10th April 2018
Recent comments by Australian Taxation Office Deputy Commissioner Mark Konza outlined the ATO’s priorities regarding international tax enforcement, noting that a special focus would be placed on the energy and resources sector as well as the pharmaceutical industry. Regarding energy and resources, the ATO will be paying close attention to “exploration expenditure” among other methods used by international companies to avoid paying taxes.
"With Australia set to become the world's biggest exporter of liquefied petroleum gas by 2022, the oil and gas industry is a particular focus for us,” he said. “With big developments and long-term contracts being a feature of the LPG industry, it is important we get the pricing right from the start or it could all end in tax tears."
One company that is unlikely to shed tax tears is Exxon-Mobil, currently in the middle of an 8-year company tax holiday in Australia due mostly to “investments in off-shore production” – that is, the same type of tax exemption category that the ATO only recently identified as an area of focus for ending the tax breaks enjoyed by international corporations. Exxon-Mobil’s investments in off-shore production totaled $21 billion – but its profit from this investment, by the time its company tax break is complete, could reach up to $50 billion by some estimates.
How serious the ATO will be in filling these loopholes is anyone’s guess, but as many have pointed out, ordinary Australians (and many companies smaller than Exxon-Mobil) still long for the type of preferential tax treatment that certain entities receive.
Not all large companies have it easy, of course; as even some multinationals, such as Chevron, have been denied access to similar loopholes. In the case of Chevron, the ATO ruled that it used intra-company loans in order to shift profits offshore, thereby avoiding tax on its Australian income. The decision left Chevron with a $300 million tax bill. The company may soon be forced to pay an even larger bill on the $42 billion loan that its Australian subsidiary received from its US-based associate in the low-tax state of Delaware.
Of taxes actually owed, the ATO estimates that 91% are correctly paid by large corporations, thanks to new laws and compliance policies. Another 3% are paid after enforcement procedures are initiated. The remainder – 6%, or $2.5 billion per year – go uncollected. The ATO is pleased with its 94% success rate, noting that few countries are able to show more impressive numbers. Still, it acknowledges, there is more work to be done.
The ATO lists 7 key ‘clusters’ where tax avoiders may be hiding. These include e-commerce and pharmaceutical companies, as well as offshore marketing hubs used to sell Australian commodities. Certain financial cases are also under investigation for alleged intangible asset migration.
Whether these investigations will lead to reclamation of unpaid taxes, followed by a cleanup of financial practices in these business sectors, remains to be seen. But given the changing political winds surrounding corporate taxes – e.g. the recent failure of the government to enact corporate tax cuts due to a lack of popular support – the ATO remains an organisation of great power and influence.
26th March 2018
The internet and technology have created countless opportunities and advances that few people could have imagined 30 years ago. Email has made it possible for people on opposite sides of the world to communicate in seconds, search engines have enabled people to answer nearly any question imaginable in mere minutes, and smart phones have allowed people to be connected to news, pop culture and the internet wherever they go. With all these advances also comes drawbacks. Cyberattacks, hacking and stealing of personal information have become rampant problems in this digital age. The Australian Government has recently enacted new laws to make data breaches more transparent.
The Notifiable Data Breaches Scheme: What is it?
The Australian Government summarised the Notifiable Data Breaches Scheme as the following:
The Notifiable Data Breaches (NDB) scheme under Part IIIC of the Privacy Act 1988 (Privacy Act) established requirements for entities in responding to data breaches. Entities have data breach notification obligations when a data breach is likely to result in serious harm to any individuals whose personal information is involved in the breach.
The NBD applies to agencies, organisations, health service providers, accountants, credit reporting bodies, and businesses and non-profits with an annual turnover of $3 million or more. If the confidential documents or database of any of these organisations is breached by an unauthorized hacker or person, the organisation must notify the individual whose personal information was accessed without permission. What’s more, the notification must recommend steps the individual should take in regards to the breach and the Australian Information Commissioner must also be notified.
It is worth noting that the Australian government points out that the notification should take place only if the breach could cause serious harm. The government therefore recommends organisations and agencies to be prepared to quickly assess the degree of harm that is likely to result from the breach.
How does this affect accountants?
Accountants store a large amount of their clients’ personal information. If a potentially harmful breach of that information occurs, the accountant will be obligated to notify all the individuals whose information was stolen. This can result in a number of negative consequences for the accountant. Not only could such a breach embarrass an accountant and damage his or her reputation, but rectifying the situation could also be costly and time consuming. A breach could occur by accidently mailing a tax return to the wrong email recipient or a hack to an accountant’s local server. Failing to meet NBD obligations can result in an $1.8 million fine.
To prevent a breach, it is recommended to offer security awareness training to all employees, perform regular security scans against every system in an organisation’s network, and keep all security software up to date.
If an organisation’s confidential files are accessed without authorisation, a statement about the breach can be lodged to the Commissioner via this Notifiable Data Breach Form.
To learn more about the Notifiable Data Breach Scheme, visit the Office of the Australian Information Commissioner’s website here.
16th February 2018
Cutting corporate taxes is a hotly debated issue across the globe. Strong supporters argue that doing so attracts investment, while opponents argue such legislation hurts local economies, job seekers and families. Despite this, the Australian government aims to push forward with plans to cut corporate taxes.
With the goal to encourage growth and compete for investment, the government plans to cut taxes for all companies by 25 to 30 percent by 2025. The bill has been met with mixed support. While MP’s in the lower house voted in favour of the bill 75 to 71, the legislation has yet to win over the Senate. Opponents argue that passing the bill will mainly benefit the shareholders of foreign companies, increase the budget deficit and fail to spark the economy.
Countries around the world are competing for investment. They are trying to attract investors, create jobs and stimulate the economy; cutting corporate taxes is the carrot on the stick used to entice inward investment. Though, this is likely not the only reason the government is pushing for the bill. Australian politicians are likely watching other country’s tax legislation with a curious eye.
The US and UK governments have implemented dramatic corporate tax changes. As of 1st January, the US lowered company tax rates to 21%, and the UK’s rates have also dropped over the years – falling from 28 percent in 2010 to 19 percent. If Australia fails to pass these corporate tax cuts, the country’s tax policy will fall behind that of other global leaders.
