The 2010 Federal Election – Proposed tax reforms*

The Assistant Treasurer has announced that, if re-elected, the ALP would establish an advisory board at the ATO, to be known as the TAX System Advisory Board. Senator Sherry said the Board, to be made up of non-government members, would provide the Commissioner and ATO Executive Committee "a new, direct and in-built voice for the business and taxpayer communities in relation to ATO decision-making and culture". He said the Board will begin with "a review of the ATO's management practices to ensure the highest level of corporate governance".

Senator Sherry also announced that a re-elected Labor Government would "reshape" the Board of Taxation "by empowering it, in consultation with the government, to initiate its own reviews to examine how current tax policies and laws are operating". Senator Sherry also said a re-elected Labor Government would continue work to deliver a single Income Tax Assessment Act.

The Labor Government has announced that, if re-elected, it would introduce the simple, low-cost product called "MySuper" from 1 July 2013. It would replace existing default funds. The Government said it would introduce new standards that providers of MySuper product must meet:

• No entry fees, with exit fee limited to cost-recovery
• A ban on commissions and conflicted remuneration structures in relation to retail distribution and advice in line with the Government's financial advice reforms
• New duties that require super fund providers to deliver value for money or be stripped of their license by APRA
• A single, simple and easy-to-understand investment option designed to maximise a person's retirement income
• Anyone making contributions to superannuation will be able to open a MySuper account.

The Government also announced that it would introduce legislation to ensure that, from 1 July 2011, an individual's TFN will be the primary identifier of member accounts. This will be subject to strict conditions to ensure privacy and security of information. In addition, the Prime Minister indicated that the Government would release a full response to the recommendations of the Cooper Review by the end of 2010, following further industry consultation.

The Federal Opposition Leader Mr Abbott has announced that a Coalition Government would reduce company tax from 30% to 28.5% by 1 July 2013. He said the Coalition would "deliver modest, targeted and economically responsible tax relief in its first term". Mr Abbott said it had been estimated that this measure would cost $2.55bn over the forward estimates. He said this funding would be provided from the nearly $24bn in recurrent savings that had been identified by the Coalition over the forward estimates.

The Opposition also promised not to change the current laws relating to the treatment of personal services income (PSI). In Dec 2009, the Board of Taxation released its review into the operation of the PSI rules and suggestion for reforms were to:

• Address the alienation of income by entities deriving personal services income by extending the attribution rules to personal service businesses
• Clarify the rules around who is affected by the rules, possibly by implementing the tests of "employee-like manner" as originally recommended by the Ralph Report
• Introduce a deemed labour income approach that is derived from an individual's labour from the part that is a return to the business assets or capital.

In his 16 December 2009 press release, the Assistant Treasurer said the Board concluded that while the current rules had gone some way in achieving their intention of improving integrity and equity in the tax system, "the extent of this improvement is inadequate". He said the Board found evidence of a low level of compliance and a degree of uncertainty or "greyness" around the rules, such that, in their current form, "they do not provide acceptable levels of integrity and equity". At the time, the Government referred the Board's report to the Henry Review (as the Board recommended). The Assistant Treasurer said the Government would wait for the final report of the Henry Review before determining the "appropriate action in this area".

The Henry Review report, released on 2 May 2010 (together with the Goevernment's response), said consideration should be given to a revised regime to prevent the alienation of personal services income that would extend to all entities earning a significant proportion of their business income from the personal services of their owner-managers, whether in employee-like or non-employee-like cases (Recommendation 10): see 2010 WTB 18 [691]. This recommendation was neither accepted nor rejected by the Government in its initial response.

A concern expressed in a numbers of quarters, especially the small business sector, is that enactment of these proposals would see many self-employed and small business contractors inappropriately become "employees" for tax purposes.

The Coalition further promised a range of other measures concerning small business eg:

• To always include a small business presence on the Board of Taxation.
• To extend the unfair contract protections currently available to consumers to cover the small business sector.
• The Coalition said it would ensure government departments and agencies pay small business bills on time by adopting a "pay on time or pay interest" basis. This would not be limited to only "formal" contracts, but would apply to any small business that provides a service to the Government. If an account is not paid within 30 days, interest would be applied at the same rate as the GIC applied by the ATO to late tax payments. As an additional incentive to encourage ontime payments, Mr Abbott said department and agency budgets would not be topped up to cover their delinquency.
• In a Coalition Government, Mr Abbott said the Minister for Small Business would sit in Cabinet and would make an annual statement to Parliament on progress. Commonwealth departments and agencies would be required to publish their small business guidelines in their annual reports.
• The Coalition says it would establish a dedicated small business advocate - the Small Business and Family Enterprise Ombudsman. The Ombudsman would be empowered to ensure that small business concerns are registered and understood across all levels of government and the bureaucracy.
• Mr Abbott said a Coalition Government would "ensure genuine consultation with the small business sector about changes in government-imposed fees and charges to ensure that any change is implemented in a proportionate and equitable way".
• Under a Coalition Government, Cabinet proposals would be accompanied by an assessment of the potential impact on small business.
• The Coalition said it would reduce the compliance burden on small business and would adopt "the principle of minimum effective regulation for proposals to amend or extend compliance burdens on small business". Every Minister would be required to guard against growth in the regulatory burden and would, where possible, reduce existing red-tape. The Coalition said this responsibility would be included in the job description of every Minister, and they would be accountable to the Prime Minister and the Parliament for their performance.
• The Coalition said it would require the Australian Accounting Standards Board to justify additional disclosure and compliance obligations being imposed on non-listed enterprises in excess of adopting International Financial Reporting Standard for small to medium size businesses.

