06 Feb 2014

Australian tax law: what's in store for 2014

by Mark Friezer

There will be an initial flurry of tax reform activity, and then we settle in for the long haul of developing of proposals for the Government to take to the 2016 election.

Around this time last year, I wrote about the top 10 hot tax topics for 2013. Although there was some movement in several of the issues that I raised last year, many remain unresolved. I was tempted to republish the article – simply substituting 2014 for 2013. It would work just as well!

As the issues remain pretty much the same, this year I'll focus on what is likely to be done to resolve them!

Lots of legislative activity

With the dust having well and truly settled after the election, the focus has now shifted to the unenacted measures which the Government intends to legislate. One of the first things that the Coalition did from a tax perspective was to critically focus on, and cull, the very long list of dusty unenacted measures (92 in total). Apparently, one of the criteria adopted was that they would only proceed with measures that could be legislated prior to 1 July 2014 (though this is probably unrealistic). In December 2013, the Assistant Treasurer Senator Sinodinos said the Government would proceed to enact around 37 of the 92 announced measures. The rest have formally been taken off the table. So there is likely to be a hectic and intensive period of drafting and consultation in the first half of this year.

…then not much

It may well be that the tax legislative program dies away in the second half of the year (and indeed into 2015). The Coalition has signalled that it does not wish to be disruptive to business. This should mean that once the unenacted measures are dealt with legislative change will be relatively minor. But there is likely to be a significant amount of thinking – at least behind closed doors – given the Coalition's stated objective of developing a taxation White Paper to be presented to the public as a mandate for change at the next election, due in 2016. It may well be that GST and the superannuation system will be a focus. I'd be surprised, given this timing, if there will be much public debate in 2014.

Although maybe it's not that simple (it never is)

The Government says it will proceed with changes such as fixing the section 974-80 problem and foreign currency issues, but that the actual design will be determined after Board of Taxation and Treasury reviews – so it will be some time before these changes are made.

Similarly, there are other changes which, although off the table, may well be reviewed in the not so distant future. The reform of the Controlled Foreign Company rules isn't proceeding. But the BEPS process (see below) may give us some guidance as to where we ought to be going with our CFC and associated rules reform and prompt further reform proposals.

And let's not forget the general reform of trusts (which actually wasn't an announced and unenacted measure). Although the reform of Division 6 as a whole appears too substantial to digest at the moment, it should be possible to pick off discrete areas which have caused some difficulty over a number of years and reform those without necessarily undermining the structure of Division 6 as a whole. Some obvious examples of bite-sized chunks which can quite simply be digested, include the question of the taxation of bare trusts, the year-end issues, and the definition of fixed trust for the operation of the loss rules.

Bedding down change at the ATO

It may well be that the real changes come in the administrative area as Chris Jordan settles into the job of Commissioner of Taxation and the new management structure at the ATO finds its feet. Mr Jordan has made changes to long-standing ATO practices and culture with a view to making the ATO a more accountable and taxpayer-friendly organisation. Examples include the introduction of independent review of decisions made by ATO officers, the closer alignment of the ATO with legislation design and Treasury, more user-friendly technology interface and the introduction of other external hires into senior ATO management roles.

The real test is whether these strategic changes will in fact impact on the taxpayer experience in any meaningful way. I'll look to answer that question this time next year.

Plenty of noise but not much movement

Australia's 2014 presidency of the G20 means that we will look to be in the front foot in considering the OECD action plan on base erosion profit shifting measures (BEPS). However, even though BEPS is a global hot topic and Australia is in a leadership position, the reality is that the Australian tax system already incorporates most of the BEPS safeguards which are mandated in the action plan. For example, we have new and strengthened transfer pricing rules, thin capitalisation and general anti-avoidance provisions – and the Government is looking to develop a 25-90 integrity measure. The bottom line is that although we will hear a lot about BEPS this year, there will not be a great deal of practical consequence for taxpayers.

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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.