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.
At Accountancy Insurance we take pride in informing our clients of not only the world of accounting, but also business, finance, and economics. Accountancy Insurance now offers Audit Shield in three commonwealth countries—Australia, New Zealand, and Canada. For top quality tax audit insurance, contact Accountancy Insurance about Audit Shield today.
18th July 2016
In late June, the United Kingdom (UK) voted to leave the European Union (EU) by a close 52-48 margin. To say the result came as a surprise to the world and even some Britons would be an understatement. Many credit fear and uncertainty in regard to the UK’s immigration issues as a cause for Brexit’s success. Others believe the people of Great Britain and Northern Ireland thought it was past time they were allowed to steer the destiny of their homeland without being beholden to rule of law on mainland Europe. Still, most experts believed the majority of the voting public would see that the positives outweighed the negatives of staying in the European Union and that leaving wouldn’t necessarily sate the influx of immigrants arriving on the UK’s shores.
Yet here we are in Australia like much of the rest of the world, twiddling our thumbs, waiting to see how the economy will be affected while the pound hits a 41-year low. To clear the air and possibly alleviate any concerns in the process, lets examine Brexit’s effect on Australia.
Obviously economic uncertainty is a key component in a depressed economy. For this reason, the Brexit result hasn’t affected any economy in a positive way, least of all the UK’s. That being said, these affects have all been relatively small. The Australian Stock Exchange (ASX) did take a hit in the immediate wake of the Brexit vote. The reason was investments started moving away from the UK because keeping them there was seen as too risky. Also due to deflation in Britain, Australia’s already very low interest rates went even lower and while this might seem like great news to those in the market for a house, it doesn’t portend good things for investors. Investments in commodities and oil will also decrease.
Traditionally, the UK and Australia have been strong trade partners, although neither one is the other’s largest trading partner. For this reason, things don’t look too bad, but experts predict there will be ripples—if only little ones—felt in businesses of all sizes in Australia. One suggestion in the short term for mid-level companies to larger multi-nationals is to reduce or avoid trade with the UK until more of the wrinkles get ironed out and markets stabilise. Also small businesses can make better judgments about the future by taking to currency hedging. There are also some experts who believe Brexit could make investors think twice about pouring their money into the UK at this point. Some of these investors could look for other countries to invest in and although Australia’s low interest rates aren’t terribly attractive to investors, its stability and certainty looking forward could be.
20th June 2016
As one of the leading providers of tax audit insurance for the last thirteen years, Accountancy Insurance knows mistakes happen. As humans it’s in our nature to err. It’s what sews us together as people. More often than not, a mistake can be forgiven and forgotten with a sincere apology and a promise to try harder next time.
Unfortunately, when dealing with tax auditing, the old adage, ‘everyone makes mistakes’ loses some of the warmth and takes on a new meaning. A mistake on a tax return can mean more dire consequences. Receiving a notice through the post or a call from the taxperson usually evokes feelings of trepidation and dread. That’s why Accountancy Insurance has Audit Shield, a comprehensive coverage plan that protects regular people and businesses from the costs that arise with having to sort through the audit requirements.
In 2015, the Australian Tax Office (ATO) estimated that around 350,000 Australian tax payers would receive enquiries regarding errors, omissions, or inconsistencies on their tax forms. Tax officials diligently examined each and every return form. Most of the errors were honest, commonly made mistakes of the typographical nature such as misspelt names, addresses, wrong bank details, birthdates, or the detail of a spouse. In addition to closely scrutinizing the paper return, The Australian Tax Office (ATO) has other tricks up its sleeve. It uses third parties such as banks, employers, and insurance providers to ‘cross-check’ the numbers of each return. These ‘cross-checks’ netted the ATO somewhere in the neighbourhood of $100 million dollars in 2014 so it’s clear they’ll continue to monitor these third parties in the future.
With an increasingly aggressive audit market and the ATO using more sophisticated tactics for finding delinquent returns, where is the honest, yet cautious Aussie taxpayer to turn?
Audit Shield takes the worry, pressure, and anxiety out of the process of filing a tax return. With Audit Shield, the client is covered for the professional fees incurred while their accountant assists them through an audit enquiry. It provides a safety net for clients and accountants alike as neither one has to worry about increased costs or lost man hours.
The benefits don’t only apply to the client. More and more accountancy and auditing firms are attracted to the positives Audit Shield presents. With fees paid directly to the firm and zero cost to offer the product to clients, Audit Shield is a win-win for all parties. Plus, having such a robust, industry leading product on hand will give clients the assurance that they are in good hands when they walk in to hand in their returns.
