Tax practitioners are on the defensive after the Federal Government announced draft legislation last Friday afternoon that would make significant changes to anti-avoidance laws and extend the tax commissioner’s powers.
The announcement comes just a few days after the Australian Taxation Office was revealed to be cracking down on business using new directors’ penalty laws.
Assistant Treasurer David Bradbury announced the legislation last week, which intends to remove a key part of the text used in determining whether someone has arranged a transaction for the sole purpose of avoiding tax.
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But Tax Institute senior counsel Robert Jeremenko says the powers are much too broad.
“It’s always a worry when the government releases some draft legislation on a Friday afternoon,” he told SmartCompany. “The government has already announced some changes back in March, but didn’t reveal anything until last week.”
The changes concern Part IV (A) of the tax code, which is known as the general anti-avoidance rule. It maintains that if the tax office suspects someone has organised a transaction for the sole purpose of avoiding tax, that transaction can be investigated.
There are two key factors the commissioner takes into account when determining if someone has avoided tax: the benefit of the tax avoidance itself, and whether avoiding tax was the sole purpose of that transaction.
The new legislation removes the first factor. Jeremenko says this is a problem.
“This has the ability to stifle transactions and gives the tax office much greater power. It’s going to make it a lot harder for taxpayers to prove that their transaction was fine.”
In a statement, David Bradbury said taking away the consideration of a tax benefit won’t have an impact on other taxpayers.
“To minimise any potential for taxpayers to obtain unintended tax advantages in the interim, the amendments will apply to arrangements that are entered into or commenced from today,” the Assistant Treasurer said.
But Jeremenko says it’s now easier for the tax office to show someone has broken the law.
“This is a necessary part of the tax law…but this law goes beyond that, and makes transactions harder.”
“We’ll continue to have an interesting and robust conversation with the government.”
The government intends to pass this legislation next year, although it will take effect on any transaction made from last Friday, November 16.
The legislation and other materials are on the Treasury website.