Effective from 1st August 2023, the coverage of paid family and domestic violence leave will be extended to employees working for small business employers (with fewer than 15 employees) that was previously limited to non-small business employers.
From 1 February 2023, employees of non-small business employers (employers with 15 or more employees on 1 February 2023) were able to access 10 days of paid family and domestic violence leave per annum.
What is changing?
Employees employed by small business employers (employers with less than 15 employees) will be able to access 10 days paid leave per annum from 1 August 2023. It will be a minimum leave entitlement such as annual, sick and carer’s leave.
The leave entitlement will be available to part-time and casual employees. It is not pro-rated for part-time or casual employees.
It is an entitlement upfront and will not accumulate from year to year if it is not used.
What is the leave used for?
The leave can be taken to deal with the impacts of family and domestic violence where it is not practical to do so outside of their working hours.
This might include:
- Making arrangements for their own or a family member’s safety including relocation
- Attending court or accessing police services
- Attending counselling, or appointments with medical, financial, or legal professionals.
The leave can be taken as single or multiple days, or as part days by agreement with the employer.
Can an employer ask the employee to provide evidence?
An employer can request for evidence to show the employee needs to attend to something and it is not practical to attend to it outside their work hours.
Types of evidence an employee may provide include:
- A Statutory Declaration
- Family violence support service documents
- Documents issued by a police service, or
- Documents issued by a court.
Employers must take reasonable steps to keep information about notice or evidence for family and domestic violence leave confidential.
How much is to paid to an employee?
For full-time or part-time employees leave must be paid at the employee’s full rate of pay for the hours they would have worked had they not taken leave.
Casual employees must be paid at their full rate of pay for the hours they were rostered to work in the period they took leave.
The employee’s full pay rate is their base rate plus any loadings, allowances, overtime and penalty rates, bonuses, incentive payments or other separately identifiable amounts.
Is superannuation payable ?
Paid family and domestic violence leave is considered Ordinary Time Earnings (OTE), therefore superannuation is payable.
How are these payments to be shown on the payslip?
The pay slip must not categorise the amount as family and domestic violence leave payments.
The earnings must be shown as ordinary hours of work, or another kind of payment for performing work such as an allowance, bonus or overtime payment. It is best practice to show these amounts on the pay slip in a way that makes it appear the employee has not taken leave.
Employers must also keep a record of the accrued leave balance and leave taken by employee outside of the payroll system. Payslips must not show family and domestic leave days being taken or the accrued leave balance.
What if an employers fail to comply with the family and domestic violence provisions?
Non-compliance with paid family and domestic violence leave provisions will give rise to breaches of the civil remedy provisions under Part 4-1 of the Fair Work Act, exposing employers and individuals such as managers, to prosecution and significant monetary penalties.
What does this mean for small business employers?
Employers must ensure they comply with the new laws and provide these benefits to relevant employees.
Employers should:
- Provide education and training to managers on the content of the new laws and how to deal with applications for the leave
- Communicate the relevant changes to staff
- Review and update payroll systems, policies and procedures to ensure compliance
- Consider reviewing and changing employment contracts to include new leave entitlements
- Restrict record keeping and communication to in person and in writing (in an employee’s physical file) at the workplace. This is for the safety of the victim, as domestic violence offenders will often have access to the victim’s email, work logins and physical mail
- Implement record-keeping arrangements to track leave taken and leave accrued
- Begin planning and budgeting for payments.
How can SW help
- SW has an experienced outsourcing team to assist with your payroll function. We assist employers in understanding and becoming familiar with the new requirements to make this change as easy as possible, while also ensuring employers are meeting compliance requirements
- Review and assist with updating the payroll systems to ensure compliance
- Review processing of leave payments and disclosure on payslips
- Assist with implementing and record-keeping arrangements to track leave taken and leave accrued outside of the payroll system.
在过去85年里，信永中和已帮助成千上万的个人与家族客户实现财务独立。信永中和家族理财室（SWFO）于1935年始创于澳大利亚，是成熟的多家族理财室，专门为可投资资产达2,500万美元或以上的家族提供定制家族理财室服务。
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Welcome news for foreign property investors in NSW as Revenue NSW removes foreign owner surcharge land tax and surcharge purchaser duty effective immediately, with refunds backdated to 1 January 2021.
