Other tax news

Time was no barrier to the Commissioner to recover debts

In MUC v Deputy Commissioner of Taxation [2008] NSWCA 96 (19 May 2008), the New South Wales (NSW) Court of Appeal held, in an appeal brought by an individual who had been a partner in a partnership, that the Commissioner’s recovery action for unpaid Pay As You Earn remittances was not statute barred by State law.

In brief, the partnership, in which the appellant had been a partner, had deducted tax from wages paid to employees in the period 1 July 1995 to 20 June 1998. The partnership failed to remit these deductions to the Commissioner, and the Commissioner brought proceedings for recovery. In defence, the appellant argued that the Commissioner’s action was statute barred under the relevant limitation legislation in NSW which stipulated a six-year period within which a cause of action to recover money under an enactment, other than a penalty or forfeiture, is to be brought.

In finding that the debt recovery provisions in Schedule 1 of the Taxation Administration Act 1953 (C’th) applied, (notwithstanding that these provisions were only enacted after the relevant debts became due), the Court held that these provisions ‘cover the field’ and are incompatible with the intrusion of the relevant NSW limitation statute. In other words, the Court held that the Commonwealth law prevailed. Thus, citing Deputy Commissioner of Taxation v Moorebank Pty Ltd [1988] HCA 29 (9 June 1988) as authority, the Court held that the Commissioner’s claim for recovery was not statute barred.

Tax simplification proposals to be considered for small business

On 11 June 2008, the Minister for Small Business Independent Contractors & the Service Economy issued a media release stating that the Rudd Government will consider two new measures to simplify small business taxation and reduce small business compliance costs. The Minister said that “relating to income tax and GST, the measures are designed to make it easier for small businesses to comply with their tax obligations".

Under the income tax proposal, which the Government has referred to the panel undertaking the review of Australia’s Future Tax System headed by Treasury Secretary Ken Henry, the ownership arrangements of an entity would be set to one side, with the entity being treated like a partnership and the owners being taxed at their marginal rates. The Minister said that this ‘flow-through’ regime is proposed as an option for small companies and unit trusts with five or fewer shareholders which want to reduce their compliance costs.

The Minister also stated that the Government has decided to refer the Business Activity Statement (BAS) Easy option for simplifying goods and service tax (GST) bookkeeping for small business to the Board of Taxation, as part of the Board’s overall review of the legal framework for the GST. The BAS Easy option is a pre-election policy of the current Government which has not been legislated. Under the option, small businesses would calculate their GST position based on one of two methods. These are the ‘business norms method’ (effectively a safe harbour determined by the Australian Taxation Office) and a ‘snapshot method’ (where the GST position to be applied for a three-year period is extrapolated from an average of two snapshot periods, each of four weeks).

The outcome of the Board’s review will be included in future editions of TaxTalk.

Free trade agreement with Chile

On 27 May 2008, the Minister for Trade announced that Australia and Chile have concluded negotiations for a free trade agreement (FTA). In his announcement, the Minister said that “this is a high-quality agreement that covers goods, services and investment. The commitments go beyond what each country has committed at the WTO. As such, it will reinforce the contribution of both countries to the multilateral trading system and serve as an excellent model for other APEC economies as they work towards deeper economic integration."

Under the FTA, all existing goods trade will be liberalised by 2015 and significant commitments on services and investment will be made upon entry into force. A key aspect of the FTA is that tariffs will be eliminated on 97 percent of existing merchandise trade upon entry into force and on 100 percent of existing merchandise trade in each direction by 2015. Additionally, suppliers of goods and services from each country will gain guaranteed access to government procurement markets in the other country.

The FTA also establishes a framework for cooperative activities to ensure that its benefits are enhanced and expanded over coming years.

The Minister said that he expected the FTA to be signed in late July 2008, and to enter into force on 1 January 2009 following ratification in each country.

Australia 2020 Summit - Final Report

On 31 May 2008, the Prime Minister launched the Final Report of the Australia 2020 Summit, a document which captures the debates, deliberations and ideas of those who took part in the summit process.

According to the Prime Minister, some of the ‘practical’ ideas arising from the Summit include:

• a comprehensive inquiry into Australia’s taxation system

• Community Corps, whereby young Australians undertake community service in return for HECS debt relief

• a Learning for Life Account that extends Australia’s superannuation system into new areas like lifelong learning

• a new National Preventative Health Agency to ensure a new prevention effort is sustained, coordinated and evidence-based

• a national clean energy portfolio of several flagship projects - in ‘natural advantage’ categories such as agriculture, clean coal and renewable energy

• an Australian Sustainability Challenge (from the Youth Summit) whereby local communities compete to deliver the largest shift towards sustainable living, and

• initiatives to improve the understanding of rural Australia among those living in urban Australia, particularly among school children.

The Final Report can be viewed at, and downloaded from, the Australia 2020 website.

Discussion paper on the reform of Australia’s financial services system

On 3 June 2008, the Minister for Superannuation and Corporate Law issued a media release confirming that the Government had released a Green Paper outlining a way forward for the Commonwealth and States to transfer the remaining financial services regulation from the State level. Under the plan, financial services, including mortgages, mortgage brokers, margin lending, non-bank lending and trustee companies would move to the Federal level.

The Minister said that taking action now would pay dividends well into the future and bring Australian financial services and credit regulation back to global best practice. He said -

“The current regulation in these areas is either duplicated, patchy, confusing, very hard to change or even non-existent. As a result, some consumers receive poor or inadequate advice, while opportunistic product promoters use gaps in existing regulation to take advantage of vulnerable investors. The Commonwealth and the States agree that this is just not good enough in the year 2008. Australia needs a financial services regulatory structure for the 21st century, one which provides the highest standards of disclosure, advice and prudential supervision, and does so at a national level."

The Green Paper also seeks input on the regulation of other credit products, such as credit cards and personal loans.

In addition to financial services, two further important areas are included in the Green Paper - debentures and property spruikers.

Options highlighted in the Green Paper include:

• credit and mortgages: maintain the status quo; or regulate all credit; or regulate mortgages (and consequently mortgage lenders and brokers)

• margin lending: maintain the status quo; or include margin loans as a product under the Corporations Act Chapter 7 regime; or develop a separate Commonwealth regulatory regime for margin loans

• trustee companies: consumer protection supervision; or prudential regulation

• debentures/Promissory notes: harmonise regulation of promissory notes, regardless of value; extend licensing rules for debenture issuers; require debenture trustee companies to be licensed; or review duties of trustees

• property spruikers: investigate issues relating to property investment advice, including property spruikers, and

• other credit products: regulate all credit products and services; or regulate only mortgages (and consequently mortgage lenders and brokers) and margin loans.