“US moves, along with other nations’ commitments, will leave Australia with the second-highest company tax rate in the OECD,” said BCA chief executive Jennifer Westacott.
While the tax policy is likely aimed to increase competitiveness, there are plenty of skeptics who disagree with the proposed legislation, though Australian Treasurer Scott Morrison said “I cannot understand how keeping taxes high for these businesses helps them employ more Australians or boost their wages, it just doesn't make any sense.”
Outside of the political spectrum, economists have their doubts about the proposed legislation. According to some, Australia already offers generous tax breaks to companies.
Aberdeen Standard Investments’ chief economist Jeremy Lambson notes the potential drawbacks of slashing corporate taxes. He said that if the government passes this bill in isolation, it could actually add to the budget deficit and not realise the expected growth that would justify implementing it.
Many Australians across the country disagree with the bill as well. Peter Swan, a professor of finance at University of New South Wales business school, strongly disagrees with the legislation, noting how it could have dramatic effects on people across the country.
“This corporate tax plan is a disaster that would cost every Australian man, woman and child about $1,600...Because of dividend imputation it would simply benefit foreign companies without increasing investment in Australia,” Swan said.
31st January 2018
Over the past several months, bitcoin has made headlines across the globe as the cryptocurrency’s value has skyrocketed to unprecedented heights. The now infamous digital coin, which was valued at just slightly below one thousand dollars a year ago, shot up to twenty thousand dollars late last year. As the currency has rocketed into the mainstream spotlight, the Australian Tax Office (ATO) has taken notice. The government agency is currently in the process of establishing a cryptocurrency taskforce to monitor transactions.
The role of the ATO’s cryptocurrency taskforce
Not surprisingly, the task force’s main purpose will be to ensure investors in cryptocurrency are paying their fair share of tax. Though, due to the decentralised nature of cryptocurrency, it can be difficult for governments to track.
The task force will include specialists in technology, banking, tax law and finance, who will work together to devise strategies to track gains from cryptocurrency investments.
“We are consulting with key stakeholders who have expressed an interest in tax issues relating to cryptocurrencies...We will discuss common queries and scenarios, practical issues and the tax implications for current and anticipated future developments in relation to cryptocurrencies,” an ATO spokesman said.
Banks are also likely working with the ATO to track investment gains. Late last year, there were reports from cryptocurrency investors that their Australian bank accounts were being frozen, and they were unable to transfer money to cryptocurrency exchanges due to bank bans. And when it comes to cryptocurrency, the banks can also assist the ATO in another way. Large transactions from bank customer accounts can be flagged and then reported to the ATO. These reports could reveal large amounts of money flowing in and out of the cryptocurrency market.
As for the ATO task force, the first meeting is scheduled to take place in February.
How will cryptocurrencies be taxed?
As more and more tax specialists receive a flood of inquiries concerning cryptocurrency tax filing, one tax specialist reported to AFR that the ATO is still considering the best way to tax transactions of digital currencies.
Australia isn’t the only government concerned about cryptocurrency
The cryptocurrency boom of the past year has worried governments across the globe. The South Korean government, for example, recently inspected a half dozen banks to confirm that cryptocurrency transactions complied with tax law. The reason for their, and most government, concerns is that the market is typically seen as a tax haven, and a platform for money laundering and tax evasion.
Governor of the Reserve Bank of Australia, Philip Lowe, reinforces these concerns, noting that cryptocurrencies can be used for illegal purposes.
“When thought of purely as a payment instrument, it seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions,” Lowe said.
As cryptocurrencies increase in popularity, it will only be a matter of time till governments around the world find the best way to tax and track the digital coins.
18th December 2017
The ATO Commissioner’s Annual Report was recently released. In the article, Commissioner of Taxation Chris Jordan reviews the year noting the ATO’s highlights, lowlights and what Australian citizens can expect in the coming years.
The report generally notes that 2017 was a positive year for the ATO. However, Jordan states that the agency’s integrity was tested with the IT hardware failures and associated service interruptions that occurred, as well as the revelations revealed from May 2017’s Operation Elbrus.
These setbacks caused the ATO to take a number of steps to restore public confidence: the agency instigated several reviews, started an intensive program to resolve and develop their IT systems, and responded to external critics.
According to the report, the ATO’s efforts to resolve internal problems and regain public confidence paid off. The Commissioner’s article backs up this claim with a number of impressive statistics. For example, in Tax Time 2017, there are more lodgments than the previous year, with a total of 7.7 million for tax agents and self preparers. Also, compared to the same time last year, there has been a 30% reduction in complaints in regards to system performance.
The report then goes on to review the highlights from the previous year. Below are some of the most notable:
- The ATO’s Tax Avoidance Taskforce raised $4 billion of additional liabilities against several large multinationals and businesses.
- The early engagement and alternative dispute resolution resulted in a 61% reduction in appeals to the Administrative Appeals Tribunal. In 2016-17 there were only 357 appeals compared to 922 in 2013-2014.
- Reminding habitual late payers with automated SMS, instead of a formal letter or phone call, brought in an additional $800 million in payments. As the SMS cost just $.09, compared to $1 cost of a formal letter, the ATO is now able to act more efficiently and save money on following up with late payers.
- There are now 4 million enrollments in the ATO’s voice authentication service, which allows citizens to prove their identity in a faster and more efficient manner.
- SuperStream, the information sharing and standardised electronic payment system for super funds and employers, produced notable efficiencies: around $400 million per year for funds and $400 million per year for employers. SuperStream produced savings for members at approximately 2.4 billion per year.
In the year ahead, the Commissioner notes that the ATO will continue to reform their administration of the super and tax systems. They will also continue to place more emphasis on the client experience and developing a service culture.
The reports notes some of the areas the ATO’s efforts will be focused on, which include sensible risk management, greater transparency with clients, the prevention of problems instead of correction, better use of data for compliance and service purposes, and greater empathy and appreciation for tax payers.
