Interview with Meghan Speers, Australian National Leader – Business Tax Advisory
What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
Unusually for Australia, the last 12 months have been characterized by minimal changes in tax legislation. The focus of the Federal Government over that period was to respond to COVID-19 (principally non-tax responses). The tax system had a significant role in the initial responses to COVID-19 in 2020, with those measures that are either completed or winding down. The other recent factor has been the May 2022 Federal election, which saw a change of Government, which has resulted in a transitional period as the new Labor Government starts to announce and implement its agenda on tax and other matters.
What has been the most significant impact of that change?
The relative inaction on tax matters has meant that many previously announced tax measures have not progressed, resulting in an uncertainty for taxpayers and advisers.
What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
In May 2022, Australia held a federal election, and a new Labor Government was formed. The new government has indicated that it will be pursuing a modest tax reform agenda, at least in its first term, primarily in respect of multinational taxation.
A major change will be the tightening of interest deductibility via changes to the thin capitalization regime. It is proposed to limit debt-related deductions to 30% of earnings before interest, tax, depreciation, and amortization (EBITDA), broadly in line with the Organisation for Economic Co-operation and Development’s (OECD) recommended approach. Additionally, it is proposed that certain royalties paid offshore will be treated as non-deductible, although the scope of this measure is unclear. Both of these measures will be effective from 1 July 2023.
Separately, the new government has also indicated an increase in tax transparency measures, potentially similar to the European Union (EU) approach of public reporting of the country-by-country information.
What are the potential outcomes that might occur if those changes are implemented?
Both the new interest restriction and royalty rules are complex measures and are due to commence in mid-2023. A significant amount of work remains in order to refine the policy proposals and to develop a draft law to give effect to these matters. This is resulting in an uncertainty and most likely in a short lead time to respond to these changes. This is unlikely to be positive for confidence in the business community.
Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
There are a significant number of announced but unenacted proposed changes carried over from previous governments. Previous announcements relating to the Skills and Training Boost, Technology Investment Boost, and reducing the compliance burden of Fringe Benefits Tax (FBT) record keeping have been prioritized by the new government. Previous announcements relating to the introduction of a patent box regime, modernizing the rules in respect of individual and company tax residency are also important, although the status of these changes under the new government is unclear at present.
At some stage, Australia will need to address comprehensive tax reform in order to address budget concerns, to improve productivity, and to meet community expectations around spending on defence, infrastructure, education, and welfare.
How do you believe those changes would help improve the tax landscape in your market?
Addressing the long list of previously announced measures is important to reduce uncertainty for taxpayers and advisers.
In the long-term, reforms to the tax system should be debated and implemented in order to improve skills and productivity, to support a transition to a lower carbon economy, and to address the budget deficit and national debt, whilst meeting the community demand for services. This is a very challenging but necessary task.
How are issues surrounding the taxation of the digital economy affecting your work?
The new Labor Government has indicated that it will implement the OECD’s global two-pillar solution to taxing the digitalization and globalization of the economy in line with global actions. Very few Australian groups are likely to be subjected to Pillar 1, so the principal impact in Australia is possible additional tax collections from foreign multinationals. It is expected that many Australian groups will be within the scope of Pillar 2. Notwithstanding a comprehensive Controlled Foreign Companies (CFC) regime, Australian groups are beginning to address the compliance and reporting processes that will result from Pillar 2.
How would you describe the tax authorities’ approach in your region/jurisdiction?
The Australian Taxation Office’s (ATO) focus in the last few years has been characterized by various measures designed to encourage taxpayer behavioural change. The ATO has shifted from issuing a large number of technical rulings to issuing numerous Practical Compliance Guidelines, outlining a spectrum of risk that is likely to attract more ATO attention or less ATO attention. This has been supported by a smaller number of rulings addressing contentious issues and longstanding market practices, supported by a more selective litigation program.
In particular, large public and multinational businesses generally are closely scrutinized via the ATO’s Justified Trust program, which seeks objective evidence that would lead a reasonable person to conclude that a particular taxpayer has paid the right amount of tax. This Justified Trust program is now being rolled out to private groups and high net worth families.
This document has been prepared solely for the purpose of publishing in the 2023
ITR World Tax Guide and may not be used for any other purpose. This document
and its contents may not be reproduced, redistributed or passed on, directly or
indirectly, to any other person in whole or in part without Deloitte’s prior written consent.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited
(“DTTL”), its global network of member firms, and their related
entities (collectively, the “Deloitte organization”). DTTL (also referred
to as “Deloitte Global”) and each of its member firms and related
entities are legally separate and independent entities, which cannot
obligate or bind each other in respect of third parties. DTTL and each
DTTL member firm and related entity is liable only for its own acts
and omissions, and not those of each other. DTTL does not provide
services to clients. Please see www.deloitte.com/about to learn more.
This communication contains general information only, and none of
Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of
member firms or their related entities (collectively, the “Deloitte
organization”) is, by means of this communication, rendering
professional advice or services. Before making any decision or taking
any action that may affect your finances or your business, you should
consult a qualified professional adviser.
No representations, warranties or undertakings (express or implied)
are given as to the accuracy or completeness of the information in
this communication, and none of DTTL, its member firms, related
entities, employees or agents shall be liable or responsible for any
loss or damage whatsoever arising directly or indirectly in connection
with any person relying on this communication. DTTL and each of its
member firms, and their related entities, are legally separate and
independent entities.
© 2022. For information, contact Deloitte Global.
