Tax integrity and compliance measures

Budget Review 2017–18 Index

Phillip Hawkins

The Tax integrity package in the 2017-18 Budget includes a number of measures which are designed to improve compliance and the integrity of the tax system.[1]

Black economy task force measures

The black economy refers to ‘business and individuals that operate outside the tax and regulatory system.’[2] In 2012, the ABS estimated that the black economy was around 1.5 per cent of GDP or $25 billion in today’s dollars.[3]

The Budget includes a number of measures, recommended in the Interim Report of the Black Economy Taskforce (the Taskforce), to address lost revenues associated with the black economy. These measures include:

  • extending the taxable payments reporting system (TPRS) to contractors in the courier and cleaning industries.

This is expected to increase revenue by $184.7 million over the forward estimates period ($318 million in additional revenue offset by related expense of $133.3 million). The TPRS, which currently applies to the building and construction sector, requires businesses to report individual payments to contractors to the ATO.[4] Evidence suggests that the TPRS has improved tax compliance in the building and construction sector.[5]

  • prohibiting sales of suppression technology and software—the revenue impact of this measure is unquantifiable.

This technology and software ‘allows businesses to understate their incomes by untraceably deleting selected transactions from electronic records in POS [point of sale] equipment’. Legislation is being developed for this measure.[6]

  • providing the Australian Taxation Office with additional funding for audit and compliance activities.

This measure is estimated to increase revenue by $589.0 million and increase expenses by $141.8 million over the forward estimates period. This funding will be used for programs which are ‘directed at changing black economy and related behaviours such as non-lodgement, omission of income and non-payment of employer obligations’.[7]

The final report of the Taskforce will be submitted to the Government in October 2017 and is likely to contain further recommendations.[8]

Improving the integrity of property transactions

The Government is also introducing measures to improve the integrity of GST on property transactions that it estimates will increase GST revenue by $660.0 million and increase GST payments to the states by $1.6 billion over the forward estimates period.

This measure would require purchasers of new residential properties, rather than the developers, to remit GST to the ATO as part of settlement. This is to prevent developers from claiming GST credits on their construction costs, but not remitting the GST to the ATO.[9]

The Property Council of Australia has questioned these revenue estimates and raised concern about their impact:

This seems an extraordinary figure and we will be seeking additional information from the ATO about how these changes will work. This will impact the cash flow of thousands of builders and we want to see more details from the ATO.[10]

Additional integrity measures

The Government will also implement a number of other tax integrity measures including:

  • rules that prevent multinational companies from using hybrid securities[11] or hybrid company structures[12] to claim multiple tax deductions in different tax jurisdictions or to avoid reporting income[13]
  • measures announced on 31 March 2017 to combat fraud in the precious metals industry. These will require businesses that buy gold, silver or platinum to report and to pay GST, rather than the seller[14]
  • ensuring small businesses claim CGT concessions only on assets relating to their small business and
  • strengthening multinational avoidance law, by ensuring that foreign trusts and partnership structures cannot be used to circumvent multinational tax laws.[15]


[1].          The budget figures and measures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2017–18, 2017; ibid., p. 20-39.

[2].          Black Economy Taskforce – Interim Report, March 2017, p. 11.

[3].          The taskforce considers this a recent credible estimate but acknowledges the difficulty in measuring the size of the black economy due to its hidden nature. The taskforce is considering ways to better measure the size of the black economy.

[4]           E Keating ‘Budget 2017: “Black Economy” multinationals in spotlight as government focuses on tax integrity’, Smartcompany, May 9 2017.

[5]            Black Economy Taskforce – Interim Report, March 2017, p. 44.

[6].          Australian Taxation Office, ‘Black Economy Taskforce – Prohibition on sales suppression technology and software’

[7].          Budget measures: budget paper no. 2: 2017–18, 2017; p36

[8].          Black Economy Taskforce – Interim Report, March 2017, p. 2.

[9].          Australian Taxation Office (ATO) Improving the integrity of GST on property transactions, ATO website.

[10].       K Morrison (Chief executive, Property Council of Australia) Budget—Chief Executive’s Response to individual initiatives, 9 May 2017.

[11].       Hybrid securities are financial instruments that combine elements of both debt and equity securities. As such they can have complex tax treatment that can differ across tax jurisdictions.

[12].       Complex company structures which may allow multinationals to receive different tax treatment in different jurisdictions.

[13].       Australian Taxation Office (ATO) Implementation of the OECD hybrid mismatch rules, ATO website.

[14].       K O’Dwyer (Minister for Revenue and Financial Services) Combatting fraud in the precious metals industry, 31 March 2017.

[15].       Hall & Wilcox Smarter Law 2017 Federal Budget,12 May 2017 , p. 10.

 

All online articles accessed May 2017. 

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