The report ends with Commissioner Chris Jordan stating that his vision for the ATO is to elevate the organisation’s service to the standard of the top organisations in the world. He then finishes the article thanking all those who are part of the ATO.
The full report can be viewed at the ATO’s website, which can be found here.
23rd November 2017
Money laundering is a problem that affects Australians and businesses worldwide. Recently this issue has been brought into focus with Australia’s new AML legislation. But how is money laundering defined? For those who don’t know, it happens when criminals try to hide the source of money they gained via illegal means. These means can be tax evasion, drug trafficking, theft or any range of illegal activities that generate money. Once the criminals acquire the money, they will attempt to run it through a legitimate business to 'clean' the 'dirty' money.
What do accountants need to know about anti-money laundering legislation?
Generally speaking, the new law changes are created to give the public confidence in Australia’s financial systems. Once the laws are implemented, they will make it much more difficult for criminals to generate a profit from illegal activities. What’s more, the AML laws will help Australia keep its reputation as a nation that does not tolerate corruption, and will provide a positive image for the country as a good destination to conduct business.
The AML law is being implemented in two phases. While many accountants were exempt from Phase 1, which has been in effect for a number of years, these same accountants may no longer be exempt from the Phase 2.
How AML affects accountants
When it comes to money laundering, accountants can be easy targets for criminals. Criminals can exploit accountants, which is why the AML legislation will eventually affect many of those in this profession. While New Zealand accountants will need to be ready to comply with the law by 1st October 2018, Australian accountants have a bit more time to prepare. The law will not affect more accountants until 2019.
Which accountants will be affected? Those accountants who manage client funds or accounts, engage in or give instructions for various transactions (including buying, selling or transferring) on behalf of a client, act as a formation agent of legal arrangements or persons, as well as perform other duties.
To comply with Australia’s AML act, accountants will have to identify a new customer before providing a designated service. In addition to this, accountants must set up an AML/CTF programme that does the following:
· Assesses the risk of performing accounting for a client, considering the customer on an individual basis
· Conducts employee due diligence
· Assigns a nominated AML/CTF Compliance Officer
· Utilises an AML/CTF risk awareness training programme
· Submits an annual compliance report
· Reports any suspicious matters to the supervisor
· Conducts an appropriate customer identification process
· Engages an independent party to perform regular independent reviews of their AML/CTF programme
· And more
This article provides a general overview of some of the new challenges accountants face as part of the of the AML law changes. However, as the law is extensive, this article is not comprehensive. If you would like to know more, Accountancy Insurance recommends you to reference this helpful site as well as the Australian government’s site.
25th October 2017
Australia’s company taxes are some of the highest in the world. As of October 2017, Australia has the fifth highest company tax of the 35 countries in the OECD. And if the current company tax rate is not reduced in the near future, Australia will likely have the third highest rate.
When it comes to domestic shareholders, cutting company tax rates may prove little benefit due to Australia’s imputation tax credit system. However, a failure to reduce these tax rates could have an effect on foreign investment in the country, as many investors compare company tax rates when they choose where to invest.
In 1986, Australia’s company tax rate was 49 percent. While that number fell to 30 percent by July 1, 2000, there has been little to no change since then. Today the majority of businesses are still taxed at 30 percent. And there is a growing fear that if company taxes are not reduced, Australia will become a less than ideal country for investment.
Treasurer Scott Morrison summed up this concern in a recent interview, “Unless we can convince the Labor Party, and the Parliament, to pass the tax cuts that we currently have in the Parliament, which we introduced back in 2016, then the Labor Party will leave Australian businesses stranded on a tax island—uncompetitive with the United States, with the United Kingdom, with Singapore.”
To put Australia’s company tax rate in perspective, it must be compared to those of other countries. Singapore’s company tax is currently 17 percent and the United Kingdom is 19 percent. While the USA currently has a 35 percent company tax rate, President Trump and his present administration are intending to reduce it to 20 percent.
Would a reduction in company tax make Australia more competitive for investment? It is questionable. The current proposal intends to reduce the tax rate to 25 percent. As it would likely take more than ten years for these cuts to be phased in, Australia would still have higher rates than the UK, Singapore and many other countries in the OECD. If Australia becomes a less ideal place for foreign companies to invest, then what are the consequences?
According to Morrison, it could have a direct effect on job creation. “The world is moving to lower taxes on corporate investment all around the world. And if you get out of step with that, the money will go elsewhere and so will the jobs.”
In other words, Morrison seems to believe a failure to reduce company taxes now could cause a higher unemployment rate in the future and potentially hurt the economy.
29th September 2017
Australian policymakers are taking action with taxes in response to local complaints over the ascending price of real estate, due to flocks of foreign investors.
In Melbourne and Sydney’s high-end residential buildings, many apartments costing around $1 million are left vacant and dark at night. These homes, aptly named ghost homes, have been bought by mostly Chinese investors living overseas who wish to diversify their wealth in foreign assets. As a result, Australian locals have noticed the price for a home has become surprisingly high, so high that even middle-class families cannot afford them.
New taxes imposed nationwide
To cope with public disapproval, Australian local governments have increased taxes on foreign buyers purchasing a property in their states.
In New South Wales, the surcharge of stamp duty for foreign buyers has been doubled from 4% to 8%. Land tax has increased from 0.75% to 2%, and a new tax—especially designed for such situations—has also been enacted in Western Australia.
Similar to NSW, the government of Victoria stopped stamp duty concessions for investors from overseas and replaced it with a 1.4 - 5.5% stamp duty charge. A tax of 1% on vacant property was also imposed.
According to Credit Suisse, 16% and 25% of the new homes in New South Wales and Victoria were bought by foreigners. The Chinese are considered the biggest group of foreign investors in the Australian real estate market. From 2015 – 2016, the group spent $32 billion on property purchases, mostly in Melbourne and Sydney. To put that number in perspective, that’s more than four times the amount that Americans spent.
A study from CoreLogic Inc. revealed that the price for a Sydney home has doubled since 2009. This has caused local residents to blame foreigners for both rising housing costs and homelessness, which they believe is fueled by the many homes that are bought and left vacant.
