In the wake of the global financial downturn, the Australian economy is recovering steadily. However, as firms seek to stabilise operations, inefficiencies in the tax system have exacerbated the impact of the turmoil on the nation's competitiveness and ...
[more]
In the wake of the global financial downturn, the Australian economy is recovering steadily. However, as firms seek to stabilise operations, inefficiencies in the tax system have exacerbated the impact of the turmoil on the nation's competitiveness and business activities.
While there has been some effort to reform Australia's tax system, many comment that there is still some way to go. "One of the big impediments [to reform] has been the complicated tax regime," says Greg Reinhardt, partner at Henry Davis York.
The natural resources sector has been a key driver of Australia's economy. "The economy has a positive future," said Craig Robson of Ernst & Young. "The only dark cloud is that the increasing reliance on the resource sector to drive Australia is heading towards unhealthy territory."
One of the most notable tax reform measures over the last 12 months is the Mineral Resource Rent Tax (MRRT). The proposals for the MRRT were developed and combined with an extension to the existing Petroleum Resource Rent Tax (PRRT) regime. The MRRT, proposed to take effect on July 1 2012, will apply to iron ore and coal projects in Australia, while the PRRT will apply to all oil and gas projects.
"[The MRRT] will have a large minerals resource impact," said Jonothon Leek from Corrs Chambers Westgarth. "Australia is heavily dependent on natural resources."
In May 2011, the Australian Taxation Office (ATO) released a draft Reportable Tax Position (RTP) Schedule for comment. The schedule took effect on July 1 2011, and requires certain corporate taxpayers to disclose information regarding reportable tax positions as a supplement to their annual income tax return.
"[The schedule] provides the ATO with more information," said Leek. "When there was no disclosure, it could take up to four years before a tax matter was looked at by the ATO."
The schedule demonstrates the positive steps being taken by the ATO towards greater corporate transparency by providing clearer tax law advice and reviewing the activities of the largest business taxpayers.
The submitted information will be used to identify and understand tax risk for large businesses. During the first year, the RTP schedule only applies to higher risk (Quadrant 1) or key large business taxpayers (Quadrant 2). It is highly likely that the schedule will be rolled out to a broader range of taxpayers in the second year to include any large business or international entity.
The issue of a carbon tax has been a hot topic of political debate. "A carbon tax will be very significant if it goes through," said Amrit MacIntyre of Baker & McKenzie.
Julia Gillard's announcement of the Climate Change Plan represents a significant reform for the economy. The plan is aimed at shifting Australia to a clean energy economy, with carbon pricing being one of four key focus areas.
Effective from July 1 2012, the carbon price will be set at A$23 ($24) for the first year, and will increase by 2.5% in real terms each year. From July 2015, the price of carbon will be determined through an emission trading scheme. The traded permits will be exempt from goods and services tax (GST).
"This is a carbon pricing mechanism," said Grant Wardell-Johnson of KPMG. "In the first three years it acts like a tax, but is not a tax per se. The government recognised that it acts like a tax for the initial period."
Aside from investment in clean energy activities, revenue raised from the sale of carbon permits will be used to ease the cost burden of transition to the new regime. Assistance will be provided to a number of different businesses and individuals through both direct and indirect mechanisms.
"In terms of business, it depends on the sector that one is in," said Wardell-Johnson. "This will only affect the 500 largest carbon emitters. There are different impacts in relation to those businesses depending on which sector they are in. In some sectors, there is compensation from the government in terms of free permits."
"In effect the system has divided industrial Australia into different parts," said Viva Hammer of KPMG Washington, who is working on climate change. "The ones that are considered emissions intensive are given a 94.5% benefit. The next level gets 66%."
The carbon plan is aimed at cutting carbon pollution by 120 million tonnes by 2020.
The broader tax reform agenda was not pursued in this year's budget and will probably take several years to unfold. Professionals hope that the tax forum, which the government will convene in October 2011, will reignite the debate and provide it with fresh impetus.
[hide]