measures that have been announced but not yet enacted.

Measure Status
Amendments to the tax consolidation regime Exposure draft legislation regarding five previously announced measures was released for public consultation on 28 April 2015. See PwC’s TaxTalk Alert for further details of these measures. 
It is understood that Treasury will conduct a review of the consolidation regime during 2015, and it is hoped that this will include consideration of the remaining recommendations from the Board of Taxation’s Post-Implementation Review into Certain Aspects of the Consolidation Regime and Post-Implementation Review into Certain Aspects of the Consolidation Tax Cost Setting Process
A new tax regime for Managed Investment Trusts Exposure draft legislation was released for public consultation on 9 April 2015. The Government has announced in this year’s Federal Budget that the mandatory start date of these measures will be deferred until 1 July 2016, with an optional early start date of 1 July 2015
Amendments to the existing Investment Manager Regime to implement the proposed third and final element of that regime Exposure draft legislation was released for public consultation on 12 March 2015. Amending legislation is expected to be introduced into Parliament during the 2015 Winter Sittings
Amendments to the Taxation of Financial Arrangements (TOFA) tax hedging provision Treasury conducted a review of the TOFA regime in the second half of 2014, and these measures were considered as part of that review. Whilst the outcomes of that broader review are not yet known, Government is expected to proceed with these amendments to the hedging provisions at some stage
Amendments to the loss recoupment rules for companies with multiple share classes Amending legislation is expected to be introduced into Parliament during the 2015 Winter Sittings
Look through treatment for ’earn-out’ arrangements Exposure draft legislation was released for public consultation on 23 April 2015
Limiting the scope of the integrity provisions in the debt/equity rules The Government released the Board of Taxation’s accelerated report on these provisions on 2 April 2015. The Government has advised that it will consult on draft legislation to implement the Board’s recommended approach in coming months
A targeted integrity measure for Offshore Banking Units Exposure draft legislation was released for public consultation on 12 March 2015. Amending legislation is expected to be introduced into Parliament during the 2015 Winter Sittings
A statutory remedial power to be given to the Commissioner of Taxation to address certain unforseen or unintended outcomes in the tax and superannuation law in a manner that is favourable to taxpayers On 1 May 2015, Assistant Treasurer Josh Frydenburg announced this new measure. Consultation on draft legislation is expected to commence shortly
Changes to the taxation of Employee Share Schemes Amending legislation is currently before Parliament and scheduled to commence from 1 July 2015. Additional changes to these rules were announced in this year’s Federal Budget
Improving compliance through third party reporting and data matching Unknown. The start date of this measure was deferred to 1 July 2016 in last year’s Federal Budget
Foreign resident capital gains tax withholding regime The status of this measure, announced in the 2013-14 Federal Budget to apply from 1 July 2016, is unknown

The Government currently has a back-log of reports prepared by the Board of Taxation which are yet to be publicly released. These include reports in relation to reviews of the remaining aspects of the debt and equity tax rules, the thin capitalisation arm’s length debt test, Collective Investment Vehicles, the deemed dividend rules applicable to private companies and the tax treatment of Islamic finance products.

We hope that the next six months sees greater progress towards finalisation of these outstanding measures.

Contact us

Paul Abbey

Partner, PwC Australia

Tel: +61 (3) 8603 6733

Tom Seymour

Chief Executive Officer, PwC Australia

Tel: +61 7 3257 8623

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