According to an analysis by the City Futures Research Centre, more than one in 10 homes were empty the night they took a census in 2016. The survey also concluded that vacant residences in Melbourne and Sydney have risen 19% and 15% in the past five years.
Reaction from Chinese investors
Regardless of the new rules meant to discourage them, millionaire investors from China are still interested in investing in Australia’s real estate market. As the Yuan currency is not performing well, they see Australia as a haven for their cash. What’s more, the price of a two-bedroom apartment in Shanghai is still 25% more expensive than in Sydney and Melbourne. Therefore these Chinese investors believe they are getting a great deal when purchasing a home or apartment in Australia.
However, this new tax reform is causing some Chinese investors to rethink how they are utilising the properties they purchase. Rather than using the property as a holiday home and leaving it vacant the rest of the year, some may consider renting property out through Airbnb, for example.
30th August 2017
The Australian Labor Party has revealed their plan to propose a private senator’s bill, which will lead to the amendment of the Taxation Administration Act 1953. The Bill, if successfully amended, would require many private companies to publicly release their tax affairs annually.
This is the second time Labor has pushed this change. The attempt was initially introduced in 2013 when Labor had filed for the amendment of the bill to force private companies in Australia with annual turnover more than $100m to publicly release their tax records annually.
The bill, which passed legislation in 2013 by the then Labor government, was wound back by PM Malcom Turnbull’s Coalition Government in 2015. Instead, the act was amended following the Greens’ controversial deal with the Coalition to reinstate the bill by raising the threshold of the private companies’ annual turnover from $100m to $200m.
In their 2015 heated statement, Labor noted the change had left out around 600 big Australian private companies to be exempted for public tax disclosure and accused the Greens of selling out its progressivism. Some Coalition MPs commented that it would pose a risk to the safety of millionaire owners or executives of such companies that fell below the disclosure measurement, and it might eventually lead to kidnapping incidents.
Earlier in July, Shadow Assistant Treasurer, Andrew Leigh, announced that Labor will revive the plan for another amendment to the bill. And if it isn’t successful in the senate stage, they will make it a mandate and bring it back again after the election.
The Australian Tax Office has stated the purpose of the laws in 2015, “The first objectives of the transparency tax laws are to discourage large corporate taxpayers from engaging in aggressive tax avoidance practices and to provide more information to inform public debate about tax policy, particularly in relation to the corporate tax system.”
The controversial 2013 bill amendment states that it requires the Australian Tax Office to publish limited information about the tax affairs of about 1,600 large corporate taxpayers with annual turnover of $100m, before being lifted to $200m in 2015. It also mandated the required publication of periodic aggregate tax collection information and those shared with government agencies related to their foreign acquisition and investment decisions affecting Australia. This means lots of private business information, including the total income of companies, will be accessible to the public. Undoubtedly, there are growing concerns about the misuse of the disclosed information.
Following the announcement, Labor strongly confirmed their support towards the planned proposal which, in their belief, could promote greater tax transparency and tackle inequality, “With rising inequality and mounting government debt, Labor stands on the side of middle Australia and small business, not millionaires and multinationals,” Leigh said.
Mr. Leigh also said, “The proposal would stand alongside other Labor transparency measures, including disclosure of tax haven activity in government tenders, public reporting of country-by-country reports and protection for whistleblowers who uncover tax dodging by multinationals.”
The new proposal by Labor, if passed, would also restore a spotlight on a secret list of private companies that have enjoyed a tax reporting exemption since 1995, claimed The Guardian.
27th July 2017
“Everyone cheats a bit on their taxes. No one will notice if I claim a bit more.” For some Australians and taxpayers around the world, this is a common mindset. But when it comes to citizens not paying their fair share of taxes, it is usually big businesses who often get the blame. Taxation Commissioner Chris Jordan is looking to change that.
In Jordan’s speech to the National Press Club in Canberra, his focus was to highlight that small businesses and individuals are claiming more deductions than they are legally entitled to, and the ATO can come after them. Jordan aims to reduce the tax gap to the best of the ATO’s ability.
When a taxpayer fails to pay all of his or her taxes, it has a direct impact on the tax gap. The tax gap is the estimated difference between how much the ATO can legally collect from taxpayers, and the actual amount they do collect. When citizens overclaim on their tax deductions, it makes it more difficult for the ATO to collect what they are legally entitled to.
Of course, people like to point fingers at big businesses for dodging taxes, and most people would think the largest tax gap would come from bigger companies. However, Jordan argues that the tax gap among small businesses and individuals is substantial enough for the ATO to take action.
"There are likely to be bigger gaps in each of those markets [small businesses and individuals] than in the large market," Jordan told reporters.
In other words, while the amount a single individual overclaims may be small, when thousands of individuals and small businesses overclaim, the total amount is substantially large.
It is worth noting that not all individuals and small businesses are overclaiming intentionally. While, of course, some of the incidents do involve fraud, many of them are simply because of a legitimate mistake.
According to the ATO’s risked base and random audits, many people overclaim for work related expenses. Jordan said, "In 2014-15, more than $22 billion was claimed for work related expenses." Other common areas where Australians overclaim include rental deductions (totaling 44 billion in deductions) and, surprisingly, laundry expenses. Approximately 6.3 million people claim laundry expenses.
This new focus on individuals and small businesses does not mean that the ATO will relax their efforts on big businesses. "We feel like we have done a lot of work in the last three years in that space,” Jordan said.
Instead the ATO simply wants to ensure they’re not solely focusing on one sector. Individuals, small businesses and “cash only” shops also have a tendency to overclaim. And the tax gap is larger than most people think.
Considering the ATO has a strong focus on meticulously reviewing lodged returns, even compliant and accurate returns can receive scrutiny.
16th June 2017
The Australian Taxation Office (ATO) has attempted to keep abreast with contemporary developments impacting the taxation system. If the 2016/17 financial year is to serve as an indicator, the agency is yet hit the mark.