UPDATE – 29/05/23
On 29 May, Revenue NSW released an update on the foreign owner surcharge, following their announcement on 21 February. Revenue NSW identified four furthe countries as additional nations that have international tax treaties with the Federal Government: India, Japan, Norway, and Switzerland.
Citizens from these countries will no longer be required to pay surcharged purchaser duty or surcharge land tax. The refund period has been extended for purchasers/transferees and landowners from these countries who paid surcharge duty or surcharge land tax on or after 1 January 2021 (previously 1 July 2021).
SW previously noted that other states may follow the NSW lead. At this time, the Victorian State Revenue Office has advised that it will continue to apply the surcharge to all foreign purchasers and absentee owners, and Queensland has taken no action.
ORIGINAL – 24/02/23
Revenue NSW has identified that the surcharge purchaser duty and foreign owner surcharge land tax provisions are inconsistent with international tax treaties entered into by the Federal Government with New Zealand, Finland, Germany and South Africa.
Effective immediately, citizens of these countries purchasing residential-related property (in their own capacity) will no longer be required to pay NSW foreign owner surcharge duty or foreign owner land tax surcharges on those properties. Foreign owner surcharges are significant – currently the stamp duty surcharge is 8% of dutiable value and the land tax surcharge is 4% from the 2023 land tax year onwards.
Surcharge tax liabilities for non-individuals, such as corporations, trusts or partnerships that arise because of an entity’s affiliation with these nations may also be affected by the international tax treaties.
Refunds may be available where surcharge taxes have been paid by investors from these countries from 1 July 2021 onwards.
Surcharge taxes and International Tax treaties
Certain international tax treaties entered into between Australia and other relevant countries contain a non-discrimination provision. Broadly, the intent of these provisions is to ensure that a resident of the other treaty country is not subjected in Australia to any tax which is more burdensome than that imposed on an Australian resident. This is typically limited to federal taxes, such as income tax and fringe benefits tax.
However, the treaties entered into between Australia and the now exempted countries (New Zealand, Finland, Germany and South Africa) provide a more encompassing non-discrimination provision which broadly applies to taxes of every kind imposed by Australia – which would include state taxes such as land tax and duty.
In this regard, Revenue NSW have conceded that the current NSW surcharge provisions are contradictory to the tax treaty applying to these countries.
Implications for other nations
It is not yet known how the recent changes will impact on residents from other countries. There may be other international treaties with non-discrimination provisions which may also need to now be considered in light of these changes.
Application for refunds
Revenue NSW have stated that they will proactively identify customers and transactions that may be eligible for the removal of surcharge purchaser duty and surcharge land tax. Where a transaction has been identified for the removal of surcharge taxes, a Revenue NSW representative will contact the relevant person to make arrangements for the payments to be refunded.
To ensure you are eligible for the refund, Revenue NSW will require a certified copy of your current passport or citizenship certificate. Once this information has been received, refunds will be processed within 28 days.
If Revenue NSW does not contact you and you believe that you may be eligible for a refund, you can contact Revenue NSW directly in relation to the matter. If you require assistance with the application for a refund, please reach out to us at SW.
Action from other states
The Victorian State Revenue Office has stated that it has taken note of the changes in NSW and is currently considering the implications of this in relation to surcharge taxes in Victoria.
At the time of writing no other revenue office has commented on this matter, however, the relevant DTAs would potentially apply to surcharges imposed by all Australia States, and further announcements may follow.
How SW can help
In some cases, property owned by a Trust or company may be considered for the refund where the foreign citizen of these countries has a substantial interest in the entity.
If you need any assistance determining whether you are eligible for a refund or how the surcharge taxes will apply to you going forward, please reach out to us.
Contributors
Australia, 24 May 2023 – SW Accountants & Advisors (SW), a leading financial advisory firm, is pleased to announce its successful collaboration with Blackwattle Investment Partners (Blackwattle) in establishing what has been described as a ‘new generation Australian fund Manager’.
Over eight months, SW worked closely with the Blackwattle team and Hamilton Locke lawyers to provide a seamless and efficient establishment of the investment firm, ensuring that all aspects of the Group’s goals were addressed and that Blackwattle had a solid foundation to build upon.