In an address in Sydney on 27 July 2010, the Leader of the Opposition Mr Abbott, said that many of the Henry Review's 138 recommendations had "no more than theoretical merit". However, he said that Dr Henry's suggestions about how to improve the tax transfer system should not have been ignored by the Government. Mr Abbott said Dr Henry's recommendations to raise the tax-free threshold to $25,000 and to make personal tax rates lower and flatter "should be considered a priority once budget surpluses are big enough to afford them".

Source: Opposition Leader's address to The Sydney Institute, 27 July 2010

The ALP has announced that, if it is returned to government, from 1 July 2011, businesses that undertake capital works to improve the energy efficiency of their existing buildings - from 2 stars or lower to 4 stars or higher - would be able to apply for a one-off bonus tax deduction of 50% of the cost of the eligible assets or capital works. For example, a business that invests $1m on assets or capital works to significantly improve the energy efficiency rating of its building, such as energy efficient lighting or air-conditioning systems, would be eligible for a bonus tax deduction of $500,000. The scheme would run until 30 June 2015.

Source:   ALP release, 25 July 2010

The PM has announced a package of measures designed to protect workers' entitlements. It includes:

•  Introducing legislation to ensure that workers' entitlements are protected even if the company they work for enters liquidation and can't pay them what they are owed. The so-called "Fair Entitlements Guarantee" will protect redundancy pay, up to a maximum of 4 weeks for each year of service. The Fair Entitlements Guarantee would replace the former Coalition Government's General Employee Entitlements and Redundancy Scheme (GEERS);
•  Measures to ensure employees receive information on their payslips about the amount of superannuation actually paid into their accounts and notification from their super fund if regular superannuation payments cease. The ALP proposes that the enforcement powers of the ATO and the Fair Work Ombudsman will be enhanced, giving them stronger powers to ensure businesses pay their employees' Superannuation Guarantee entitlements. The Government said it would consult with the superannuation industry, employer representatives and unions about the implementation of these measures;
• The strengthening of corporate and taxation law to better protect workers' entitlements:
  • The ranking of employee creditors working for unincorporated companies would be improved to bring their ranking into line with the priority given to employee creditors of incorporated companies.
  • According to the PM, a "process of public consultation" would consider stronger measures to prevent "phoenix" company behaviour, where a business closes down one day and opens up the next day with a different name just to avoid paying its obligations.
  • The PM said that "additional reform options" included improving compliance activity from the ATO and extending the promoter penalty regime to include schemes to avoid payment of tax and superannuation.
  • ASIC would be given stronger powers to place companies into liquidation when they have been abandoned by their directors. The PM said this is designed to ensure employees get swifter access to their unpaid entitlements through the Fair Entitlements Guarantee.
  • Directors would be made personally liable for the debts of companies that have "deceptively similar names to failed businesses previously run by the same directors".  This, the PM said, would draw on existing laws in New Zealand and the UK.

 Source: ALP announcement, 25 July 2010

The Coalition has announced that an Abbott Coalition government would, from 1 July 2013, totally abolish the Superannuation Guarantee age limit. Currently, the Superannuation Guarantee only applies to workers up to the age of 70. Under the Coalition's plan, any worker, no matter their age, would be guaranteed to receive superannuation contributions from their employer. The Coalition said it believes the current age limit on the Superannuation Guarantee unfairly discriminates against older workers and forces them into retirement.

Source: Coalition announcement, 23 July 2010

Coalition says it will restore indexation to the childcare rebate

The leader of the Federal Opposition, Mr Abbott, said the Coalition would reintroduce indexation to the childcare rebate, a measure worth $300 a year per child to families on the maximum rebate rate. The Child Care Rebate covers 50% of out-of-pocket child care expenses for approved child care up to an annual cap of $7,778. The Coalition also said it would seek to have Child Care Rebate paid weekly and directly to child care providers.

Source: Coalition release, 26 July 2010

Thomson Reuters note

The Child Care Rebate currently has an annual cap of $7,778 of out-of-pocket expenses. In the 2010-11 Federal Budget on 11 May 2010, the Government announced that it would cap the annual Child Care Rebate to the 2008-09 level of $7,500 per child from the current annual cap of $7,778 per child: see 2010 WTB 20 [772]. However, the Government said the reduction in the Rebate will not alter the percentage of out-of-pocket expenses reimbursed by the Commonwealth. The Government also announced that it would pause the indexation of the cap for 4 years.

The Family Assistance Legislation Amendment (Child Care Budget Measures) Bill 2010, which lapsed with the calling of the election, proposed to amend the A New Tax System (Family Assistance) Act 1999 to set the annual child care rebate limit at $7,500 for 4 income years starting from 1 July 2010, with the first indexation of this amount occurring on 1 July 2014: see 2010 WTB 23 [894].