Services born through the sharing economy have commanded the front seat in society’s consumer preference. Such services have also gained considerable attention from the ATO – especially the ride sharing application, Uber. The ATO expressed concerns that such entities, namely Uber and Airbnb, were not paying their fair share of tax, so the net widened for more scrupulous data matching efforts in this area.
Superannuation also appears to feature on the ATO’s current hit list. Despite more than $85 billion being paid in superannuation each year, the ATO has conveyed dissatisfaction with the level of compliance by employers in relation to Superannuation Guarantee obligations. In 2015-16 the ATO initiated nearly 21,000 cases which addressed Superannuation Guarantee non-compliance, raising $670 million, including penalties, from a range of reviews and audits. The ATO undertakes a range of compliance activities to detect and deal with non-compliance, one measure is the utilisation of data matching from third party referrals.
Both the sharing economy and superannuation have the commonality of data matching as a means to monitor compliance. The ATO has been zealous in its efforts to capitalise from data matching capabilities, which has subsequently increased audit activity from both compliant and non-compliant taxpayers.
Recently the ATO’s data matching capabilities were linked to Centrelink’s ‘robo-debt’ saga. In an effort to target welfare payments, Centrelink declarations were data matched with tax returns. As a result, more than 20,000 letters were sent to individuals with perceived discrepancies in relation to their Centrelink declarations. Of this figure, at least 20 per cent of letter recipients were later found to owe nothing. Whilst the issued correspondence was questionable, the onus rested on individuals to allocate time and resources to clear any perceived wrong doing. Alas, the recent robo-debt saga has not diminished the ATO’s plans to charge full steam ahead as the agency anticipates contacting more than 300,000 taxpayers when detecting 'once only' discrepancies in tax returns this year. When it comes to automated data matching, it appears that the ATO will pursue utilising these capabilities, and would likely focus on a broader range of taxpayers in the future.
So far in 2017 we have seen that technology dictates evolution. Whilst the outcomes of the robo-debt controversy were not ideal, it was insignificant in comparison to the dominance of cyber crime which has wreaked havoc not only in Australia, but worldwide. Even the ATO fell victim to a cyber crime attack, and is still vulnerable to future cyber attacks according to a Joint Committee of Public Accounts and Audit (JCPAA) report from April 2017.
Accountants are of similar appeal to cyber criminals as they are privy to sensitive information such as bank account details and tax file numbers, the same information which is held by the ATO.
“Accountants believe that cyber crime will not affect them, however, they are prime targets to cyber criminals. So, the question really is not if they will be targeted, it is when they will be targeted. Cyber crime has skyrocketed in 2017, and it looks as though activity in this area will gain more momentum over time” said Accountancy Insurance’s Associate Director of Professional Risks, Karen McDonald.
The team at Accountancy Insurance benefit from the insights of tens of thousands of audit activity claims, as well as expertise in analysing cyber crime trends.
To understand the scope of audit activity and cyber crime occurring in Australia contact the Accountancy Insurance team on 1300 650 758.
5th April 2017
Competing political incentives colour every government’s tax collection aims, and for the moment it seems like the trend in Australia is to keep close watch on international business and investing in the hopes of closing loopholes and boosting government revenue.
One field attracting extra scrutiny lately is that of international IT-based products and services. Much attention has been paid to the surprising revelation that Apple has paid most of its New Zealand taxes instead to Australia, and the region has seen a subsequent resurgence of interest in the unorthodox tax arrangements of Apple and other companies like it.
Apple itself was subject to an audit of its previous tax reports in Australia, and the resulting “tax adjustments” making up for previous underpayment erased nearly all of its profits in the country last year. Similar corrections have taken place in the EU, where the company was ordered to pay $19 billion in back taxes after a thorough review.
Europe’s bold decision has led other countries, notably Australia, to focus on similar recuperation and reform efforts. In recent weeks, the Turnbull government passed a Diverted Profits Tax (a.k.a. “Google tax”) law with the hope of ultimately recovering up to $2 billion in revenue from companies like Google and Apple – as well as others, such as BHP Billiton, Chevron and Crown. The law significantly increases the tax rate for giant multinational companies with sizeable (>$25 million) annual revenue in Australia.
Whether these laws will be tightly enforced is a question that only time can answer, but it is worth noting that dozens of audits of large multinationals are already underway. Meanwhile, the ATO is also paying special attention to potential tax avoidance offenders in other sectors of the economy.
The gold-trading industry in Australia is undergoing a change in its GST payment obligations, thanks to a recent change in the law. Previously a voluntary commitment, entities in gold (and other precious metals) will soon need to pay GST when purchasing the metals – and can no longer categorise such purchases as second-hand goods. The new legislation is a response to a previous loophole allowing tax payments to be avoided by melting the metal down to scrap to avoid tax payments, before re-molding it into bullion.
Australian citizens are also being monitored for potential offshoring of undeclared assets. The Serious Financial Crime Taskforce recently announced that 346 Australians are under investigation for holding unnamed Swiss bank accounts for the purpose of evading tax payments.
The end result of these investigations – as well as the legislation and enforcement actions summarised above – is as yet unknown, but some lessons are already clearly in view. One of these is the importance of being prepared for an audit or investigation, particularly for those accountants whose clients have unusual or complex financial arrangements.
Another lesson is that the evolving laws and political winds – both international and domestic – must be watched closely and continuously. Long-available loopholes are being closed, new industries are being identified and monitored, and the government is losing its fear of going after large and powerful targets in its quest for tax enforcement.
(primary source: https://www.businessinsider.com.au/apple-paid-36-million-in-new-zealand-taxes-to-the-australian-taxation-office-2017-3)
10th March 2017
Recent economic data has painted a decidedly mixed picture for Australian businesses. On the one hand, a recent report showed overall profits up 20% in the latest 3-month period, reflecting a much-needed economic growth of 1.1% for the country as a whole. Balance of payments numbers have been equally welcome, reducing the nation’s ongoing deficit by two-thirds.
Much of this growth, however, seems to come from the latest swing in commodity prices – numbers which, as history frequently shows, can swing in the other direction just as quickly. Moreover, wage growth has been stagnant in recent months, with numbers on jobs and spending growth also leaving much to be desired. A look through the current writings of Australian analysts and economists will show a significant divide on whether the bigger picture suggests good or bad times ahead for businesses and consumers.
