The latest on the IPA’s advocacy work
The IPA lobbied the government on issues such as the black economy taskforce, unfair contract terms and amendments to accounting standards.
Improving black economy enforcement and offences
The IPA is supportive of the endeavours of the Black Economy Taskforce to tackle the issues arising from black economy activities to level the playing field for taxpayers.
In this regard, we welcome the government’s initiative to consider alternative forms of enforcement to act as a deterrent for those contemplating or undertaking such activities.
The consultation paper outlines a range of potential financial and non-financial enforcement measures. Among other things, these include:
- the granting of certain additional information and data gathering powers to the Commissioner of Taxation (the Commissioner);
- reversing the burden of proof for certain elements of black economy activity;
- amendments to the taxation penalty regime to impose greater penalties on repeat offenders;
- imposition of travel bans for those with outstanding tax debts;
- potentially increasing civil penalties and lowering the “recklessness” test threshold for sham contracting arrangements under Fair Work legislation, and improving the black economy enforcement and expenses; and
- record keeping requirements for those in receipt of gambling winnings and gifts.
From our perspective, an overarching theme in the consultation paper was the call to grant additional powers of enforcement to the Commissioner.
Specifically, these extended powers include the ability to obtain certain third-party information within a shorter time frame for criminal investigations, the imposition of freezing orders on banks accounts for longer periods, and the ability to access certain telecommunications data.
We are concerned that the granting of these additional powers to the Commissioner could do more harm than good in how the Australian Taxation Office (ATO) is currently perceived by the community.
In the current environment, small businesses and individual taxpayers, whether rightly or wrongly, are sensitive to the wide-ranging powers of the ATO. These concerns follow reports of unfair influence being exerted. As such, there is a perception that the revenue authority has too much power, which could be open to misuse without appropriate safeguards and oversight.
Review of Unfair Contract Term protections for small business
The Unfair Contract Terms provisions were introduced into the Competition and Consumer Act with effect from 1 July 2010 and were extended to apply to small business with effect from November 2016. This was a welcome extension of the provisions, supported by the IPA-Deakin SME Research Centre.
The ACCC has been active in pursuing cases of alleged unfair contract terms with positive results (see for example, ACCC v JJ Richards & Sons Pty Ltd  FCA 1224). However, further reform is required:
- The consequences for including an unfair contract term in a standard form contract are inadequate to provide a deterrent effect.
- Consideration needs to be given to whether the dual requirement of a ‘small business contract’ as well as a ‘standard form contract’ is needed. Clarity around the definition of a small business contract could remove the need for restricting application of the provisions to only ‘standard form contracts’. It is also worth considering whether an additional prohibition against ‘unfair trading practices’ is required.
- Improvements are needed to ensure that small businesses are aware of their rights and are able to access justice.
Amendments to Australian Accounting Standards – Right-of-use assets of not-for-profit entities
The IPA made a submission on ED 286 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entities.
The IPA supports the proposed amending standard for reasons stated in the exposure draft.
It is unfortunate that the proposed amendments were considered necessary so close to the operative dates of AASB 17 Leases and AASB 1058 Income for Not-for-Profit Entities. Many not-for-profits have invested scarce resources in preparing to fair value right-of-use assets, including incurring valuation costs.
The comment period for the exposure draft is extremely short. This is also disappointing.
In relation to the issues on which the Australian Accounting Standards Board (AASB) has sought comment, we respond as follows:
- We agree with the proposed temporary option for not-for-profit entities to not measure right-of-use assets at initial recognition at fair value for leases with significantly below-market terms and conditions principally to enable the entity to further its objectives.We believe that the AASB should at least give an indication of how long this temporary option is likely to apply as this will give some certainty to users, preparers and auditors. Alternatively, a formal expiry date of three years should be set. This should also allow the AASB sufficient time to resolve the issues.
- Not applicable as we support one above.
- We support the additional disclosures proposed. Aus59.2 refers to ‘material’ leases, material can be deleted as materiality is self-evident. The disclosures should address the situations where the lease terms have expired but the NFP entity still benefits from the lease. We are aware that this is not unusual, in essence that lease has been ‘forgotten’ by both parties.
Corporations Amendment (Proprietary Company Thresholds) Regulations 2018
The IPA made a submission on the exposure of the draft Corporations Amendment (Proprietary Company Thresholds) Regulations 2018, which are proposed to apply from 1 July 2019.
The IPA supports, with reservations, increasing the thresholds for financial reporting, auditing and lodgement for small proprietary limited companies. We consider that revised thresholds are more likely to underpin the requirements for public accountability and user decision-making than the existing threshold tests.
We consider that the threshold increase should be co-ordinated with:
- The removal of the option to lodge special purpose financial statements with ASIC (and other regulators) that is currently being progressed by the AASB; and
- The withdrawal of the Regulatory Guide 115 Audit Relief for proprietary companies and ASIC Corporations (Audit Relief) Instrument 2016/784. The increase in the thresholds should see no need for them. The general relief provisions would still continue to be available.
We note reference is made to ‘reducing the financial reporting burden by increasing the thresholds for large proprietary companies. We do not consider financial reporting to be a burden per se. Furthermore, the explanatory memorandum contains no reference to the public interest being served by the increased thresholds. We consider this to be the better argument to be prosecuted than the one currently advanced.
Consultation paper – The digital economy and Australia’s corporate tax system
The IPA-Deakin SME Research Centre made a submission in response to the federal government’s Treasury discussion paper on the digital economy and Australia’s corporate tax system issued in October 2018.
As we have noted with many previous federal government initiatives, we are most pleased with the government’s willingness to work closely with the Group of 20 member countries (G20), as well as the Organisation for Economic Co-operation and Development (OECD), on issues that will significantly impact Australian businesses, business owners and ordinary Australians.
The digital economy is indeed one of those issues that has already impacted each and every Australian, and will forever continue to do so in so many ways; in the way we do business; in the way that we communicate and socialise as individuals; in the way that we create and use data, which in turn creates value for a range of entities operating in the digital economy; in the way that we drive our businesses without the need for physical presence; in the way that we rely more heavily on intangible assets rather than assets of physical substance… and the list goes on, albeit in a somewhat inextricable manner.
Understandably therefore, what we have before us, as clearly articulated in the government’s discussion paper on taxation of the digital economy, is a game-changing phenomenon.
And so, the time has come to review international tax laws that, while serving their purpose most effectively since their introduction in the 1920s, have now been exposed to various forms of abuse, impairment and even incongruence against a background of a rapidly changing virtual world.
Arguably, multinational corporate giants engaging in profit shifting activities supported by clever transfer pricing arrangements, as well as creating new business models that are changing the ‘value chain’ and in so doing confusing the traditional application of defined and previously well understood terms such as ‘nexus’, ‘arms-length’, ‘permanent establishment’, and ‘source’, have exacerbated concerns over the appropriateness of existing international tax regimes.
In turn, this has heightened the need to urgently review existing cross-jurisdictional tax laws as well as tax treaties between participating countries.
In this sense, the IPA is in full agreement with the federal government, as well as other governments working with the OECD on the digital tax agenda (such as the UK, for example), that the solution to taxation of the digital economy must by necessity be derived multilaterally through the full co-operation of participating countries.