Henry Review Details - Watch This Space
Since the end of last year the government has been holding onto the all important Henry Review and its findings, and has finally promised it would be released prior to budget night in May of this year. Treasurer Wayne Swan has said they are being careful and considering time for debate on the issue to ensure there is time to consider all of the issues. The government has indicated the Henry Report will be a 10 year plan for tax reform.
There is no definite comment on what parts of the review will be immediate and what parts might be voted upon as part of Labor’s election campaign. Insiders predict go ahead on the less contentious issues such as simplification of tax returns and incentives for older Australians to stay in the work force. More debateable issues such as replacement of state royalties with a 40 per cent resource rent tax is one which the Rudd government would seek a mandate.
Most likely direction of the Henry Review recommendations:
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The Australian taxation system whilst complex, and in many places in need of repair, it is not fundamentally broken;
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Radical changes to the company income tax system are unlikely, especially in light of transitional costs that will be borne by businesses;
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There is no compelling reason to move away from the current dividend imputation system;
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Reform to the treatment of losses (tax carry forward losses) may be recommended with practical constraints;
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Close scrutiny given to local government taxes to ensure they deliver an appropriate return on the community’s assets;
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There is a strong case to revisit and justify the existence of tax concessions and any distortions that appear;
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Greater reliance on consumption-type taxes and broadening its base so they are economically desirable – such a move could result in inequitable outcomes for some in the community;
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Many small and inefficient taxes (many at state government level) are looking to be abolished to achieve a more efficient and simpler tax system and balance the tax system between state and commonwealth.
The objective of the reform is to deliver a simpler and fairer tax system, whilst equipping the government with a ‘toolbox’ to respond to and deal with the significant challenges that lie ahead. (Aging population, related budgetary pressures, environmental pressures such as climate change)
Tax Relief for Investors in Instalment Warrants
Generally, instalment warrants are a form of financial product that entails borrowing to invest in an asset, such as a share, while the underlying asset is held by a trustee on trust during the life of the loan to provide limited security to the lender. Currently, a technical interpretation of the existing law does not support the ATO’s practice of looking through the instalment warrant trust to treat the owner of the instalment warrant as the owner of the underlying asset. The assistant treasurer said the benefit to investors is to ensure they will not have to meet their capital gains tax obligations until they sell the underlying assets. This will apply for assessments for the 2007-08 and later income years.
No offset of losses against income protection insurance
Watson v Deputy Commissioner of Taxation (2010) FCAFC 17
Payment received under a personal income protection insurance (PIP) policy were not income from business activity as a financial planner, thus the payments could not be offset against a deferred loss from the financial planning business. The partial disability payments received under the PIP policy were when the business owner became partially incapacitated for work.
“The policy income was received because he was unable to undertake the full range of business activity which he would have undertaken had he not fallen ill. It was derived from his incapacity to conduct business activity, not from the activity which he actually undertook”
Brothel owner made a taxable supply of room hire and service
Harrison and Commissioner of Taxation (2010) AATA 155 (2 March 2010)
The taxpayer made a taxable supply of room hire and sexual services in the course of her enterprise as a brothel owner, and was liable for GST on the total fee consisting of the room hire component and service fee component. The issue was whether the taxpayer was providing room hire only to a client, with the service being provided separately by the sexual service provider (SSP)
Having regard to all the evidence, the Tribunal found that it was more likely that the taxpayer provided the client with the total service (i.e. room hire and sexual service) and utilised the SSP individuals as sub-contractors.
Evidence showed the taxpayer bore most of the responsibility for recording the payment of the service fee as well as:
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SSP had no control over the full fee charged;
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Was the sole advertiser for the services;
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Providing means for collection and processing of payments; and
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Exercised control over the distribution of work.