However, there is one area which has seen several highly promising developments in recent weeks. The online marketplace has been re-shuffling the world’s economic deck for years, and it increasingly appears as though Australia has been dealt a strong hand.
After the relative free-for-all that defined the opening years of the global internet-based economy, Australia is at last joining the countries which closely regulate how online profits are taxed. The recent crackdown on tax avoidance for international companies now means that Australia is expected to take in an additional $2 billion annually from multinationals like Facebook and Google, which had previously been avoiding the country’s tax system by using offshore accounts in low-tax nations to record their profits.
This more assertive approach toward audits and tax enforcement for overseas giants is expected to help massively with the country’s budgetary issues, freeing up more money for spending on necessary public services.
At the same time, China’s government has indicated that it will promote its own rapidly-growing e-commerce platforms by relaxing its rules on imported products. This move was announced just prior to Chinese Premier Li Keqiang's arrival in Australia, and will have the effect of further opening up the Chinese market to foreign exporters in countries like Australia.
Word of the deregulation came in the form of a Chinese Ministry of Commerce announcement, which declared that low-value products, imported for personal use via e-commerce, would be considered as a separate category and not liable to strict rules for imports. Australia’s e-commerce stocks responded instantly to the news, sharply rising in anticipation of the new market potential.
China’s trading platform Alibaba has recently established a presence in Melbourne, with an eye toward expanding further. The company also plans to bring 7 leading e-commerce influencers on a tour to visit many of Australia’s leading brands. This promotional visit could boost the perception of Australian products and lifestyle across China, leading to better awareness and confidence in Australian goods.
These auspicious signs are particularly welcome given the nature of Australian business. Estimates put a very high ceiling on the Chinese e-commerce market, where Australian goods are already held in high esteem by consumers. The newly-opened door to this market could well lead to a wave of success stories for Australian businesses. Small and medium-sized businesses already employ nearly 5 million Australians, and contribute roughly $379 billion to the country’s economy. If some of these are able to generate hit products on the Chinese market, the result could be very exciting news for the Australian economy.
Diversified and adapted economies are always in a better position to weather an economic storm. Australia’s positive movements in the online sector have allowed it to be better protected from occasional volatility in other markets.
(primary source: http://www.theaustralian.com.au/business/technology/opinion/why-crossborder-ecommerce-is-the-future-for-australian-businesses/news-story/e8d570b7fe56931b88b622e76793f0eb)
23rd February 2017
As markets go up and down, the success of economies often boils down to how proficient those countries are at responding to – if not actually anticipating – the most important fluctuations. A country’s economic priorities can act either as a magnifying or mitigating factor in turbulent times, and despite popular one-size-fits-all ideologies and solutions, a policy that has a life-saving effect in one situation can be precisely the wrong kind of medicine in another.
The most recent report by the Organisation for Economic Co-operation and Development (OECD) praises Australia’s response to decreasing commodity prices, but emphasises that a shift away from corporate income tax, and toward a rise in GST would increase business efficiency and do more to keep Australian companies operating in the future.
Another key to success, according to the OECD, is to avoid adding to the national debt through better management of government spending. With Australia exposed to swings in commodity prices, spending in boom times should be limited, lest it lead to debt that is increasingly difficult to pay back during slower economic years. Moreover, the report recommends a more refined spending package, arguing that political stability depends upon a decline in economic inequality. (Australia, placing its priorities elsewhere, is spending over $50 billion to build 12 new submarines.)
A more subtle observation within the report is that stability also depends on forward-thinking plans for education and innovation to ensure Australia’s success in the industries of tomorrow. Skilled workers suited to a global and technologically advanced economy represent a wise investment by any government, as such a result would ensure lasting value that would otherwise be subject to the whims of markets. An example of the latter is the slowing of the commodity market due to a downturn in the Chinese economy.
That slowdown, incidentally, is likely to affect Australian housing prices, as overseas demand accounted for roughly 20% of the value of all such transactions during the 2014-5 financial year. Increased housing prices have been a major source of wealth within the country, as house prices have ballooned by 250% in real terms since the mid-1990s.
As other countries have learned to their cost, over-reliance on such forms of income can be troublesome when prices stop rising – and, without a strong foundation propping up the rest of the economy, can be catastrophic should they begin to fall. Meanwhile, household debt in Australia is at record levels, with the debt to disposable income ratio rising to nearly 187% as of September 2016.
Should Australia reinstate its carbon tax or enter into a farther-reaching international pollution agreement, further adjustments across the economy are also likely to be necessary. Whichever policies end up being implemented, the country’s economy is sure to benefit from far-sighted prioritising of industries and a technological focus that puts the country at the leading edge of the globalised world of future trade. Rather than trying to guess at how long the old way of doing things will still work, Australia can earn itself true independence by developing an economy that no longer relies on them.
(primary source: http://www.cnbc.com/2017/03/02/australia-needs-to-hike-the-gst-if-it-is-grow-more-says-the-oecd.html)
25th January 2017
One of the earliest casualties of the new Trump administration in the US is the Trans-Pacific Partnership, a proposed trade deal whose presence elicited passions among those for and against it. The deal, now requiring significant restructuring if not outright cancellation, represented the most ambitious attempt to standardise trade relations among the major economies on both sides of the Pacific Ocean, while also introducing a universal system of administrative procedures to settle trade-related disputes among the member countries.
The likely death of the TPP, however, does not necessarily mean that its spirit will disappear as well. An alternative treaty, already several years in the making, has experienced an understandable boost in recent days, as its chances of being ratified are greatly increased thanks to the TPP’s major setback.
The Regional Comprehensive Economic Partnership (RCEP) may well guide Asia through the coming decades, bringing a more localised focus than the inter-continental TPP had set out to do. Whereas five of the TPP nations were located in the Americas, RCEP countries bring together only the ASEAN nations and the major economic forces nearby, such as Japan, Korea, China, India, New Zealand and Australia.
