As the Australian public await a date announcement for the upcoming Federal Election, uncertainty prevails for many taxpayers as they anticipate the outcome of many unenacted and proposed changes to tax legislation.
Doubt is also casted over many proposed measures announced as part of the 2018 Federal Budget which remain either at consultation phase or have not progressed beyond the original Budget announcement.
Of particular concern for individuals and business taxpayers is that many proposed measures have retrospective application, transitional periods or set commencement dates and could have a significant tax impact depending on whether the proposed measure is enacted or not.
The list of unenacted Bills and proposed changes still at consultation phase and Budget announcements that have not progressed at all is so substantial we are not able to list them all in this article. Instead, we focus on key changes where a decision based on the proposed change could result in a significant financial impact on a taxpayer.
Superannuation Guarantee (SGC) Amnesty
The 12-month SGC amnesty originally announced in May 2018 was to provide employers with the opportunity to ‘make good’ on SGC shortfalls without the imposition of penalties and with an added incentive of a tax deduction (ordinarily SGC paid after the due date is not deductible). The amnesty would apply if the employer made disclosure and payment during the period 24 May 2018 to 23 May 2019. The Bill introducing the amnesty was last discussed by the Senate in June 2018 and has not progressed since.
Employers aware of SGC shortfalls but waiting on confirmation the SGC amnesty will become law are warned that the amnesty was never intended as a ‘get out of jail free card’. The proposed amnesty was merely an opportunity to update SGC obligations with the added incentive of reduced admin fees, penalties and a tax deduction. The requirement to lodge an SGC statement and pay shortfall amounts is still required by law and shortfall payments must be made under existing law – amnesty or not.
Employers who have been biding their time and weighing up their risk of being caught out are strongly advised to review their position and make a voluntary disclosure before the amnesty period ends. Employers who are aware they have SGC shortfalls and choose not to make disclosure during the amnesty period face significant penalties (which could be equal to or more than the amount of the shortfall) particularly if the shortfall amounts are subsequently identified in an ATO audit.
With Single Touch Payroll reporting compulsory for all employers from 1 July 2019, an employer with a poor history of making on-time SGC payments may come unstuck very quickly.
Where the employer with the SGC shortfall is a company, the directors should also take on notice they may be at risk of director penalty notices for any SGC shortfall, they may also face imprisonment if they do not comply with a direction to pay an SGC amount.
$25K Instant Asset Write-off
In January 2019, the Federal Government announced an increase to the instant asset write-off for small business from $20,000 to $25,000 per deductible asset, the increase in the threshold was effective from 29 January 2019 along with a further 12-month extension extending the eligibility period to 30 June 2020.
Given the limited sitting dates for the House of Representatives and the Senate before Parliament is dissolved ahead of the election, there is a very high risk this announcement will not become law.
Small business taxpayers who have already committed to the purchase of assets based on the Government announcement may find themselves with a larger than expected tax bill if the measure does not pass.
Taxpayers impacted by the proposed change are strongly advised to seek advice from their business and tax advisors, particularly if they are planning on purchasing business assets because of the Government announcement.
Removal of Capital Gains Tax (CGT) Main Residence Exemption (MRE) for non-residents
The proposed removal of the CGT MRE for non-residents was originally announced in 2017 as part to the 2018 Federal Budget. Draft legislation was introduced to Parliament on 8 February 2018 but removed from discussion in October 2018 after significant issues were identified with the proposed changes.
The proposed measure was intended to apply to non-residents from the date the Act received Royal Assent. Unfortunately on close scrutiny, the wording of the changes meant the proposed legislation would apply retrospectively, not just from the commencement date, meaning Australian citizens working overseas (and a non-resident for tax purposes) would be subject to capital gains tax on the entire period of ownership on the sale of their former Australian home (including the period they treated the home as their main residence) and not just the period they were a non-resident.
More recently, RSM identified an issue with the proposed legislation which meant Australian tax residents who obtain an ownership interest in the family home under a Family Court order were also exposed to capital gains tax on the family home.
