The government has introduced more amendments to the thin capitalisation and debt deduction creation rules Bill. While the changes to the Bill are positive, across our client base there are genuine third-party arrangements that will not satisfy the third-party debt test due to inadvertent technical breaches.

SW continues to work with industry bodies to highlight the impact to Treasury. We hope that further amendments will be made to the Bill to ensure it is a targeted and measured response to the issue of base erosion. 

Taxpayers will face a further period of uncertainty regarding how the law applies as the Bill has again been referred to a Senate Economics Committee due to report to parliament on 5 February 2024.

What can taxpayers do to prepare?

The focus has largely been on the amendments to the thin capitalisation rules due to its effective date. Our recap of the changes proposed in the Exposure draft can be found here.

However, taxpayers should start identifying the types of arrangements that could be impacted by the debt deduction creation rules as their material impact is arguably greater. The debt deduction creation rules commence on 1 July 2024 for all arrangements and include historical arrangements arising prior to the introduction of the rules.

What are the details of the rules? 

The original Bill and amendments are contained across separate documents. This means taxpayers will need to read each document collectively, which is no easy task.

To help you we have prepared a more detailed analysis of the Bill in our Technical Briefing. Our Technical Briefing summarises the application of the proposed law as well as the amendments to the original Bill. Due to the complexity of thin capitalisation, we encourage you to talk to our SW team.  

Summary of changes to the Bill

Below are the key changes between the original legislation, released on 22 June 2023 and the Senate amendments made on 29 November 2023:

How can SW help? 

Our experts can assist with: 

• modelling the potential impact of the new rules on your debt deductions 
• assessing the feasibility of restructuring the financing structure of the group 
• considering whether one of the alternative tests would be applicable and beneficial to your circumstances. 

Reach out to your SW advisor for support from our specialist tax team. Download the Technical Briefing for a deeper dive into the technical details.

Contributors

Kate Wittman

Ned Galloway

Ian Kearney

The post More thin capitalisation reforms – changes to Bill released appeared first on SW Accountants & Advisors.

Notably, the draft legislation allows negative earnings to be carried forward and offset against future years. Otherwise the Treasury’s proposal is largely unchanged from the Government’s original announcement with the proposed amendments inserted into the Income Tax Assessment Act 1997 as Division 296 (Better targeted superannuation concessions).

How to prepare

This is an ideal time to undertake a detailed review of your superannuation, particularly if you are over or approaching the $3m threshold. Everybody’s circumstances are different and it is important to take action as soon as you can to ensure that there is sufficient time to action any planning opportunities. Although this is a significant increase in tax, superannuation is still a good investment vehicle.

A brief summary of the proposed tax

• An additional 15% tax is levied on the portion of earnings and growth (both realised and unrealised) of your individual super balance above $3m
• Losses are carried forward to future income years, but are not refunded
• Losses are lost on death
• The $3m threshold is not indexed
• The tax is levied to the individual and can be paid personally or request a release from the super fund
• Structured settlements (e.g. compensation proceeds, but not disability insurance).

For more details on the draft legislation click here.

Actions required

• Obtain copies of your member statements issued by your superannuation fund and/or financial statements for your SMSF
• Ascertain your current member balance(s)
• Confirm latest contributions made to your super fund
• If you have a spouse or partner, ascertain their super balances.

Contact your SW advisor for your tailored strategy or assist you with a comprehensive review of your superannuation to ensure you are maximising it to its fullest potential.

The post Update on $3m super balance tax appeared first on SW Accountants & Advisors.

The central objective of this review is to evaluate the adequacy and relevance of the existing regulatory structure, pinpoint regulatory gaps, and explore improvements to mitigate unwarranted financial risk exposure for investors.

The review is part of the Government unveiled plans for Treasury to conduct a review of the regulatory framework governing MIS, in the October 2022‑23 Federal Budget.

Focus of the MIS review

The review will focus on the following current regulation areas:

• criteria of investor’s wholesale client status
• responsible entities’ roles and obligations.

The criteria establishing an investor’s wholesale client status

The criteria for a wholesale client is currently under review. Chapter 7 of the Corporations Act 2001 contains several tests in relation to specific products.

Current thresholds for establishing wholesale investor status include:

• where initial amount paid by investor at time of investment is at least $500,000 or
• a qualified accountant provides a certificate which states that the client’s
  • net assets are equal to or exceed $2,500,000 or
  • gross income for the last two financial years is at least $250,000 per annum.

Responsible entities’ roles and obligations

A key focus area of the review is the governance of the scheme. Effective governance demands ongoing vigilance for transparency and accountability.

Ensure you are aligned with current standards and practices within the Australian financial sector. It is crutial to adapt governance practices to match evolving regulations through consistent regulatory monitoring, and seek guidance from legal and regulatory specialists.

You can find the announcement detailing the primary issues under review here.

Make sure you’re ready

Each MIS provider should assess the impact on their business. The outcome of the consultation could alter the type of license needed to maintain current distribution.

MIS providers are advised to consider reviewing the consultation paper and their investor thresholds. Each case is different, we can provide expert advice that is right for your business.

How SW can help

The SW team has deep financial services sector experience, and specialises in funds management. We can provide you with the right guidance to assess the regulatory changes and their impact to your business.

Contributors:

Gail Makone

James Serpell

The post Managed Investment Scheme consultation underway  appeared first on SW Accountants & Advisors.

The ISSB has issued two standards focusing on material risks and opportunities related to sustainability (IFRS S1) and climate (IFRS S2). The new standards are effective for reporting periods beginning on or after 1 January 2024 however, each jurisdiction may choose its own effective date and which entities would be mandated to comply.

