Categories
Tax Policy

Tax “expenditures”

The yearly “tax expenditure statement” has been released (http://www.treasury.gov.au/PublicationsAndMedia/Publications/2016/TES-2015). What is a tax expenditure? Its a negative tax. Effectively it is a tax concession so that certain income is taxed less than the “norm”.

For example, super is taxed at 15% generally, which is less than most marginal tax rates.

So what are the big tax expenditures?

Capital gains tax main residence exemption cost $54 billion in revenue each year.

Concessional taxation of  superannuation contributions and superannuation entity earnings cost $30 billion in revenue each year.

GST discounts and exemptions cost $21 billion in revenue each year.

Capital gains tax discount for individuals and trusts  costs $6 billion in revenue each year.

Concessional taxation of non-superannuation termination benefits costs $2 billion each year.

My favourite three are growing with the car fringe benefit statutory method aproaching $1 billion, Division 43 capital deductions costing $1 billion and the R&D tax incentive $850 million each year.

But remember we need to find $40 billion in savings to balance the budget. We are not going to find this by playing with tax concessions alone…

Categories
Budget

Pre Budget Submission – Read the Board of Tax report on Div 7A

I don’t generally get excited about pre budget submissions as I have not seen many ideas taken up in the Budgets (consult so you can say you consulted rather than looking for ideas) but I did write a very short submission this year.

Pre Budget Submission

Respond to the recommendations of the Board of Taxation report of November 2014 titled “POST IMPLEMENTATION REVIEW OF DIVISION 7A OF PART III OF THE INCOME TAX ASSESSMENT ACT 1936”

Summary: Given that the Re:Think tax review appears to have ended, as a part of the 2016/17 Budget, the Government should respond to the recommendations of the Board of Taxation in its post implementation review into Division 7A that was to be considered as a part of this review.

Why is this important? Since 2009, business owners and tax practitioners have been unhappy with a change in position the Commissioner made in relation to the operation of Division 7A of Part III of the Income Tax Assessment Act 1936. As a result of these concerns, various Assistant Treasurers have promised to have the concerns reviewed and act on the recommendations.

As can be seen in the timeline below, the review has occurred and the recommendations have been made. However, any Government response has not been made as the release of the report was substantially delayed and the results of the review were referred to another review.

Now that this second review appears to have been closed it is very important that in the 2016/17 Budget some clarity is provided for business owners and practitioners on the operation of Division 7A to unpaid present entitlements to corporate beneficiaries. It is over 6 years since the issue arose, a very detailed review has been completed 15 months ago, and it appears the extra review of the finding of the review has effectively ended.

Timeline: On 18 May 2012, the then Assistant Treasurer announced that the Board would undertake a post-implementation review of Division 7A of Part III of the Income Tax Assessment Act 1936, which was to be completed by 30 June 2013 (see http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2012/033.htm&pageID=003&min=djba&Year=&DocType=) .

On 8 November 2013 the then Assistant Treasurer announced an extension to these terms of reference and extended its reporting date to 31 October 2014 (see http://axs.ministers.treasury.gov.au/media-release/004-2013/).

In November 2014 the Board of Taxation provided its report and recommendations to the Assistant Treasurer (see http://taxboard.gov.au/files/2015/07/Division7a_Report.pdf).

On 4 June 2015, the Government announced the release of the Board’s report on its post-implementation review of Division 7A of Part III of the Income Tax Assessment Act 1936. On the same date the then Assistant Treasurer announced that the recommendations of this review “will be carefully considered alongside the submissions we have received from all parts of the community in response to Re:Think, the tax discussion paper.” (see http://jaf.ministers.treasury.gov.au/media-release/029-2015/).

Seven months after receiving the report from a detailed review of Division 7A of Part III of the Income Tax Assessment Act 1936 by a series of subject matter experts, the Government decided to hand the report to another review to once again consider the same issues.

The Re:Think review was due to report in late 2015. However, since August 2015 there has been no press, news, tweets or any other form of communication from the review.