Home | Databases | WorldLII | Search | Feedback Australian Senate Standing Committee for the Scrutiny of Bills - Reports

You are here: 

Tax Laws Amendment (2012 Measures No 2) Bill 2012 [2013] AUSStaCSBRp 10 (6 February 2013)

Tax Laws Amendment (2012 Measures No.2) Bill 2012

Introduced into the House of Representatives on 24 May 2012

Portfolio: Treasury

Introduction

The Committee dealt with this bill in Alert Digest No. 6 of 2012. The Assistant Treasurer responded to the Committee’s comments in a letter dated 7 December 2012. A copy of the letter is attached to this report.

Alert Digest No. 6 of 2012 - extract

Background

This bill amends the following:

• Taxation Administration Act 1953 and four other Acts to:

- extend the director penalty regime so that directors are personally responsible for their company’s unpaid superannuation guarantee amounts;

- make directors and their associates liable to pay as you go (PAYG) withholding non-compliance tax in certain circumstances;

- and ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation when PAYG withholding or superannuation guarantee remains unpaid and unreported three months after the due date;

• Income Tax Assessment Act 1997 and Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 in relation to the taxation of financial arrangements consolidation interaction;

• Income Tax Assessment Act 1997 to modify the consolidation tax cost setting rules and rights to future income rules; and

• Taxation Administration Act 1953 to make amendments consequential on the proposed  Income Tax (Managed Investment Trust Withholding Tax) Amendment Act 2012 .

Retrospective application
Schedule 2

This Schedule makes amendments to the complex tax laws applicable in the context of the taxation of financial arrangements (TOFA). The amendments will commence immediately after the commencement of the laws being amended (i.e. 26 March 2009). The explanatory memorandum accepts that the amendments commence and apply retrospectively. In justification of this approach the explanatory memorandum states, at page 97, that ‘the amendments are largely technical amendments to correct parts of the law that did not give proper effect to the policy’ of the laws introduced in 2009. Further it is argued that (1) the TOFA regime is ‘a new and very complex part of the tax laws’ and that shortly after its introduction the ‘Government made it clear that technical amendments and further integrity measures may be necessary to ensure the law operates as intended’, and (2) the Government announced its intention to make retrospective clarification where it became aware that the law could be productive of unintended outcomes. (see the explanatory memorandum at pages 97 and 98). The result is that the amendments may benefit some taxpayers and adversely affect others, ‘depending on their circumstances’.

The Committee usually does not the regard complexity of the law and an indication from the government that retrospective change may be required as justifying retrospective legislation. In general, affected persons are entitled to rely on legislation as currently applicable, regardless of its complexity. The Committee is also interested to understand more about the extent of any detriment and therefore seeks the Treasurer's advice on this issue, such as an indication as to the number of taxpayers affected and the extent of likely detriment.

Pending the Treasurer's reply, the Committee draws Senators’ attention to the provisions, as they may be considered to trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee’s terms of reference.

Assistant Treasurer's response - extract

Taxation of financial arrangements (TOFA) consolidation interaction

The Committee sought an explanation of the number of taxpayers affected by Schedule 2 of the Tax Laws Amendment (2012 measures No.2) Bill 2012 and the extent of any detriment imposed as a result of the retrospectivity of the amendments.

The amendments contained in Schedule 2 largely clarify the operation of the taxation of financial arrangements (TOFA) provisions with respect to complex commercial transactions. The amendments provide certainty to affected taxpayers involved in these complex transactions and affect those taxpayers in different ways - that is, they benefit or adversely affect taxpayers depending on their specific circumstances. Consequently, without taxpayer specific information, it is difficult to assess the extent of likely detriment.

However, to limit the detriment to taxpayers, the retrospective application of the amendments excluded certain taxpayers who had received an Australian Taxation Office ruling confirming the application of the law prior to the amendments. Consequently, overall the number of taxpayers affected is expected to be very small, even if the potential impact on any one taxpayer may be significant. Furthermore, some of these affected taxpayers may have benefited from these retrospective changes.

Committee Response

The Committee thanks the Assistant Treasurer for this response and notes that the bill has already been passed by the Parliament. The committee notes that it routinely seeks information about the rationale for any provisions with retrospective effect and what potential detrimental effect, if any, they could have. The committee expects that the explanatory memorandum will address these issues in detail.