In Australia, Treasury received a range of responses to its first consultation paper regarding rollout for mandatory climate disclosure, and the majority of stakeholders agreed that a phased approach should be implemented.

Treasury has now released a second consultation paper, open until 21 July 2023, seeking consultation on several issues such as the timing of the rollout and covered entities, seeking input whether the standards should initially apply to listed entities and what an appropriate entity size would be. Other matters under consultation include what the legislative framework in Australia would be and who entities would be reporting to.

Proposed rollout

Treasury’s proposed roadmap for mandatory adoption can be summarised as follows:

Group 1 | 2024-25

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least 2 of the following:

• over 500 employees
• consolidated gross assets of $1 billion or more
• consolidated revenue of $500 million or more.

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 2 | 2026-27

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least 2 of the following:

• over 250 employees
• consolidated gross assets at end of company’s financial year and any controlled entities is $500 million or more
• consolidated revenue for company’s financial year and any controlled entities is $200 million or more.

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 3 | 2027-28

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least 2 of the following:

• over 100 employees
• consolidated gross assets at the end of the company’s financial year and  controlled entities is $25 million or more
• consolidated revenue for the company’s financial and any controlled entities it $50 million or more.

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act.

Voluntary reporting disclosure

Whilst currently not mandatory, many organisations will choose to early adopt, particularly if they know their investors or other stakeholders will find the information relevant. This includes entities in industries that are expected to be significantly impacted by climate change and/or sustainability related matters.

SW highly recommends that entities consider the adequacy of systems and processes to capture sustainability and climate related information.

How SW can help

Our team of audit and assurance experts are fully informed of the requirements of the sustainability accounting standards and can assist with providing guidance for your business, as well as keeping you abreast of developments from an Australian reporting context.

Reach out to our key contacts here for a conversation.

Contributors

James Serpell

The post Sustainability Accounting Standards issued appeared first on SW Accountants & Advisors.

On 13 September 2021, the Treasury Laws Amendment (2021 Measures No. 2) Bill 2021 received Royal Assent passing these provisions into law commencing 14 September 2021.

Development of the Bill

This Bill was amended to introduce changes to the Taxation Administration Act 1953 to require that the Commissioner of Taxation publish certain information relating to recipients of JobKeeper. However, this particular amendment did not pass the Senate.

After some political wrangling, an amendment was proposed by Senator Hanson moving that requirement to ASIC under the Corporations Act 2001 and was supported by the Government which then successfully passed both Houses.

A schedule was included in the Bill to require Australian listed entities to announce information about JobKeeper payments to the market via a new division in part 2M.3 of the Corporations Act 2001.

Foreign listed entities that have no requirement to lodge financial statements with ASIC, would not be required to lodge a notice under these provisions as they do not lodge financial reports under Division 1 of part 2M.3 of the Corporations Act 2001.

Non-listed entities similarly have no such requirement.

No explanatory memorandum is available in respect of this amendment.

What needs to be disclosed?

Listed entities must give notice to the ASX or relevant market operator containing details (for JobKeeper fortnights within that financial year) as follows:

• the listed entity’s name and Australian business number (ABN)
• the number of individuals for whom the entity or entities received a JobKeeper payment
• the sum of all JobKeeper payments received
• whether or not the entity or entities made one or more voluntary repayments (whether or not in the financial year) to the Commonwealth together with the sum of those repayments.

The requirement applies regardless of whether the entity has already disclosed equivalent information in financial reports, previous announcements or other documents.

On 15 October 2021, ASIC has announced a notice and guidance to help listed entities comply with their new obligation. The online form permits a listed entity to fill in all the necessary information which will then generate the JobKeeper (section 323DB) notice. While not mandatory, we note that the ASX has requested that entities use that form. The form generates a PDF of the notice which must then be given to the market operator.

Listed@ASX Compliance Update 09/21 confirmed that the JobKeeper disclosure should be as a standalone announcement which should clearly state that it is a “JobKeeper payments notice.”

Which amounts do we disclose?

The ASIC FAQs and legislation both refer to the disclosure of payments received for a JobKeeper fortnight that ended in an entity’s relevant financial year, essentially on a cash basis. Should an entity wish to make a further disclosure, i.e. to reconcile the payments to accruals-based disclosures in its financial statements, then a separate announcement should be made to the market operator.

Note there is no requirement for the information to be audited.

Which periods will require disclosure?

The information must be provided for any financial year in which an entity has received a JobKeeper payment.

For example, for June year end entities, this may include the financial years ended 30 June 2020 and 30 June 2021.

When must we make a disclosure?

This depends upon when the entity lodges its financial report with ASIC for the relevant financial year:

• if the financial report has been lodged on or before 14 September 2021 – within 60 days after that date (i.e. Saturday 13 November 2021 or nearest relevant business day – likely to be 15 November 2021 based on ASIC rules).
• otherwise, within 60 days after lodging the financial report with ASIC.

Where a notice needs to be corrected or updated, the entity is required to provide an updated notice to the market operator within 60 days.

How will our information be used?

ASIC is required to publish and regularly update a consolidated report of all notices given as soon as practicable after they are released to the market.

Are there penalties for a failure to comply?

The penalty for failure to lodge a required notice within the time frames required is listed as 60 penalty units (AUD $13,320).

Get in touch

Reach out to your SW advisor or one of our experts on how to navigate these changes

Contributors

Jae Debrincat

E jdebrincat@sw-au.com

The post JobKeeper payment disclosure appeared first on SW Accountants & Advisors.