These countries (16 in total) bring together 3.4 billion people, or 45% of the global population. They also account for a combined GDP of $21.4 trillion, or 30% of the world’s total production. It is commonly accepted within the business community that large trade deals are necessary to standardise production and trade in an increasingly interconnected world.
While the specific details of such deals are likely to be a subject of continuous debate, resulting in a compromise that inspires mixed feelings from all sides, large companies on the whole are likely to welcome the low tariffs and intellectual property controls that are expected to characterise the final result.
Besides making life just generally simpler for exporters and importers, a unified set of Asian economic rules will put its member states in a better bargaining position than they would be if they were to individually negotiate separate trade deals with European and American economies. Solidarity increases leverage when seeking advantageous trade partnerships, a lesson that Britain may learn to its cost in a post-Brexit world.
While the RCEP’s final text (and implementation) is still potentially a long way away, the time is certainly right for Asian economies to move toward unified controls and standards when dealing internally as well as with the outside world. With Europe’s future looking much more fragile than in the past, Asia (along with Australia and New Zealand, of course) could soon become more central to the world’s economy than it has been in centuries, thanks to RCEP.
13th December 2016
Australian Treasurer Scott Morrison used the results of the 19 December Mid-Year Economic and Fiscal Update (MYEFO) to continue the Federal Government’s march to cut the company tax rate. Mr Morrison argued that the company tax rate should be decreased to 25 percent—a number that, according to him, would lure business investment, lead to higher employment, and be crucial to ensure future economic growth.
Several rating agencies left the country’s AAA rating still intact after the mid-year update, but some of the same organisations voiced their concerns over the Australian economy including Standard & Poor’s which said they remain ‘pessimistic’ about the nation’s financial matters.
The latest MYEFO predicted a deficit decrease for the remainder of the financial year whereas the deficit predicted in May was much higher. Deficits are expected to rise in the coming years leading up to when the budget is due to balance around 2020.
Mr Morrison said he believed there were many positive things happening in the economy, but more could be done to ensure they continue. One of the important things that we need to see in the economy going forward is increased investment, he said.
It’s fair to say the treasurer has his share of supporters on the issue. Conservative lawmakers and some key business groups and organisations have voiced their support for the measure. One of the more outspoken of these groups, the Australian Chamber of Commerce and Industry (ACCI), has called on those in government against the tax cut, many of whom are Labor Party members, to end their opposition.
The ACCI said the tax cut would allow Australia to become more economically competitive on a global scale and that should be something that grabs the interest of all politicians regardless of party affiliation. The Labor Party and other critics have put forth stiff resistance to such a cut, especially in the wake of the MYEFO findings. They claim the government cannot afford the $50billion in tax cuts the measure would incur. Other Labor members like Chris Bowen expressed trepidation that there were absolutely no guarantees that the cuts would bring on more investment. It’s on a wing and a prayer that it somehow stimulates more business investment at a massive cost to the budget, he said.
Welfare and other poor advocacy groups have also come out against the company tax cuts and have blamed the Federal Government for trying to repair the budget at the expense of the less fortunate. The MYEFO partially accounts for savings by cutting unemployment benefits as well as making other cuts to welfare programs.
17th November 2016
The government has rejected a joint proposal in the Senate to lower the ‘backpacker tax’ from the government’s favoured 19% rate to a recommendation of 10.5%. Jacqui Lambie, an Independent Senator of Tasmania, proposed the drop as opposition parties, including Labour, Greens, and One Nation, came together on the issue.
A backpacker tax affects those on a working holiday visa issued by the government, allowing them to live, work, and travel throughout Australia. Many of these backpackers end up working on farms or plantations picking fruit or doing other odd jobs. To qualify, applicants must be under the age of 31 and hold a passport from one of the 19 eligible countries.
The amendment was rebuffed on Thursday before the bill was sent to the House to have the measure removed as the government has enough seats to kill it. The rejection signifies a return to a rate of 32.5% on the first day of 2017 unless the opposition can revise their proposal to a compromise the government would accept. The Senate will convene next week to consider legislation. It will be the final sitting week for the federal parliament of the year.
Prime Minister Malcolm Turnbull stated that if the backpacker tax reverted back to 32.5% that the Labour party would be to blame. When asked why the government did not accept the Senate’s suggested tax rate, Treasurer Scott Morrison said that the opposition was proposing a lower tax rate for foreigners working in Australia. Morrison said the opposition’s cuts to the backpacker tax would cost Australian tax payers upwards of $500 million.
Just before the crucial Senate vote Thursday afternoon, the Turnbull government attempted to convince One Nation Senators to drop out of the opposition’s coalition and accept the government's 19% proposed tax rate. In return, Turnbull’s government would restore volunteer programs allowing vacationers to work on farms in stints in return for room and board.
A spokesman for One Nation said they were only interested in the right outcome for farmers, but if the 10.5% tax rate did not pass, they would have accepted a higher rate between 12% and 15% which would fall in line with promises made to their constituents.
From 2014-15 Australia granted nearly 227,000 working holiday visas with the United Kingdom, Taiwan, Germany, and South Korea being the top recipient nations. According to AusVeg, a vegetable grower organisation, backpackers make up nearly 40,000 of the 75,000 workers in the horticulture industry making them a substantial part of the workforce.
The government has received heightened criticism from politicians, farmers, tourism operators, and grower associations who depend of foreigners to meet their manpower demands each harvest in regard to the looming 32.5% tax rate. They claim that the higher tax rate will see Australia lose its status as a work holiday capital as travelers look for a more temperate tax climate elsewhere. In years past, backpackers had not paid any tax on their income which could approach 20,000 Australian dollars which is the maximum a holiday worker would make.
28th October 2016
KPMG Australia has recently released its findings in the form of a report on the earnings disparity between male and female workers. Despite growing efforts to increase awareness and address discrimination issues the study found that the gap between what men and women make may be widening, instead of shrinking.
Currently, women make on average about 16.2 percent less than their male counterparts as they have for roughly the last 20 years, but the findings KPMG Australia released found that number is heading in the wrong direction.