SW involvement was key in assisting Blackwattle’s implementation of their long term incentive plan which underpinned Blackwattle’s key strategy of striving to be ‘”the most aligned fund manager in the country”. SW also facilitated the establishment of a corporate structure appropriate to the long term success of the funds management business.
Facilitating the Blackwattle difference
One of the key areas of focus was providing expert tax advice in relation to the start-up employee share scheme (ESS) provisions. A significant strategy of the fund is the requirement that portfolio managers invest in the funds they are managing, so the employee long term incentive plans were a crucial aspect.
“We invest alongside our investors and clients, with personal capital committed and corporate profits reinvested into our portfolios, there is no personal trading,” said Blackwattle Managing Director and CIO Michael Skinner. “Having significant ‘skin in the game’ means we are 100 per cent aligned to the common interest of our clients, which is uncommon in the Australian funds management industry,” he added.
SW advised on and reviewed employment agreements, employee share option plan rules, independent director agreements, and shareholder agreements to ensure compliance and optimal outcomes for Blackwattle and its investors.
Leveraging his extensive experience and expertise in the funds management industry, SW Director Simon Tucker led the advisory for Blackwattle, working with the SW team to bring valuable insights and strategic advice to Blackwattle.
“We are thrilled to have been a part of Blackwattle Investment Partners’ journey from the very beginning,” Tucker said. “Our collaboration enabled us to provide tailored solutions and guidance, supporting the firm’s growth and ensuring a solid foundation for success. We are grateful for the trust placed in us and look forward to continuing our partnership.”
The partnership between the companies was initiated by Blackwattle’s legal team Hamilton Locke, who recommended SW based on their excellent reputation in the funds management industry. The successful completion of this engagement further strengthens SW’s position as a trusted advisor in the financial sector.
Blackwattle launched with capital backing for more than five years, distribution of four investment portfolios from day one, a five person board as well as third party governance with independent chair-headed ESG and Investment Councils.
Key professionals from SW Accountants & Advisors included Justin Batticciotto, Tom Warrington and Dennis Low.
For more information about SW Accountants & Advisors and their range of services, please visit sw.com.au or contact Amanda Lee.
About SW Accountants & Advisors:
SW Accountants & Advisors is a leading financial advisory firm providing a comprehensive range of accounting and advisory services to clients across various industries. With a team of seasoned professionals and a client-centric approach, SW delivers tailored solutions and strategic advice to help businesses achieve their goals.
Reach out to Simon Tucker or learn more about our startup advisory services here.
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Australia’s rental crisis is set to be tackled head-on by the Albanese government, which has proposed incentives to boost housing supply through build-to-rent (BTR) developments in the recent Federal Budget.
According to the budget papers, for eligible new BTR projects where construction commences after 9 May 2023, the government will :
- increase the depreciation rate from 2.5 per cent to 4 per cent per year; and
- reduce the withholding tax (WHT) rate for eligible fund payments from managed investment trusts (MIT) to foreign residents on income from eligible BTR properties after 1 July 2024 from 30 to 15 per cent, subject to further consultation on eligibility criteria.
These proposed tax changes address a key contentious issue between the BTR industry and government, being that the current MIT WHT rate hits foreign investors twice what they would pay on other eligible property assets. With the MIT tax rate to drop from 30% to 15% from 1 July 2024, the BTR sector will be aligned with other commercial property sectors (i.e office, retail and industrial) and is likely to boost foreign investment in the BTR sector.
The proposed changes have been welcomed by the Property Council of Australia (PCA) and the Urban Development Institute of Australia (UDIA), both long-time advocates of the industry.
These proposed changes are a welcome first step, although the GST impediments for BTR projects is still to be addressed. We also need to wait for the final legislation to see what is going to be considered a BTR project. Most State governments have already flagged tax concessions for BTR projects (refer below). However, each State has introduced different regimes and have different definitions of BTR.
We would hope that the Federal Government’s BTR definition is the least restrictive, and would ensure that if a BTR project qualifies for State tax BTR concessions, that the project will also be eligible for the 15% MIT Withholding Tax (WHT) rate.
Other considerations
It will also be important to ensure that the BTR project is structured carefully to ensure that the Trust is not a trading trust (making it ineligible to be a MIT). For example, where BTR developments are structured in such a way to meet the definition of commercial residential premises for GST purposes (so that GST credits can be claimed), there is a risk that the operations may be considered a trading trust.
