Last week the Board of Taxation released some significant papers, including the second Division 7A discussion paper. As practitioners know too well, the private company payments laws in Division 7A have been a bugbear since their inception 16 years ago. The actions by the ATO on unpaid present entitlements owed by trusts to private companies have created controversy and only exacerbated the problems faced in trying to navigate this complex area of law. It will come as no surprise that the Board has found that Division 7A fails in achieving its policy objectives and can be a significant source of compliance costs for businesses.
Is this the final nail in the coffin of Division 7A? With the Federal Government’s deregulation focus, will it see fit to overhaul the laws? The Board has proposed a new model known as the 'Transfer of Value Model' and it is certainly worthy of further examination. The consultation period is six weeks, so we look forward to member input into our analysis.
Also, the Commissioner of Taxation, Chris Jordan AO, announced a new offshore income voluntary disclosure initiative at The Tax Institute’s 29th National Convention in Hobart. This latest voluntary disclosure initiative from the Tax Office is a pragmatic approach to repatriating potentially hundreds of millions of dollars of Australian tax. In an international environment that is lowering the veil of tax secrecy and sharing more information than ever before, the Tax Office is making a strong pitch to taxpayers. At first blush, the initiative appears to be much more generous than its predecessors and has taken into account lessons learned, but the devil will be in the detail.
There are features setting this initiative apart: the ATO won’t go back beyond the standard amendment period, which is usually four years; and it may also agree not to tax taxpayers on the winding up of the offshore structures. These features show a new level of pragmatism on the part of the ATO. However, there are features that taxpayers should be wary of, such as not being entitled to utilise certain losses. Taxpayers should be fully informed about the level of protection on offer before proceeding.
Robert Jeremenko CTA is Senior Tax Counsel of The Tax Institute.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.