For the best in tax audit insurance, there is no substitute for Audit Shield from Accountancy Insurance. Since 2003, Accountancy Insurance has amassed the experience, knowhow, and diligence to lead the industry. Now providing its services and expertise in three commonwealth countries—Australia, New Zealand, and Canada—Audit Shield gives the accountants who use it a leg up against their competitors.
26th May 2016
Here in Australia, Accountancy Insurance is proud to announce the introduction of a new line of insurance protection for accountants: cyber insurance. As is familiar from the multitude of news stories of events of cyber-crime, such as hacking and phishing, involving well-known companies and figures in the worlds of business and government, electronic malfeasance is a real and growing danger to firms in all business sectors, not just Internet and computing firms.
As the business world becomes more connected electronically, and as firms continue to use the internet for communications, sales, and data storage, the business environment becomes more dynamic and also more exposed to internet crimes. High-profile security breaches in recent years have impacted retail and financial firms, entertainment conglomerates, social networks and dating websites, and an American political party's national committee have experienced the consequences of data breaches, deliberate hacks, and DDOS attacks. Personal photographs, business communications, and sensitive financial data have all become exposed in data breaches that have impacted global corporations, famous celebrities, and millions of ordinary individuals—with a financial and legal impact that cannot yet be completely measured.
Worried yet? Consider the following events:
* In November 2014, hackers believed connected to the North Korean government accessed and released information from Sony Pictures' computer systems, including intellectual property, salary data, and employees personal information;
* In July 2014, 83 million customers' personal information and contact information was stolen from J.P. Morgan's systems;
* In June 2015, personal information from millions of U.S. government employees—at least 4 million, and as many as more than 20 million—was stolen from the computer systems of the Office of Personnel Management.
To be sure, not every event is so large or newsworthy. But for businesses who take seriously the need to protect their clients' information, the susceptibility of these victims speaks for itself - even the largest companies, financial institutions, and even governments can be victims of financial crimes. When your business depends on protecting the sensitive financial and personal information of your most important clients, this vulnerability has become one of your most pressing concerns.
Many companies, including accounting firms, are under the misimpression that general liability or professional indemnity insurance covers client losses resulting from cyber-crime. Unfortunately, this is commonly not true, as typical insurance policies cover client losses from the policyholder's own negligence but not from the actions of a malicious third party—which includes hackers, spammers, phishers, and other Internet criminals.
It is a sad irony that your insurance can protect your clients from losses resulting from your innocent mistakes, but not from the deliberate actions of anonymous actors deliberately attacking their personal and financial data. This makes it especially urgent for today's business firms to address their exposure to potential liability from Internet breaches and data losses from hackers.
Accountancy Insurance now offers a new solution for accounting firms in the service of cyber insurance. Business leaders who are concerned with their firms' possible exposure to losses stemming from malicious online attacks—and who isn't?—can rest assured with cyber insurance from Accountancy Insurance.
15th April 2016
The government’s recently-published 2016-17 federal budget offers an illuminating look at what’s in store for the country – as well as the types of changes that professional accountants across Australia will be working with. First we’ll look at some of the new personal and professional tax guidelines, and then we’ll examine what the consequences are likely to be for businesses, wealthy taxpayers and accountants.
For personal income tax, the threshold to enter the second-highest tax rate will be raised, allowing earners to pay 32.5% tax until they make $87,000 per year. By raising that amount from the previous level of $80,000, the government will keep up to 500,000 Australians at the lower tax rate rather than the 37% tax rate for income earned above that amount.
Small businesses will also find themselves on the receiving end of a tax break, as henceforth they will pay just 27.5% tax if they have a turnover of less than $10 million. The unincorporated small business tax discount will also be raised to 8% (eventually rising to 16%) for companies with an annual turnover of less than $5 million, up from the current amount of $2 million.
New restrictions for Australian citizens include a superannuation transfer balance cap of $1.6 million going into retirement phase accounts, as well as a $500,000 lifetime cap for non-concessional contributions. The rules and benefits surrounding superannuation have been adjusted in several other areas as well, to prevent superannuation from being used as a tax minimisation strategy.
Businesses and individuals should be aware of a new Tax Avoidance Taskforce and a Tax Transparency Code, set up to identify and prosecute entities for underpayment of taxes. In just the next 4 years, the government expects these additions to result in an additional $3.7 billion in revenue, a large part of which will apparently come after audits and investigations.
These changes in tax policy, and particularly the addition of qualitatively new methods of enforcing the letter of the law, mean that services like Audit Shield and PI Shield are becoming ever more necessary for professional accountants and their clients. These programs, both offered by Accountancy Insurance, protect accountants – and by extension, their clients, who are also on the hook for any special scrutiny of their tax reports.