State Tax changes
In addition to the proposed federal tax concessions, there are tax concessions available for BTR developments at the State and Territory level. The most recent State to introduce BTR relief is Western Australia, who introduced new land tax relief for eligible BTR developments on 17 May 2023. We have summarised State and Territory BTR concessions in the table at Appendix A. which we have summarised in the table at Appendix A.
Greenlight for expanding concessional rate for clean building MITs
The Federal Budget has also extended the clean building concessional MIT WHT rate of 10% to data centres and warehouses, where construction commences on and after 9 May 2023. The reduced WHT rate will apply from 1 July 2025.
This measure will also raise the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating from the Green Building Council Australia or a 6-star rating under the National Australian Built Environment Rating System.
A MIT will be a clean building MIT where the income is not tainted with income from other assets that are not reasonably incidental. For example, a single MIT cannot hold both a clean building and other non-clean buildings. For MITs that are considering constructing or developing new energy efficient office buildings, shopping centres, hotels, data centres or warehouses, it is important to ensure that you utilise the most appropriate structure to utilise the 10% WHT rate.
How can we help?
If you are considering a BTR development or a clean building MIT, we can assist with determining the appropriate structure and provide advice on relevant tax considerations.
Contributors
Appendix A
| State | Land tax | Duty |
|---|---|---|
| Victoria | For the 2022 land tax year, 50% discount on taxable value of land for eligible BTR developments for up to 30 years.1 Foreign owner land tax surcharge For the 2022 land tax year, full exemption is available for eligible BTR developments for up to 30 years.2 The general absentee owner surcharge exemption may be available during construction period if the BTR developer is Australian-based, makes a significant contribution to Victorian economy and community and exhibits goods corporate behaviour. | Surcharge purchaser duty: general exemption may be available if developer is Australian-based, commercial activities involve significant development adding to the supply of housing stock in Victoria and developer exhibits good corporate behaviour. No discount provided in relation to the general duty rates. |
| New South Wales | Provided construction commenced on or after 1 July 2020, there is a 50% reduction in land value for land used and occupied as a BTR property. Foreign owner land tax surcharge For land tax year commencing 31 December 2020 until land tax year commencing 31 December 2039, there is an exemption from surcharge land tax paid, provided BTR property was constructed on the land and the corporation is entitled to a reduction in land value for land tax purposes.3 | Surcharge purchaser duty: Exemption for surcharge purchaser duty, provided that: the transfer was entered into on or after 1 July 2020, BTR property was constructed on that land, and the corporation is entitled to a reduction in land value for land tax purposes. No discount provided in relation to the general duty rates. |
| Australian Capital Territory | The ACT government is targeting its support to BTR developments where at least 15 per cent of dwellings are treated as affordable rental tenancies.4 The government is offering three initiatives that include financial assistance for BTR affordable rental: Nominated land release sites for BTR affordable rental projects. Inviting proposals for BTR affordable rental on an annual basis. A time-limited Lease Variation Charge discount for community housing managed projects. | |
| Queensland | Land tax: from 1 July 2023, a 50% discount will be available on land tax for up to 20 years.5 Foreign owner land tax surcharge From 1 July 2023, full exemption for the 2% foreign land tax surcharge for up to 20 years. General ex gratia relief may be available during construction period. | Surcharge purchaser duty: From 1 July 2023, a full exemption from the Additional Foreign Acquirer Duty for the future transfer of a BTR site. General ex gratia relief may be available. |
| BTR Pilot Project: a targeted rental subsidy provided by QLD government to the private sector. This initially targeted developments on privately owned land but has expanded to include state-owned sites.6 | ||
| South Australia | Land tax: 2021-22 State Budget announced a 50% reduction in land value from 2022 until 2040. The land tax reduction will be available from the 2022-23 financial year up to, and including, the 2039-40 financial year. More details will be released outlining eligibility criteria and application process once the relevant legislative instrument passes parliament.7 | No specific concessions provided. |
| Western Australia | Land tax: 50% exemption for eligible BTR developments to be available from 1 July 2023 for up to 20 years.8 To access the land tax exemption, BTR developments must: · contain at least 40 self-contained dwellings available for residential leases · be owned by the same owner or group of owners, and be managed by the same management entity and · be completed between 12 May 2022 and 1 July 2032. Retrospective land tax would apply if an eligible BTR development stops meeting the criteria within the first 15 years after the exemption is granted. | No specific concessions provided. |
