TAX AND DUTY UPDATE 7 DECEMBER 2017

Transcription

1 TAX AND DUTY UPDATE 7 DECEMBER 2017 Manuel Makas, Director Head of Real Estate, , manuel.makas@greenwoods.com.au Andrew White, Director, , andrew.white@greenwoods.com.au Chris Colley, Director, , chris.colley@greenwoods.com.au Andrew Howe, Director, , andrew.howe@greenwoods.com.au Daniel Sydes, Director, , daniel.sydes@greenwoods.com.au Jinny Chaimungkalanont, Partner, Herbert Smith Freehills, , jinny.chaimungkalanont@hsf.com

2 INTRODUCTION DANIEL SYDES

3 AGENDA Introduction Division 6C, Stapled Groups Consultation, new CIV regime, Build-to-Rent Manuel Makas Thin capitalisation and cross-border debt Daniel Sydes Reporting regimes (FATCA, CRS, CbC and TPP) Daniel Sydes and Andrew White Significant Global Entities and Corporate Tax Rate reduction Chris Colley Land Tax and GST Andrew Howe Stamp Duty Jinny Chaimungkalanont 3

4 THE CHANGE IN THE REGULATORY ENVIRONMENT That was then: Chris Bowen Minister for Financial Services, Superannuation and Corporate Law Media Release of 15/01/2010 NO.003 Joint Media Release with Senator The Hon Nick Sherry Assistant Treasurer Government Welcomes Johnson Report on Australia as a Financial Services Centre This is now: 4

5 DIVISION 6C, STAPLED GROUPS, CIVS, BUILD- TO-RENT MANUEL MAKAS

6 DIVISION 6C, STAPLED GROUPS, CIVS, BUILD-TO-RENT 1. Division 6C ATO working group update recent activity 2. Stapled Groups Review Government review update Recent activity 3. CIV regime Update as to status 4. Build-to-Rent Update regarding MIT limitation Recent activity 6

7 STAPLED GROUPS REVIEW Non-resident interest 0% - 10% tax rent 15% tax licence fees Op Co rent interest Prop Trust Trading Business Property 7 7

8 STAPLED GROUPS REVIEW Pension Fund 100% MIT Debt 20% Trust Trading Business 8 8

9 THIN CAPITALISATION AND CROSS-BORDER DEBT ISSUES DANIEL SYDES

10 THIN CAPITALISATION Claims interest deductions Non-resident Investor Investment Vehicle Loan 60% of Aus Vehicle s assets Claims interest deductions Overseas Australia 49% Aus Vehicle Loan 60% of Aus Vehicle s assets 10

11 RELATED PARTY DEBT WHAT THE ATO IS LOOKING AT (PCG 2017/D4) Self-assessment of related party debt risk based on qualitative and quantitative factors Who does the PCG impact? Part of the FIRB process Reportable Tax Position schedule The PCG is neither a public ruling nor safe harbour. However, lower risk rating = lower risk ATO will allocate compliance resources CTA submission indicated that 74% of related party debt entered into would fall into either the Yellow, Amber or Red Zone PCG applies retrospectively from 1 July 2017 and applies to new and existing related party debt 11

12 PCG 2017/D4 THE RISK ZONES Risk Zone Level of risk Consequences White No further risk None Green Low risk ATO will not apply compliance resources beyond confirming risk rating calculation Blue Low to moderate risk ATO will actively monitor arrangements and review by exception Yellow Moderate risk ATO will apply compliance resources to understand and resolve any differences Amber High risk ATO review will be commenced as a priority Red Very high risk ATO review will be commenced as a priority and will lead to audit 12

13 DETERMINING YOUR RISK ZONE 13

14 FIRB AND ATO INTERACTION The Treasurer has now assigned the ATO with responsibility of determining the tax impact of every foreign investment proposal ATO can now cause the imposition of additional tax conditions, veto potential investments or cause divestment of existing investments perceived to be contrary to the national interest Extends the existing power of the ATO beyond the law 14

