As a part of the Budget, the Government announced a large number of integrity measures. In particular, proposing to expand the scope of the income tax general anti-avoidance rule, with a focus on cross-border transactions.
Expanding the scope of Part IVA to cross-border arrangements
It has been over 10 years since the Government last made amendments to the general anti-avoidance rule in Part IVA. The Government has now announced that it will further strengthen Part IVA to broaden its potential application to certain cross-border transactions. Currently, Part IVA can apply to cancel a tax benefit obtained by a taxpayer, where the main purpose of entering into the transaction was to obtain an Australian tax benefit.
While the details were limited, the Budget announcement indicated that Part IVA will be reinforced, so that it can apply to two new categories of cross-border arrangements.
The first category includes schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents. While Part IVA can already apply to schemes that result in no Australian withholding tax liability on an amount, it appears that the rules will be expanded where the arrangement results in a lower withholding tax rate being imposed. This may apply to a number of arrangements, including where:
- Taxpayers interpose entities within a group structure to ‘treaty shop’, thereby accessing lower dividend or royalty withholding tax rates; and
- Income is re-characterised into a different form such that it is subject to a lower rate of withholding.
The second category is where schemes achieve an Australian income tax benefit, but where the main purpose was to reduce foreign income tax. Presently, where the main purpose of a scheme was to reduce foreign tax, Part IVA may not apply to cancel an Australian tax benefit.
While the measures will commence from 1 July 2024, the amendments can apply regardless of when the transaction was entered into. Consequently, there will be no grandfathering of existing arrangements.
Four year extension to the GST Compliance Program
The robustness of ATO systems has been in the spotlight more recently, with Operation Protego targeting individuals for inventing fake businesses to apply for ABNs and lodge fabricated business activity statements to generate a GST refund. The ATO has stated that since identifying the scheme, it has stopped approximately $2.5billion in fraudulent GST refunds, with a number of arrests also being made.
Further funding ($589million) is being provided to the ATO over four years from 1 July 2023 to target business taxpayers’ compliance with GST obligations. This will cover all aspects of GST compliance, from accurate accounting and reporting to remitting the right amount of GST and correctly claiming GST refunds.
The ATO has already been actively utilising its GST Analytical Tool and Data Analytics program as part of ongoing compliance reviews and now looks set to extend and enhance these programs. Part of the funding has also been earmarked for aiding the development of more sophisticated analytical tools to help the ATO target emerging risks to the GST system.
The Government is forecasting a $3.8billion increase in GST receipts, with other tax receipts expected to also increase by $3.8billion over the five years from 2022-23 as a result of the increased compliance funding.
We expect the increased funding to trigger more frequent and more extensive GST reviews of high-net-worth groups and businesses over the next five years
Additional increased funding to target compliance
The Government has also announced that it would provide additional funding to the ATO and Treasury in relation to several other programs aimed at improving compliance including:
- Programs to enable the ATO to continue to address emerging areas of risk including the claiming of deductions relating to short-term rental properties to ensure they are genuinely available to rent.
- Programs to facilitate the ATO to engage with taxpayers that have debts over $100,000 outstanding for more than two years. A broad range of taxpayers will be targeted, including public and multinational groups with an aggregated turnover of more than $10million, or privately owned groups or individuals with net wealth of over $5million.
- Data matching programs targeting superannuation guarantee underpayments.
- Extending and merging the Serious Financial Crime Taskforce (SFCT) and Serious Organised Crime program (SOC) to 30 June 2027. Currently, these are separately funded cross-agency programs targeting organised crime groups and serious financial crime and tax evasion.
A lodgement penalty amnesty program was also announced for small businesses with an aggregated turnover of less than $10million. In an effort re-engage those taxpayers with the tax system, the amnesty will remit failure-to-lodge penalties for those tax statements, originally due during the period from 1 December 2019 to 29 February 2022, that are lodged during the amnesty period 1 June 2023 to 31 December 2023. These measures are estimated to increase receipts by $718million over the forward estimates.