Work experience, training, education, and status quo discrimination within the labour market are all key contributors to deflated women’s wages, the research revealed. KPMG Australia’s findings show systematic and endemic discrimination becoming even more widespread, with this factor making up around 40 percent of the gender pay gap this year.
The other findings from the study include: The over-representation of women in the part-time workforce is still prevalent despite the proportion of the gap attributable to this factor decreasing by 10 percent in the last seven years; women still make up nearly 72 percent of the part-time workforce. ‘Traditional’ gender roles for men and women played a significant part in the wage gap, accounting for nearly a third of the disparity. Also the part of the gap attributable to time spent out of the workforce went up by 11 percent, furthering beliefs that interruptions in work history continue to play a substantial role in the pay gap.
Some gender equality advocacy groups have applauded KPMG Australia’s research and have urged Australian businesses, as well as the government, to take its findings as motivation to strive for more equitable wage solutions. Although the numbers in the research speak volumes, and while individual companies and businesses can do their part to close the wage gap within their workplaces, the government, communities, and industries would all need to become more active in order to invoke broad sweeping reform.
The report included a section on how to combat gender discrimination, and address and reform their position on the wage gap. The section entitled ‘The Executive Companion’ outlines the six steps businesses can take to bring about the necessary changes in the office.
The steps start by understanding not only the vast disparity in the gender pay gap, but also what factors cause it; workplace culture, environment, and business behaviours are all considered, among others. Another step focuses on how businesses can improve upon retaining female employees during their early to mid-30’s when many women have children. The Executive Companion also makes recommendations in regard to training in skill development, networking to help career progression, and changing the culture of the office to discourage the behavioural factors that have led to the wage gap.
It’s important to take what the research has revealed and use it to further efforts to create a happy and equal workplace for all. While the issue has its hurdles, some seemingly too large to overcome, open dialogue, education, and outreach are key to fixing this problem.
23rd September 2016
In what some have called an attempt to ward off further tax regulations, BHP Billiton, the Anglo-Australian multi-national mining company based out of Melbourne has publicly released its tax reports in the wake of more aggressive inquests from the Federal government and the Australian Tax Office (ATO). The heightened scrutiny from law makers is a response to suspicions of tax minimisation and evasion practices by large Australian businesses.
For the second time, BHP released its Economic Contribution and Payments to Governments report, an audited account that complies with United Kingdom (UK) tax law. This is in accordance with Britain’s requirement of large companies to publicly release detailed reports of tax strategies. BHP, along with other large Australian companies operating in the UK are also included.
In 2016, BHP reported that it has paid US$3.7 billion in taxes, royalties, and other payments of a similar nature thus far. That amount is down by nearly half from what the company reported in 2015. Of this year’s payments, the report stated that US$2.5 billion was paid to the Australian government—US$1 billion in taxes, US$1.5 billion in royalties, and US$230 million in other payments. The company reported it paid US$5.25 billion to the Australian government the year before. The drop in tax money paid to the government compared to the previous year is attributed to the fall in global commodity prices to which, as a mining company, BHP’s earnings rely so heavily upon.
While the numbers in the report might seem big, the disclosures give hardly any additional data than is provided on the company’s financial statements. Only in the figures on the total taxes and royalties paid by country, government institution, and individual project can the real value of these disclosures be assessed. Although these disclosures adhere to the laws in the UK and have received independent audits, there are no figures from previous years available for scrutiny.
The report also included the names and some information of some of BHP’s subsidiaries in low-tax jurisdictions. This is the first time the report has divulge such information since the European Commission made the distinction for the incorporation of low tax-jurisdictions in 2015.
A few other large Australian companies also have publicly released their tax reports. Companies such as ANZ, National Australian Bank and others have released tax documents seemingly to stem the tide of more regulation coming from law makers.
Much like in the UK, the Australian government is starting to require the ATO to publicly disclose large company’s taxable income and the taxes they pay under its ‘tax transparency framework.’
The details in these reports, however, still lack transparency and in some cases were unaudited.
7th August 2016
When it comes to tax season stress and anxiety can run high. Every year most Australian taxpayers and their accountants do their best to leave no stone uncovered in order to submit a comprehensive and accurate tax return to the Australian Tax Office. But what about those who don’t quite get everything or try to get a little too much?
At the beginning of this year the Australian Tax Office (ATO) had somewhat of a crisis on its hands.
During the 2014-15 tax cycle it was estimated that false or ‘dodgy’ claims netted Australian taxpayers close to $3.5 billion in fraudulent refunds and deductions, costing the Australian government upwards of $800 million in turn. During the 2014-2015 fiscal year, the ATO performed about 450,000 audits and reviews of individual tax returns which lead to an adjustment of more than $1.1 billion in income tax.
However the blame of these false claims cannot and should not be entirely placed on the taxpayer. In most cases it was their accountant, perhaps looking to get their client a better return to boost return business, who falsely gave deductions where sufficient grounds to do so did not exist.
These claims often attempted to tie-in personal expenditures on vehicles, air travel, and office expenses, for instance. While mistakes and carelessness can and do happen within reason when it comes to filing taxes, experts point to the magnitude of the numbers as proof that the threshold of ‘honest mistakes’ has been passed and we are now in the realm of malfeasance.
The situation became so increasingly ubiquitous and out of control that many experts doubted what the ATO could do to stem the tide of dodgy claims made. The ATO appeared not to have the resources or the reach to bring the instances of ‘dodgy claims’ down.
That is until recently.
ATO assistant commissioner Graham Whyte recently announced that the ATO would take action against any individual or firm making falsified claims. The ATO has introduced new real-time checks of deductions for tax returns completed online which can be cross-checked with the claims of others with similar jobs, incomes, and living conditions to see if a claim is substantially higher. In addition each return will be assiduously examined using hi-tech tools and data analytics. This new technology would then identify and red flag any irregularities so they can be reviewed.
It should be noted that this is not meant to be a witch hunt to accuse, intimidate, or disrupt the honest taxpayers, accountants, or tax professionals in Australia. It is simply root out and discipline those who have taken advantage whilst sending a message that ‘dodgy claims’ will not be tolerated.
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