15 REPORTING REGIMES DANIEL SYDES AND ANDREW WHITE

16 FATCA AND CRS Who needs to report? FATCA requires registration with IRS What do they report on? Equity held by US/ foreigners Debt issued to US/ foreigners By 31 July of the following calendar year E.g. 31 July 2018 for y.e. 31 Dec 2017 TRUST A TRUST B FI (CUSTODIAN) 16

17 THIRD PARTY REPORTING Third party reporting regime aims to provide the ATO with more data in order to pre-fill tax returns for individual taxpayers; and enable the ATO to identify and collect possible tax-related liabilities from certain transactions Applies to reporting entities (building and construction industry businesses, investments bodies, employers etc). Requirement to report information relating to transactions which may relate to taxrelated liabilities, including the transfer of real property, shares and units, payment of wage and salary etc. Treasury completed a consultation process in Timing concern: Third party reporting due 31 July for entities with a 30 June year end, does not align with reporting dates for managed funds (Annual Investment Income Report due 31 October). 17

18 COUNTRY-BY-COUNTRY REPORTING Country-by-country (CbC) reporting is an international measure aimed at combating tax avoidance Provides ATO with information to assess transfer pricing risks and, when necessary, to comment and target audit enquiries. Applies to significant global entities (broadly, a member of a group with an annual global income of $1 billion or more) Requirement to lodge three statements with the ATO, within 12 months after the end of the reporting period CbC report: covers global allocation of income and taxes paid master file: overview of the group business and transfer pricing policies local file: focuses on transactions between related entities 18

19 SIGNIFICANT GLOBAL ENTITIES AND CORPORATE TAX RATE REDUCTION CHRIS COLLEY

20 SIGNIFICANT GLOBAL ENTITIES Major gateway for a range of anti-avoidance and tax transparency rules Member of an accounting consolidated group with gross accounting revenue of A$1 billion No requirement to actually have any overseas investments / investors SGEs: must comply with country by country reporting must if a corporate entity, lodge general purpose financial reports if not already lodged with ASIC are subject to the MAAL (permanent establishment avoidance) and DPT (transfer pricing avoidance) are subject to enhanced penalties for late lodgment 20

21 REDUCED CORPORATE TAX RATE Directed at small business but can have wider application Relevant thresholds and tax rates Income Year Aggregated Turnover Tax Rate (%) 2017/18 $25 million 27.5% 2018/19 $50 million 27.5% 2024/25 $50 million 27.0% 2025/26 $50 million 26.0% 2026/27 $50 million 25.0% Can have a negative effect if an entity has accumulated franking credits 21

22 REDUCED CORPORATE TAX RATE Aggregated turnover is gross income of: the taxpayer; entities that control the taxpayer; entities that are controlled by the same entity that controls the taxpayer an individual or company that would be expected to act in accordance with the taxpayer s wishes Does not necessarily include the trust side of a stapled group Must have no more than 80% passive income (dividends, income rent, etc): character flows through trusts non-portfolio (>10%) dividends are not passive net capital gains are passive income, even if they relate to an active asset 22

23 LAND TAX AND GST ANDREW HOWE

24 GST WITHHOLDING BY RESIDENTAL PURCHASERS New measure puts the onus on purchasers of new residential property (and also potential residential property) to withhold 1/11 th of contract price (or possibly lower for margin scheme) and pay the amount over to the ATO Most of reported benefit comes from one-off cashflow influx to Treasury ($1 billion of $1.6 billion overall benefit) Due to take effect from 1 July 2018 tight time frame Treasury were hoping to get legislation through Parliament before Christmas but now not until Autumn sittings Lots of practical issues to resolve prior to implementation 24

25 PROPOSED MECHANISM Vendor Notification Prior to completion (could be in contract) Must advise purchaser of obligation to withhold (or not), amount to withhold and ABN Penalties for failure to notify/incorrect notifications Purchaser Notification Also prior to completion Notification to ATO ATO will provide number to use when withholding Purchaser Withholds Must withhold 1/11 th of contract price [or potentially lower if margin scheme applies TBC] Can rely on Vendor Notification unless unreasonable True up of GST amount Vendor must still include GST liability in BAS but will get a credit on RBA Credits are only available where purchaser has withheld AND paid amount to the ATO 25