1 Section 70J, Land Tax Act 2005 (Vic).
2 Section 70K, Land Tax Act 2005 (Vic).
3 Section 5CA, Land Tax Act 1956 (NSW).
4 Build to Rent – Treasury (act.gov.au)
5 Tax concessions to drive investment into affordable housing – Ministerial Media Statements
6 Queensland Build-to-Rent Pilot Project – Queensland Treasury
7 Exemptions, waiver or relief | RevenueSA
8 Media statements – New land tax relief to bolster Western Australia’s rental market
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了解联邦预算案在2023年对您有何意义：
The Australian Government has released draft legislation with changes to Country-by-Country (CbC) reporting for large multinationals that would see previously confidential details made public.
In the October 2022-23 Federal Budget, the Australian Government announced its intention to implement public CbC reporting measures to enhance transparency, and improve comparability and accessibility of tax information.
The Government has now released draft legislation that, if enacted, requires the relevant CbC reporting parent to provide selected tax information relating to its CbC reporting group for public release. The information to be published relates to presence and tax dealings of members of the CbC reporting group across jurisdictions and should enable investors, customers, and regulators to create a picture of how the entity structures its tax affairs in Australia and globally.
The proposed measures would be the first unrestricted mandated public reporting of a broad coverage of worldwide tax related data by jurisdiction.
While some European countries have started to require taxpayers to publish tax information, the level and amount of disclosures required in Australia is out of step. In effect, the proposed measures will bypass Australia’s international obligations under OECD’s BEPS Action 13 which emphasise confidentiality.
Entities covered by the amendments
Entities required to report are those that are classified as a CbC reporting parent, where at least one member of the CbC reporting group is an Australian resident or a foreign resident with an Australian permanent establishment. The obligation will fall on the CbC reporting parent, which will often be a foreign entity.
The Commissioner may in writing exclude specific entities from having to publish tax information of a particular kind.
Information to be published
Much of the required information is the same as that already provided under the existing confidential CbC reporting rules. The additional information that will need to be disclosed includes:
- a description of the CbC reporting group’s approach to tax
- in respect of each jurisdiction in which the CbC reporting group operates, the following information for the income year, at a group level:
- expenses arising from transactions with related parties that are not tax residents of the jurisdiction
- a list of tangible and intangible assets as at the end of the income year, and the book value of those assets
- effective tax rate.
Regulations may prescribe additional information to be disclosed.
The information to be disclosed is generally required to be sourced from audited consolidated financial statements, to ensure that the material is reconcilable and verifiable.
How information needs to be published
Public CbC reporting information will need to be provided to the Commissioner, who will facilitate publication on an Australian Government website.
Any errors identified should be reported to the Commissioner, who will be responsible for making the information available on an Australian Government website (presumably the same one on which the originally lodged data is to be displayed).
Application date
The new disclosure rules are expected to apply to the 2023-24 income year onwards.
The application date for groups with substituted accounting periods (SAPs) is currently unclear. The present legislative wording indicates that the public reporting rules could potentially apply to year of income ending 31 December 2023, with filings required by 31 December 2024. Other parts of the draft materials, however,indicate the rules will apply only to income years commencing on or after 1 July 2023. The effective date for groups with SAPs will need to be clarified during the legislative process.
The timing of annual submissions is the same as for the confidential CbC reporting which is within 12 months of year end.
Penalties for non-compliance
Failure to comply the Public CbC reporting measures will be subject to penalties, determined under the Significant Global Entity (SGE) penalty regime.
Concerns that this reporting obligation brings
Our initial thoughts on the main concerns that this additional reporting obligation brings are detailed below.
- The tax risk management and governance processes in place should clearly outline the CbC reporting group’s approach to tax.
- The reporting will require consideration of the level of confidence that an entity has in the validity and accuracy of data.
- It will be necessary to ensure that tax disclosures for all members of the CbC reporting group are aligned.
- Management and the Board will need to agree the process to be used to extract and collate information, and to review and approve materials prior to submission.