The impact of the proposed legislation on family law transfers is unusual and somewhat complex to understand and may result in a situation where the recipient spouse is required to consider the tax residency of their former spouse (on the eventual sale of the family home) in order to determine how the CGT MRE marriage rollover applies. This issue identified by RSM highlighted the potential of the proposed change to the CGT MRE for non-residents to also impact on thousands of Australian tax residents who go through a relationship breakdown.
At the Tax Institute 2019 National Convention, Assistant Treasurer Stuart Robert appeared to indicate the Government would not push ahead with the proposed changes, however despite calls from the Opposition, tax experts and lobby groups, the Government has made no further announcement as to whether the measure will be abandoned or if amendments would be introduced.
With the transitional period for foreign residents to sell their Australian property fast approaching the Government has a duty to taxpayers to make their intentions clear, particularly considering the financial impact of a forced sale to meet the deadline of 30 June 2019.
Those with matters before the Family Court who could also be impacted are not as lucky as they may need to wait for orders from the Court before they are in a position to sell their homes, assuming they even need to.
Proposed changes to Division 7A
Assistant Treasurer Stuart Robert has indicated that the Government has finalised their position on the proposed changes to Division 7A and passed those on to the Treasury. The actual details of that position are still unknown and remain so until draft legislation is released. Given the limited number of sitting days in April and the likelihood Parliament will be dissolved after the sitting days in the first week of April, it is unlikely we will see draft legislation until after the Federal Election, if at all.
Comments from Mr Robert appear to indicate draft legislation may differ somewhat to the proposed changes set out in the consultation paper, it does, however, appear that proposed changes will be extended to include pre-4 December 1997 loans.
Unfortunately, with such doubt over the final position Treasury will adopt, taxpayers with Division 7A loans or Trusts with unpaid present entitlements owing to corporate beneficiaries will have to wait until draft legislation is released before any action can be taken.
Extension of the Director Penalty Notice (DPN) regime to include GST, WET and LCT
Legislation to extend the DPN regime to include GST, WET and LCT was introduced to Parliament in February 2019 but was quickly removed from discussion and referred to the Senate Economics Legislation Committee for inquiry and report.
The extension of the DPN regime to include GST may have a significant financial impact on company directors if for any reason the company does not meet its GST obligations on time. The DPN regime currently applies to PAYG withholding and SGC. Directors of companies, irrespective of size, turnover and number of employees, amongst other things may be personally liable if these obligations are not paid on time and the ATO issues a DPN in respect of outstanding obligations.
The proposed extension of the DPN regime should serve as a warning to all company directors, even where they are not actively involved in the day to day management of the business, to ensure the company is meeting its withholding obligations.
The Senate Economics Legislation Committee is required to provide their report on the proposed legislation by 26 March 2019, so we wait to see whether there will be any recommended amendments or if the Committee will recommend the Bill be passed in its current form.
Until then, company directors are advised to make the necessary enquiries or obtain specialist advice to ensure company withholding obligations are being paid on time.
Be proactive and seek advice
Some of the unenacted measures and proposed changes should serve as a warning to business taxpayers to ensure their house is in order and that they have the necessary procedures and systems in place to ensure they can meet SGC, PAYG and GST obligations on time.
Taxpayers who are struggling to meet their obligations are advised to seek the assistance of a suitably qualified business or tax advisor who can help them get back on track. Worst case scenario, taxpayers with outstanding debts or lodgements are advised to engage early with the ATO to reduce the risk of DPNs, debt collection or garnishee action. Taxpayers waiting on confirmation that certain measures will come into effect, such as the removal of the CGT MRE for foreign residents or the proposed changes to Division 7A, are advised to keep in contact with their tax advisors for updates on the progress of proposed legislation.
We anticipate there will be only two remaining Senate sitting days in April before Parliament is dissolved ahead of the Federal Election. If this is the case, any unenacted Bills before Parliament will lapse and whether the Bills are re-introduced will be dependent on the incoming Government post the Federal Election.
For more information
If you need advice on any of the proposed legislation change and how they may impact on you or your business, contact your local RSM office for advice specific to your circumstances.