Thinking | 10 November 2017
Talking Tax – Issue 102
GST on Property – Buyer beware – you might have to pay GST to the ATO
The Government has released a draft of the Treasury Laws Amendment (2017 Measures No. 9) Bill 2017: Real property transactions (Cth) (Bill) which, from 1 July 2018, will make purchasers of certain residential premises liable to pay the GST directly to the ATO.
According to the Explanatory Memorandum for this Bill, the proposed amendments:
- ensure purchasers of new residential premises and new subdivisions of potential residential land make a payment of 1/11th of the purchase price to the ATO (other than certain excluded supplies as determined by the Commissioner of Taxation)
- ensure the entity that makes a taxable supply remits GST to the ATO after lodging its
BAS, taking into account any credit available for the payment made by the purchasers
- suppliers must provide the purchaser of the relevant residential premises a notification 14 days before making the relevant supply
- an entity that makes a taxable supply will be entitled to an input tax credit for the amount of
the payment made to the ATO and
- where a supply of new residential premises is made under the margin scheme, the supplier may apply to the ATO for a refund of a portion of the amount withheld by the purchaser.
Michael Parker and Raoul D’Cruz will be making a submission in response to the draft Bill and would like to hear from anyone who wishes to raise any concerns about the draft bill and its effect on your business. Submissions on the draft legislation close on 20 November 2017.
Trouble in Paradise? The Paradise Papers
On 6 November 2017, the ATO issued a statement in relation to the report from the International Consortium of Investigative Journalists (ICIJ) dubbed the ‘Paradise Papers’.
In the statement, the ATO announced that they have been working together with partner agencies in Australia and overseas, enabling the ATO to commence ‘analysis of the intelligence received to identify possible Australian links’.
The ATO are encouraging any individuals or businesses who believe they may have undeclared offshore income to make a voluntary disclosure.
Following the completion of the ATO’s Project DO-IT several years ago, we have assisted a significant number of taxpayers in making a voluntary disclosure to the ATO. Please do not hesitate to contact us if you or your business should consider making a voluntary disclosure.
Changes to the treatment of Foreign Equity Distributions
The ATO has issued two taxation determinations TD 2017/21 and TD 2017/22 (Determinations) that are relevant to Australian companies that receive foreign equity distributions (eg dividends) through an Australian partnership or trust.
Currently, in Australia, where an Australian corporate tax entity (Entity) satisfies certain conditions, foreign equity distributions paid by a foreign resident company are not subject to Australian tax. Broadly, these conditions require the Entity to be a resident for Australian tax purposes and hold an interest (directly or indirectly) of at least 10% in the foreign company.
However, TD2017/22 makes it clear that foreign equity distributions made to an Entity via an Australian discretionary trust can be taxable. The Determinations confirm that the 10% interest requirement can be satisfied where the Entity is a partner in a partnership, as the partnership can ‘hold’ a direct control interest (within the meaning of section 350 of the Income Tax Assessment Act 1936) in a foreign company for the purposes of Subdivision 768-A of the Income Tax Assessment Act 1997.
In determining whether the Entity satisfies the 10% interest requirement, the relevant time for testing (Test Time) is when the foreign company makes the equity distribution.
Further, for discretionary trusts, it is necessary to determine whether the Entity has an interest in the trust at the Test Time. This is done by ascertaining the share of income or capital to which the beneficiary is entitled at the end of the income year and assuming that this is the share to which the beneficiary is entitled at all other times during that income year.
These Determinations apply retrospectively to foreign equity distributions made on or after 17 October 2014. However, the Determinations will not apply to taxpayers to the extent that they conflict with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (being 18 October 2017).
Revised Draft Ruling for reducing the corporate tax rate
The ATO has published a statement on its website about the reduced corporate tax rate (of 27.5%) for entities with an aggregated turnover of less than $25 million for the 2017/18 income year and less than $50 million for the 2018/19 income year – known as ‘base rate entities’.
In particular, the ATO announced that it would finalise Draft Ruling TR 2017/D7 (Draft Ruling) in relation to section 23 of the Income Tax Rates Act 1986 (Rates Act) and section 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997), rather than as it is presently drafted in relation to section 23AA of the Rates Act. In Talking Tax- Issue 100, we mentioned that the Draft Ruling sets out the ATO’s view on whether a corporate tax entity would be regarded as ‘carrying on a business’ for the purposes of section 23AA of the Rates Act, to qualify for the lower corporate tax rate of 27.5% for the 2017/18 income year.
We also mentioned that the Federal Government introduced the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 (Bill). This Bill, introduced on the same day as the Draft Ruling, proposes that corporate entities with no more than 80% ‘base rate entity passive income’ will be eligible for the lower corporate tax rate.
Subsequently, on 2 November 2017, the ATO announced that the Draft Ruling is equally as applicable in determining whether a company is a ‘small business entity’ within the meaning of section 23 of the Rates Act and section 328-110 of the ITAA 1997 for the 2015/16 and 2016/17 income years and therefore which rate is applicable to it in those income years.
Comments on the Draft Ruling are due by 1 December 2017.
State Taxes updates
Victoria - State Taxation Acts Further Amendment Bill 2017
On 31 October 2017, the State Taxation Acts Further Amendment Bill 2017 (Bill) was introduced into the Victorian Parliament. Broadly, the Bill amends:
- The Land Tax Act 2005 (LTA):
- to extend the existing exemption from absentee owner surcharge to absentee trusts
- to ensure that the absentee owner surcharge is imposed where the land ownership involves a sub trust structure and
- to make further provision for the circumstances in which certain land is exempt.
- The Duties Act 2000 in relation to the imposition of the foreign purchaser additional duty on a dutiable transaction to which a concession applies.
- The Payroll Tax Act 2007 to extend the exemption for wages paid to new entrants to “for profit” organisations declared to be an approved group training organisation.
- The Valuation of Land Act 1960 to provide for general valuations to be made each year and for the valuer-general to conduct all valuations under that Act unless a council nominates to cause a general valuation to be made.
Currently, fixed trusts, unit trusts and discretionary trusts can all be subject to the absentee owner surcharge if the trust has at least one absentee beneficiary. While an absentee corporation can seek an exemption from the surcharge under section 3B of the LTA, there is currently no such exemption for absentee trusts.
The Bill sets out the matters that the Treasurer will consider when determining if an absentee beneficiary should be exempt from making the trust an absentee trust for the purposes of the absentee owner surcharge. Eligibility for the exemption will be subject to similar requirements that apply to absentee corporations.
Based on our reading of the Bill, although a foreign person may be exempt from being an absentee beneficiary, it is important to note that another beneficiary may still be taken to be an absentee beneficiary and the trust may still be an absentee trust.
For more information on how this Bill could affect you, please contact us.
Tasmania - Land Tax Amendment Bill 2017
In Tasmania, a person’s home is exempt from land tax to the extent that the land is used as the person’s principal residence. Section 26 of the Land Tax Act 2000 provides a formula for calculating how a land used for multiple purposes is to be apportioned for the purposes of a partial exemption. The Land Tax Amendment Bill 2017 (Bill) amends section 26 of the Land Tax Act 2000 to simplify the apportionment.
Under the Bill, the exempt portion of the land will be determined by multiplying the assessed land value by the proportion of land used as a principal residence.
In the Bill’s Second Reading Speech, the Honourable Peter Gutwien MP said that the proposed changes will provide a ‘fairer, simpler and taxpayer favourable approach to the apportionment of such land’.