- The public release of the information will allow for more external analysis and questions surrounding where profits are made and where taxes are paid.
- Ultimately this could help to inspire public confidence and support from investors, customers, and regulators, but could also result in reputational risk, in the event that negative inferences are drawn from the materials released.
Releasing the requested information publicly could result in data that would otherwise be considered ‘commercial in confidence’ becoming available to competitors, and cause commercial impacts that may outweigh the benefits of the additional tax transparency. This could result in financial losses, quite apart from the administrative burden anticipated in putting this additional reporting in place, and could potentially drive foreign investors away from Australia.
In addition, the proposed timeframe is far from sufficient for taxpayers to fully understand the implications, communicate/educate foreign jurisdictional parents, and set up necessary reporting systems to meet the onerous compliance reporting requirements.
How SW can help
SW will be monitoring announcements and will keep you updated as more information becomes available.
Our tax experts can assist with:
- determining the impact of the measures on your group
- analysing the additional information (e.g. approach to tax, effective tax rate) in your unique circumstances and advising on how best to prepare for the additional disclosure requirements
- developing a process that can help you manage compliance with the onerous reporting requirement
- communicating with your foreign CbC reporting parent and relevant stakeholders.
Please reach out to the Key Contacts here, or your SW contact, if you would like to know further.
Exposure Draft Bill released by Australian Treasury denying SGEs deductions for payments attributed to intangible assets in low tax jurisdictions.
The Exposure Draft Bill (the draft Bill), released on 31 March 2023, proposes a new anti-avoidance rule to deny deductions for payments attributed to intangible assets located in low corporate tax jurisdictions. Significantly, the changes do not remove withholding tax from affected payments that are classed as royalties. In some circumstances, payments may therefore be both non-deductible, and subject to Australian withholding tax at rates of up to 30%.
The changes will apply to payments made by significant global entities (SGEs) on or after 1 July 2023. Broadly, SGEs are members of multinational groups with annual consolidated global income of at least AUD 1 billion. The proposed 1 July 2023 start date allows little time to prepare for the impact of the proposed changes.
The draft Bill is one of several measures introduced in the 2022-23 Federal Budget as part of a comprehensive strategy to enhance multinational enterprises’ tax integrity.
Anti-avoidance rule changes
The statutory objective is to discourage SGEs from avoiding income tax by channeling income from the exploitation of intangible assets to low corporate tax jurisdictions. The proposed rule will apply to payments:
- made by SGEs
- in relation to an arrangement where the SGE or an associate acquires or exploits the intangible asset
- where the arrangement results in the recipient (or another associate) generating income in a jurisdiction with low taxes.
A jurisdiction will be classed as a ‘low corporate tax jurisdiction’ if the corporate tax rate is less than 15%.
The rules are also intended to encompass the incurring of a liability or crediting of an amount, without an actual direct royalty payment. This ensures the proposed rules cannot be evaded through indirect payments.
Intangible assets payments
As expected, the proposed law applies to relevant payments made by an SGE directly or indirectly to an associate.
Payments made directly to unrelated third parties are not within the scope of the proposed law unless they are otherwise also indirect payments to an associate.
General definition of intangible assets
In general, the term ‘intangible asset’ is interpreted according to its ordinary meaning. However, the draft Bill proposes an additional definition.
The proposed rules will utilise some of the existing definitions of ‘royalty’ in the current tax legislation, with respect to the use or supply of specific assets. Some examples are:
- intellectual property rights such as trademarks, patents, designs and processes
- knowledge and information pertaining to certain fields such as science, technical and commercial
- in house designed algorithms
- any tapes, visual images or sounds used for broadcasting
- motion picture films.
The proposed definition of intangible asset also encompasses rights or interests in the type of assets mentioned above. Additionally, further assets may be specified in the regulations.
The proposed rule does not extend to rights related to tangible assets, such as interests in land, or to financial arrangements (as defined in the existing tax legislation). The exclusion from categorisation as intangible assets equally applies to industrial, commercial, or scientific equipment.
Apportionment
The phrase, ‘to the extent’ in the proposed law contemplates payments of an undissected amount for a bundle of rights or benefits. Apportionment may then be required to allocate part of the payment as relating to the intangible assets. The deduction for that portion of the payment would then be denied.
