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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