Mark Rantall

Yesterday’s tabling of a Bill to provide for fairer taxation of excess contributions in super is a welcome measure designed to create greater equity for lower and middle income earning Australians.

Yesterday’s Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013 provides a fair and considered response to resolving a fundamental imbalance for many Australians.

Mark Rantall, CEO of the FPA said:

“The FPA welcomes the tabling of this Bill into Parliament and on behalf of our members and the millions of Australians they serve, we are pleased to see a genuine attempt by legislators to bring greater balance to the process of taxing excess contributions to super. The FPA has been calling for change to the unfair penalties for excess concessional contributions for many years.

“It is vital to regain balance and equity in our taxation system, and the key area of taxation of superannuation’s concessional contributions is the right place to stay focused.”

The changes contained in the legislation will enable excess concessional contributions to be included in an individual’s taxable income and allow them to be taxed at the individual’s marginal tax rate regardless of their income or the cause of the breach. A non-refundable tax offset of 15 per cent will be provided to individuals to account for the income tax paid by their fund.

The changes will apply to contributions made on and after 1 July 2013.

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“The ATO pursues tax cheats to the full extent of the law to ensure people who pay their fair share of tax are not disadvantaged,” Tax Commissioner Michael D’Ascenzo said.

“The courts view these matters seriously with seven custodial sentences handed down this quarter, as well as a suspended jail sentence, good behaviour bonds and community service orders.”

“A record jail term of nine years was handed to Vanuatu based accountant Robert Agius for his role in promoting a tax minimisation scheme. He was the twenty-eighth person to be sentenced under Project Wickenby.”

“We don’t just prosecute complicated fraud schemes – this past quarter saw a range of offences including not lodging tax forms and making false and misleading statements.” Mr D’Ascenzo said.

From 1 July to 30 September 2012:

• 13 people were convicted of serious tax and superannuation related criminal offences, including two prosecuted under Project Wickenby
• 452 taxpayers were convicted of deliberately evading their tax and superannuation obligations, including 440 taxpayers who failed to lodge tax returns and activity statements despite reminders and notices demanding lodgement.

The ATO continues to improve automated detection methods and works closely with partners in government, law enforcement and industry to identify people avoiding their obligations.

“Our increasingly sophisticated information matching capabilities enable us to catch those cheating the system and protect the overall integrity,” said Mr D’Ascenzo.

“Tax dollars fund vital government services such as health care and schools and superannuation funds our retirement. Those who cheat the system cheat the community.”

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Developed by the Australian Taxation Office (ATO), the new Digital Curriculum Resource, Tax, Super + You was launched today at MacGregor State High School in Brisbane.

The new resource helps students gain a better understanding of how the taxation system works to support the community and how superannuation can provide for their retirement income.

“This is a fantastic new online resource that teachers will be able to use in schools to help explain to their students how our taxation system works,” Mr Bradbury said.

“It will also help to improve financial literacy, with interactive scenarios that will help give students the skills they need to better manage their tax and super when they leave school.”

Taxation Commissioner Michael D’Ascenzo said the ATO had conducted extensive consultation with students and teachers in developing the new resources and had trialled the package in a number of schools around Australia, including MacGregor State High School.

“In developing Tax, Super + You we wanted to ensure it would be able to be integrated as easily as possible into any class curriculum,” Mr D’Ascenzo said.

“It includes suggested lesson plans to help teachers when needed but also can be used as a self-paced learning tool, lessening the demand on teachers.”

Local Federal Member for Moreton, Graham Perrett, said that local students would benefit from access to these new digital curriculum resources.

“Tax, Super + You empowers young people to take control of their financial future and I look forward to seeing the students from MacGregor State High School learn more about our taxation and superannuation system and how it benefits them and their local community,” Mr Perrett said.

11 July 2012

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The TOFA reforms were first announced in the 1992 budget and were later taken up by the Review of Business Taxation. The review’s final report – A Tax System Redesigned (the Ralph report) – made various recommendations about the taxation of financial arrangements.

While some of the recommendations made in the Ralph report were rejected, several of the concepts proposed have been implemented progressively over the years. Stages one and two of these reforms were introduced in 2001 and 2003 respectively.

The recently introduced Division 230 implements stages three and four of the TOFA reforms.

TOFA is intended to reduce the influence of tax considerations on how financial arrangements are structured, emphasising other factors, such as risk, when making financing decisions.

Although TOFA provides a comprehensive and overarching framework to address the economic substance of arrangements, it is not an exclusive code for the taxation of gains and losses from financial arrangements.

Unless otherwise specified, other provisions of the Income Tax Assessment Act 1936 (ITAA 1936) or the Income Tax Assessment Act 1997 (ITAA 1997) still deal with gains or losses from financial arrangements where TOFA does not.

(All legislative references in this guide are to provisions of the ITAA 1997 unless otherwise specified.)

Problems with how tax law applied to financial arrangements before TOFA

Before the TOFA reforms, the income tax law placed too much emphasis on legal form rather than the economic substance in the context of financial arrangements. This resulted in inconsistencies between the tax treatments of different types of transactions that have similar economic substance.
x
Also, the inflexible, form-based rules did not keep pace with financial innovation, creating opportunities for tax deferral and tax arbitrage.
x
Income and deductions from financial arrangements were often dealt with on a realisation basis, although some income and deductions from financial arrangements were dealt with on an accruals basis. This meant that the income tax law did not adequately take into account the time value of money or provide for an appropriate allocation of income over time.
c
Previously, the way tax law applied to financial arrangements resulted in tax-timing and tax-status mismatches between revenue and capital items. Also, the law did not address the tax-timing treatment of emerging hybrid instruments or new structured products, including those with fixed and contingent returns.
c
The piecemeal approach to amending the law to address a new product or fix a problem resulted in complex law that was a combination of both general and specific provisions.

Click to view more details about the tax treatment of gains and losses, hedging and general information about the TOFA reforms visit the ATO website

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