Here’s how they work: In case of an audit, investigation, or other type of government scrutiny, Audit Shield covers the accounting firm’s additional labour cost that would otherwise be passed down to the client. Our Professional Indemnity Shield covers accounting firms that would otherwise need to pay costs resulting from legal action due to many different varieties of malpractice, from honest mistakes to lost documents and more.
In a changing system, the failure to use a safety net might be the biggest mistake an accounting firm could make.
22nd March 2016
In Australia, the required practice of setting up funding for retirement can take many forms. One of these forms is the self managed super fund, better known as an ‘SMSF’. There are always pluses and minuses when choosing a form of retirement option, and if you’re serious about handling the commitment involved with managing retirement funds, SMSF just might be the one for your clients.
The main advantage of SMSFs is that when Australian citizens set up this program, they (and their accountants) are left completely in charge of it. However, even as they decide on the investment schemes for the fund, they are also completely responsible for complying with the associated regulations for both SMSF and regular taxes. Opting for an SMSF is a critical and time-consuming decision, and the relative financial freedom it provides is offset by the extra layer of responsibility it demands; one of the major drawbacks of an SMSF is the extra time, attention and know-how required to properly manage it.
What AI can do
Fortunately, Accountancy Insurance is there to protect accountants who decide to set up compliant SMSFs for their clients, particularly if complications arise. For those dealing with the Australian Tax Office (ATO) on this and other matters, resolving legal and accounting issues can be a real nightmare even when no rules have been broken. As many around the country have learned through experience, even honest compliance with rules and regulations on taxes, superannuation funds and other delicate responsibilities does not guarantee that the ATO will leave you alone.
Whenever the ATO demands an audit or investigation of a personal financial statement, significant expenses can and will incur. The auditors and investigators that may be summoned or required by the ATO come at a hefty price. Accountancy Insurance offers its Audit Shield specifically to protect accountants from these sorts of external costs. If your clients are ever audited or investigated, the decision to rely on Audit Shield for complete coverage could save you a world of trouble.
We are proud to provide an extra layer of financial protection through our Audit Shield coverage, which covers a range of outcomes related to official reviews of SMSFs. Get in touch with us now to help set up Audit Shield for your clients.
19th February 2016
Taxpayers recently got a rude awakening at the hands of the federal government. Despite complaints of “heavy-handed and unfair treatment” at the hands of the Australian Tax Office, as well as formal recommendations to restrain that department’s powers to target people and organisations with invasive audits without any proof of wrongdoing, the government announced that it saw no need to roll back the ATO’s authority to initiate proactive investigations.
Moreover, the government also rejected formal requests to separate the ATO’s compliance from its appeals section – meaning that the same people who pronounce a verdict on tax compliance could also be the ones handling a potential appeal of that verdict.
Such a system increases the likelihood that individual taxpayers and businesses around the country could experience drawn-out investigations at the hands of the ATO, even if the lodgments under scrutiny were completed correctly. While the end result of a detailed audit will normally yield a fair resolution of the issue, the time, effort and expense of getting to that point can be enormously inconvenient. Independent expert analysts and other specialists may well be called in to contribute to the investigation, and the resulting bills will not be cheap.
Fortunately, there is a remedy for the cost. Accountancy Insurance’s Audit Shield protects individuals, businesses and Self Managed Superannuation Funds by insuring them against the cost of paying accountants and experts in the event that they are called upon by the government to prepare for official audits, enquiries, investigations and reviews. The protection is provided by you - the accountant - who must take out the cover with Accountancy Insurance and then offer the service to clients.
With Audit Shield, even if the government initiates an audit of a previous tax lodgment, clients of accountants are covered as long as the request itself comes during the period covered by the Audit Shield service. Without Audit Shield, on the other hand, ordinary accounting services – no matter how well they are performed – can still lead to costs spiraling out of control if the government decides to order a drawn-out investigation.
That’s why so many tax and advisory professionals are including Audit Shield as part of the standard package they offer to their clients. Ordinary individuals and businesses use accounting services as a bulwark to protect them from exposure to government fees, but without Audit Shield, they can find themselves facing significant fees from their own accountants if the government so much as initiates an audit or official enquiry.
A growing number of accounting firms across Australia, therefore, are bundling Audit Shield with their regular client services as a matter of course. Their customers, sensitive to the risks and the costs that come with government scrutiny, appreciate the extra layer of protection that Audit Shield offers. The accountants themselves are in a better position as well, since it can be difficult indeed to be reimbursed for the troubles incurred by the Australian Taxation Office.
For reliable coverage Accountancy Insurance’s Audit Shield can give both tax advisory companies and general businesses across Australia the freedom they need to get on with their work, without having to worry about what happens if the government decides to investigate their financial statements.