28 Feb 2013

Top 10 hot tax topics for 2013

by Mark Friezer

Some fundamental areas of tax law are in for a radical overhaul in 2013.

There is a significant number of tax reform measures which, although announced, have not yet been enacted. Treasury's most recent forward work program lists almost 40 current projects in various stages of development. Some are significant – some less so. But there is no doubting that there are some fundamental areas of tax law that are in for a radical overhaul.

We encourage our partners to have input into significant areas of developing law through contributions to professional organisations and where appropriate on behalf of clients. In this regard, we maintain close and ongoing contact with key figures in both Treasury and the ATO and maintain an ongoing dialogue and input into the development of these measures.

We set out below our Top 10 list – the Top 10 Hot Topics for 2013. In David Letterman tradition we will countdown to number 1.

10. Taxation of financial arrangements (TOFA) reforms – much welcomed clarification of the rules is expected dealing with (amongst other things) the application of the accruals and realisation method and transitional balancing adjustments.

9. Section 974-80 – this section is particularly problematic for stapled structures. A retrospective amendment to the law was announced in the 2011/12 Budget. Nevertheless, the ATO is vigorously pursuing compliance activity. This area is well overdue for statutory clarification.

8. Corporations Law changes and the implications for frankable dividends – the Corporations Law was amended in 2010 and is proposed to be amended again. It may become possible to source "dividends" for Corporations law purposes out of capital. This has significant implications for the franking of dividends. There are no proposed tax changes, but it is likely this will be a discussion point in the next 12 months.

7. Managed Investment Trusts – this is a key issue for fund managers and overseas investors and has been deferred now to a 2014 start date. The announced changes will introduce an attribution model that allows trustees to allocate taxable income on a fair and reasonable basis consistent with unitholder rights and entitlements. In order to meet that date, there will need to be some significant movement this year in this critical area.

6. GST refunds – there are proposed changes that will effectively expand the Commissioner's powers to retain refunds of GST by deeming almost all overpaid GST to have always been payable to the Commissioner and thereby non-refundable and removing the Commissioner's discretion to provide GST refunds in limited circumstances. If this legislation is enacted in its current form, taxpayers will find it exceedingly difficult to claim refunds of overpaid GST – including in circumstances where GST has been mistakenly paid to the ATO as a result of a mere clerical or systems error.

5. Division 7A reforms – this is a morass which is well overdue for radical overhaul. In our view, considerable complexity may be avoided through the adoption of an arm's length interest charge approach on shareholder loans. This seems to be the direction that the reforms may take having regard to the Board of Taxation's post-implementation review discussion paper.

4. Foreign Source Income Rules – the rewrite of the CFC rules is critical to Australia as a capital importing country and is well overdue. The proposed Foreign Accumulation fund anti-avoidance regime is also yet to be released – its release would assist in reducing uncertainty.

3. Transfer pricing – Although the Stage 2 transfer pricing rules have recently been introduced in bill form, there is an urgent need for guidance from the ATO as to how the rules are going to be administered. Notably, the reconstruction provision is potentially extremely broad and the taxpayer community will want to see how the ATO intends to use it in practice. The debate is likely to broaden out in the coming year beyond transfer pricing to so-called "base erosion" issues, particularly as a result of the specialist reference group established by the Assistant Treasurer to look at the tax minimisation practices of multinational enterprises.

2. Trust taxation – there have now been various discussion papers seeking to reform the taxation of trusts generally. The deficiencies and the uncertainty of the current system need to be reformed given the vast popularity of the trust as an entity used for substantial investment funds (see also MIT rules) and across Australian small business. Hopefully, the vexed issue of fixed trusts will also be resolved as part of the reforms.

1. Part IVA – the new Part IVA has been released in bill form. It will be interesting to see how the courts interpret the new rules having regard to existing jurisprudence. There may be a period of considerable uncertainty. In the meantime, the taxpaying community will need strong guidance from the ATO as to how Part IVA will be applied to commercial transactions.

Clayton Utz will keep you informed as these reform measures develop.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.