Several transfer pricing methodologies may be used to apportion payments, however the proposed law is yet to provide guidance on how such apportionment should occur. This appears similar to the potential uncertainty on apportionment of income received in respect of software (albeit relevant to withholding tax).
Low corporate tax jurisdictions
The draft Bill defines a ‘low corporate tax jurisdiction’ as a country in which the lowest corporate income tax rate applicable to an SGE is below 15%. Determining the ‘lowest corporate income tax rate’ of a country may be a complex matter.
Of concern is the fact that jurisdictions which provide tax exemptions for specific types of income may be classed as low tax jurisdictions due to the broad scope of this definition. A country such as New Zealand, which does not generally tax capital gains, may be classed as a low corporate tax jurisdiction.
A Government Minister can also determine that a jurisdiction qualifies as low tax if it has a preferential patent box regime. This provision is only intended to capture patent box regimes that provide concessional tax treatment without requiring any economic activity to develop the relevant intellectual property in the country providing the patent box treatment.
In making a determination, the Minister may have regard to publications of the Organisation for Economic Co-operation and Development (OECD).
The suggested tax threshold aligns with the global trend towards a domestic minimum tax (DMT) rate of 15% as proposed under the OECD’s Global Anti-Base Erosion (GloBE) Pillar Two initiative. Nonetheless, it exceeds the existing minimum royalty withholding rate of 10% commonly found in Australia’s double taxation agreements. Furthermore, the proposed rate is higher than the 10% rate stipulated in the equivalent legislation of the United Kingdom.
Exploitation of intangible assets
The draft Bill introduces an innovative concept in defining intangible assets to be ‘exploited’. This concept encompasses a wide range of arrangements that go beyond the mere use of the asset. Examples include the use by way of marketing, selling, licensing, distributing, supplying, or engaging in any other activity with the intangible asset. This expanded definition of ‘exploitation’ aims to cover a broad spectrum of arrangements, highlighting the comprehensive scope of activities that may be captured.
The condition will also be deemed as fulfilled if the SGE is granted explicit authorisation to utilise the intangible asset. According to the draft Explanatory Materials, as long as there is a mutual understanding between the parties that allows the SGE to access and utilise the intangible asset, this requirement will be considered met. It should be noted that this condition can still be satisfied even if the permission is not explicitly documented.
The broad definition of ‘exploit’ implies that the threshold for meeting this requirement is relatively low, which means that even ordinary commercial arrangements could potentially fall within its scope. Taxpayers will need to carefully assess the application of the other conditions to determine if the provisions are applicable in their specific situation.
SGE penalties
The Government is also requesting stakeholder views regarding the appropriateness of a shortfall penalty provision to be imposed on SGEs which mischaracterise payments in an attempt to avoid income tax, including withholding tax. Given the onerous penalty regime that already applies to SGEs, the introduction of further specific penalties under the intangible payments rules would seem to be excessive.
How SW can help
Our tax experts can assist with
- analysing arrangements referrable to the use of intellectual property and the likelihood of the measures applying to denied deductions
- analysing the substance of payments, including the extent of apportionment required to determine the part attributable to a right to exploit an intangible asset
- assessing the extent of income from exploiting intangible assets that is derived in a low corporate tax jurisdiction.
SW will be monitoring announcements and will keep you updated as more information becomes available.
Please reach out to the Key Contacts here or your SW contact if you would like assistance determining the impact of the measures on your group, and advice on how your group can navigate the complexities.
Contributors
Meet winemaking experts and discover how cool climate wine is made in Australia.
The International Cool Climate Wine Show video series, produced by SW, showcases the unique features of Australia’s cool climate wines. Throughout the series we will be interviewing renowned winemakers and other stakeholders in the industry, hearing their war stories and hidden gems that may open doors to opportunities for your business.
SW is proud to sponsor the International Cool Climate Wine Show (ICCWS), the southern hemisphere’s foremost show for inspirational cool climate wines. The ICCWS is known as one of the best boutique cool climate wine shows in Australia, attracting more than 700 wines from around the world. It’s also an opportunity to taste and network with wine retailers, restauranteurs, sommeliers, wine writers, wine media, wine students and wine enthusiasts.