26 MAIN ISSUES Issue Transitional arrangements Potential residential land [will B2B transactions be excluded?] No general exemption for good taxpayers Notification issues Completion issues electronic payment before settlement?? PDA issues 26

27 NSW LAND TAX LESSONS FROM OBJECTIONS Lots of mistakes on LTAs: inconsistent allowance for subdivisions inconsistent/non-existent profitable expenditure allowance no averaging wrong land/taxpayer difficulties with surcharges & exemptions 27

28 NSW LAND TAX LESSONS FROM OBJECTIONS OSR/Valuer General pushing back on inconsistencies Invariably asking for more information Very time consuming process Long lead times Focus on big ticket items and easy wins??? 28

29 STAMP DUTY JINNY CHAIMUNGKALANONT

30 STAMP DUTY KEY DEVELOPMENTS What? Marketable securities duty (share transfer duty) What changed? Abolished Can incorporate a company or keep unit register anywhere (but Qld is not recommended) Mortgage duty Abolished Corporate reconstruction relief Available Australia wide, with more lenient conditions Intra-group transaction may more readily qualify for exemption Focus on land as key duty base Landholder duty Foreign purchaser surcharge for residential land Increasing frequency of valuation disputes South Australia Current stamp duty rate is 1.83% Stamp duty to be abolished on 1 July 2018 for land transfer (except for residential and primary production land) 30

31 FOREIGN PURCHASER SURCHARGE FOR RESIDENTIAL LAND Vic Foreign purchaser additional duty NSW Surcharge purchaser duty Qld Additional foreign acquirer duty Base duty rate 5.5% 5.5% / 7% 5.75% Duty surcharge 7% 8% 3% Start date 1/7/15 (3%), 1/7/16 (7%) 21/6/16 (4%), 1/7/17 (8%) 1/10/16 Residential land existing home residential development land capable of or intended for residential use future change in intention existing home residential development vacant land zoned residential existing home residential development land is or will be used for residential Exclusions / exemptions commercial residential premises hotel, student accommodation, retirement village, aged care, caravan park discretionary exemption where increase to housing stock exemption for commercial residential premises, purpose built student accommodation exemption/refund for Australian based developer corporation if it constructs a new home or subdivides for purpose of new home construction; refund available in respect of new homes/subdivided lots sold to unrelated persons within 10 years OSR: short term accommodation, hotel, motel, dormitory-style student accommodation retirement village, manufactured home parks and other student accommodation to be considered case by case ex gratia relief for significant development Foreign purchaser > 50% foreign person incl associates FATA : 20% foreign person or 40% foreign persons, incl associates 50% foreign person(s) incl related persons (incl if foreign within 3 years of transaction) * Duty surcharge also proposed for South Australia (7%, from 1 January 2018), and Western Australia (4%, from 1 January 2019). 31

32 CONTACT US Jinny Chaimungkalanont Partner, Sydney T jinny.chaimungkalanont@hsf.com Daniel Sydes Director, Sydney T daniel.sydes@greenwoods.com.au Andrew Howe Director, Sydney T andrew.howe@greenwoods.com.au Manuel Makas Director, Sydney T manuel.makas@greenwoods.com.au Chris Colley Director, Sydney T chris.colley@greenwoods.com.au Andrew White Director, Sydney T andrew.white@greenwoods.com.au 32

33 SYDNEY ANZ Tower, 161 Castlereagh Street Sydney NSW 2000 T F MELBOURNE 101 Collins Street Melbourne VIC 3000 T F PERTH QV.1 Building, 250 St Georges Terrace Perth WA 8000 T F The contents of this publication, current at the date of publication set out in this document, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication Greenwoods & Herbert Smith Freehills Pty Limited ABN