Alert Digest No. 6 of 2012 - extract

Retrospective application
Schedule 3

The amendments in this schedule respond to an unanticipated outcome created by an amendment to the consolidation tax cost setting and rights to future income rules which was enacted in 2010. The amendments ‘respond to the need to protect a significant amount of revenue that would otherwise be at risk, and to make the tax outcomes for consolidated groups more consistent with those for entities outside consolidation’ (see the explanatory memorandum at page 103).

The 2010 amendments operated with retrospectivity back to 2002, and the proposed changes affecting a corporate acquisition will depend on the time that the acquisition took place. In particular ‘different changes apply to acquisitions that took place before 12 May 2010, after 30 March 2011 (when the Board of taxation was asked to review the rules) and the intervening period’ (see the explanatory memorandum at page 103). As the 2010 amendments operated with retrospective effect back to 2002, some of the amendments will operate with effect from that date to ‘prevent the retrospective operation of unintended effects’ and ‘perceived weaknesses’ in the earlier amendments. The changes for the intervening period will ‘protect taxpayers who acted on the basis of the current law before the Board of Taxation review was announced’ (see page 103). The final category of changes ‘implement recommendations made by the Board of Taxation’ and ‘apply broadly to the period after 30 March 201(see page 104)’.

The amendments are complex and it is argued that the overall approach is justified by reference to a need to protect a significant amount of revenue and for consistency as between entities inside and those outside the consolidation regime.

It is unclear why the final category of changes (ie those which take effect from March 2011) should commence at that date given that the proposal was announced in November 2011 (see the explanatory memorandum at page 6). More broadly, the complexity of the changes makes consideration of the appropriateness of the retrospectivity involved in the application of the ‘pre-rules’ difficult. In particular the question of the extent and fairness of any detriment suffered by taxpayers is not as directly addressed in the explanatory memorandum as it might have been. It appears that the proposed amendments will remove retrospective benefits introduced by the 2010 amendments. In the circumstances the committee seeks the Treasurer's further advice in relation to (1) the issue of the commencement of the final category of changes and (2) the extent and fairness of any detriment.

Assistant Treasurer's response - extract

Consolidation tax cost setting rules and rights to future income rules

The Committee sought an explanation of why it is necessary for the final category of changes ('prospective rules') in Schedule 3 of Tax Laws Amendment (2012 Measures No.2) Bill 2012, which were announced in November 2011, to be applied broadly to the period after 30 March 2011, and the extent and fairness of any detriment from the package of amendments.

The final category of changes commenced from 30 March 2011, the date of announcement of the Board of Taxation Review of the rights to future income and residual cost setting rules. The Review was initiated after the Board raised concerns that the 2010 amendments could be applied in such a way that was not consistent with the Government's policy intention.

A later commencement date would have extended the 'interim rules' period, in which there were inconsistencies in the tax outcomes between consolidated groups and entities outside of consolidation. In particular, consolidated groups could have continued to reclassify traditional goodwill assets of joining entities as rights to future income, and thereby get access to immediate tax deductions. This would have significantly reduced the amount of revenue protected by the changes.

The 2012 amendments were designed to uphold the policy intention of the changes, while limiting the detriment to taxpayers that had received a refund for claims made under the 2010 amendments or who had received an Australian Taxation Office ruling in their favour. As a result, all taxpayers that had received a refund or positive Australian Taxation Office ruling were able to continue to rely on the law as it operated at that time. Taxpayers that had not received a refund or positive Australian Taxation Office ruling were required to comply with the 2012 amendments. This ensured that this latter group of taxpayers did not receive unintended windfall gains.

Thank you again for your letter and I hope this information will be of assistance to the Committee.

Committee Response

The Committee thanks the Assistant Treasurer for this detailed response and notes that the bill has already been passed by the Parliament. The committee also notes that it routinely seeks information about the rationale for any provisions with retrospective effect and what potential detrimental effect, if any, they could have. The committee expects that the explanatory memorandum will address these issues in detail.

Senator the Hon Ian Macdonald

Chair