Vince Pignatelli at Winestock talks about Italian Wines and Viberti
Listen to Vince Pignatelli, Winestock Victoria Managing Director, and Paul White, ICCWS chairman, in the latest SW ICCWS video as they talk about Barolo wines, the flagship grape in the Barolo region – Nebbiolo, and Vince’s passion for bringing Italian wines to Australia.
Luke Weekley talks about Falcon UAV Aerial Imaging for wineries
In this interview, Luke Weekly, the owner of Falcon UAV, talks to Paul White, the Chairman of ICCWS, about how his drones are helping many farmers and wineries transform their work and take the whole production to the next level.
Damian Aliano talks about Puopolo’s Artisan Salumi
In this interview, Damian Aliano, the national sales manager of Puopolo smallgoods talks to Paul White, the Chairman of ICCWS about Puopolo’s gourmet handcrafted salami and air-dried cured meats made exclusively from Australian pork and beef using a traditional natural ageing process and the original recipe.
Sarah Andrew talks about Judging at the ICCWS
In this interview, Paul White, Chairman of the ICCWS talks to Sarah Andrew, one of the judges at ICCWS, asks about her experience as a wine judge and what she enjoys about it, as well as the challenges she had to navigate as a woman to become a judge.
Interview with Sam Plunkett, owner of Wine by Sam Part 2
In this interview, Paul White, Chairman of the ICCWS, and Sam Plunkett, the winemaker and owner of Wine by Sam, share how Australia wine industry reduce its carbon footprint in the process of winemaking.
Interview with Sam Plunkett, owner of Wine by William Bond
In this interview, Paul White, Chairman of the ICCWS, and William Bond, the winemaker and owner of Mr Bond Wine, discuss the qualities of what makes Australian cool climate wines unique, wine pairing and so much more. There are big personalities in this industry, with so much to share!
Interview with Sam Plunkett, owner of Wine by Sam Part 1
In this interview, Paul White, Chairman of the ICCWS, and Sam Plunkett, the winemaker and owner of Wine by Sam, share what ICCWS means to them, discuss their experiences as judges and panelists in ICCWS, and talk about how Sam’s farm reduces power costs by installing solar panels.
The Government has released draft thin capitalisation law changes proposed to commence from 1 July 2023. If enacted, this may have a substantial impact on some property funds.
We recommend that all fund managers review their funds’ existing financing arrangements immediately to understand how the proposed rules impact interest deductions. For further details of the of the proposed changes, please see our previous article: New thin capitalisation regime details released.
These rules will broadly apply to property funds that have:
- a foreign investor that has a controlling interest in the fund or where the fund invests in foreign assets, and
- debt deductions over $2 million.
Potential impact on property funds
We have considered the potential impact on several of our property fund clients. Our key findings are:
- The Fixed Ratio Test (FRT) limits interest deductions to 30% of a taxpayers tax EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation). The FRT is likely to deny interest deductions for most taxpayers that fall within the regime based modest gearing and market interest rates. Of note, if borrowings are taken out at the head trust level the interest denial will be significant. Importantly, if debt deductions are denied under the FRT the taxpayer can carry forward the excess for up to 15 years.
- It may be difficult for some funds to obtain the relevant information to perform the required calculation under the Group Ratio Test (GRT).
- The External Third-Party Debt Test (ETPDT) should provide an appropriate mechanism to allow interest on Australian bank debt to be claimed. However, the proposed rules only allow this test to be used if:
- debt is borrowed from a third parties, i.e. related party debt not permitted
- all 10% associate entities choose to apply it (it will be practically difficult to get agreement on this from all 10% associate entities), and
- recourse can only be to assets of the borrower. This is practically difficult to achieve and not in accordance with currently lending practices particularly large-scale construction projects where banks typically look for parent support and guarantees
- debt borrowed is used to only fund Australian investments.
- The 15-year carry forward of excess deductions is only available under the FRT. Therefore, property funds will not be able to switch between methods and recover any interest denied under the FRT.
How can SW help?
The proposed changes are likely to have a significant impact on the property funds management industry, which relies heavily on debt financing.
SW Accountants & Advisors has already contributed to submissions that have highlighted these issues to Treasury. Even if most of the issues identified for improvement were to be adopted, there is likely to be some level of interest denial in property funds that fall within the regime.
If you would like to discuss your individual circumstances, please reach out to SW advisor or the team listed here.