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Tax Laws Amendment (2013 Measures No. 3) Bill 2013



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ISSN 1328-8091

BILLS DIGEST NO. 161, 2012-13 26 June 2013

Tax Laws Amendment (2013 Measures No. 3) Bill 2013

Bernard Pulle Economics Section

Contents

Glossary ................................................................................................................................................... 2

Purpose of the Bill ................................................................................................................................... 3

Amendments made to the Tax Agent Services Act 2009 by Schedule 1 and 2 ...................................... 4

Amendments by Schedule 1—Creating a regulatory framework for tax (financial) advice services ................................................................................................................................................ 4

Background ...................................................................................................................................... 4

Regulation Impact Statement .......................................................................................................... 5

Committee consideration ................................................................................................................ 6

Financial implications ...................................................................................................................... 6

Statement of Compatibility with Human Rights .............................................................................. 7

Provisions to give effect to the changes .......................................................................................... 7

Amendments made by Schedule 3—Deductible gift recipients ............................................................. 8

Background ...................................................................................................................................... 8

Proposed changes ............................................................................................................................ 8

Statement of Compatibility with Human Rights .............................................................................. 8

Financial impact ............................................................................................................................... 8

Provisions to give effect to the changes .......................................................................................... 9

2 Tax Laws Amendment (2013 Measures No. 3) Bill 2013

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Glossary

Abbreviations Definition

AAT Administrative Appeals Tribunal

AFSL Australian financial services licence

APS Australian Public Service

ASIC Australian Securities and Investments Commission

Corporations Act Corporations Act 2001

Corporations Regulations Corporations Regulations 2001

DGRs deductible gift recipients

ITAA 1997 Income Tax Assessment Act 1997

TAA 1953 Taxation Administration Act 1953

TASA 2009 Tax Agent Services Act 2009

TASR 2009 Tax Agent Services Regulations 2009

TPB Tax Practitioners Board

Tax Laws Amendment (2013 Measures No. 3) Bill 2013 3

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Tax Laws Amendment (2013 Measures No. 3) Bill 2013

Date introduced: 20 June 2013

House: House of Representatives

Portfolio: Treasury

Commencement: Sections 1 to 3 commence on Royal Assent and the items of the various Schedules commence on the dates indicated below:

 Schedule 1, items 1 to 9 commence on 1 July 2014

 Schedule 1, item 10 commences on 1 January 2016

 Schedule 1, items 11 to 46 commence on 1 July 2014

 Schedule 1, item 47 commences on 1 July 2013

 Schedule 1, items 48 to 51 commence on 1 July 2014

 Schedule 2, commences the day after Royal Assent and

 Schedule 3 commences on Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

This Bill has three Schedules and the purpose of each Schedule is briefly as follows:

 Schedule 1 amends the Tax Agent Services Act 2009 (TASA 2009)1 to bring financial planners and advisors (referred to as ‘financial advisors’) that provide tax advice within the regulatory regime administered by the Tax Practitioners Board (TPB)

 Schedule 2 also amends the TASA 2009 to correct a range of technical issues and

 Schedule 3 amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the list of specifically listed deductible gift recipients (DGRs).

1. Tax Agent Services Act 2009, accessed 24 June 2013.

4 Tax Laws Amendment (2013 Measures No. 3) Bill 2013

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Amendments made to the Tax Agent Services Act 2009 by Schedules 1 and 2

Amendments by Schedule 1—Creating a regulatory framework for tax (financial) advice services

Background

Since 1 March 2010 tax agents have been regulated under the TASA 2009 and the Tax Agent Services Regulations 2009 (TASR 2009)2 through a national tax agents regulatory regime administered by the Tax Practitioners Board (TPB).

Financial advisors, including those who offer some tax agent services, are currently regulated by the Australian Securities and Investments Commission (ASIC) under the Australian Financial Services Licence (AFSL) regime in the Corporations Act 2001 (the Corporations Act).3

To ease the regulatory burden on financial advisors who provided tax advice, the application of the tax agents regulatory regime to them was deferred to 30 June 2013 by TASR 2009 subregulation 13(2).

Consultation process to ascertain preferred option to avoid overlap of regulatory regimes for tax advisory services

On 23 April 2010, the then Assistant Treasurer in a media release, Coverage of tax agent services regime, highlighted the fact that an overlap of the regulation of tax advisory services might arise with the establishment of the TPB.4 The Assistant Treasurer indicated that the TPB and ASIC had advised him that financial advisors, in many respects, do offer what amounts to tax advice. He added that a comprehensive industry consultation would take place to investigate which of the following options should be adopted to resolve this issue:

 investigate and implement what changes, if any, might be made to the AFSL regime or its enforcement to ensure financial planners offering tax agent services are regulated to the same standards imposed on tax agents or

 bring tax agent services provided by financial planners permanently within the tax agent services regime and be regulated by the TPB, but do so in a way that minimises any additional compliance burden.

In this media release it was also announced that to end the uncertainty that was being experienced by financial planners, an amendment would be made to the TASR 2009 to defer the application of

2. Tax Agent Services Regulations 2009, accessed 24 June 2013. 3. Corporations Act 2001, Part 7.6 - Licensing of providers of financial services, accessed 24 June 2013. 4. N Sherry (then Assistant Treasurer), Coverage of tax agent services regime, media release, 23 April 2010, accessed 24 June 2013.

Tax Laws Amendment (2013 Measures No. 3) Bill 2013 5

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the tax agents regime to financial advisors for a period of one year. This deferral of application was extended subsequently and is due to expire on 30 June 2013 under TASR subregulation 13(2).

On 29 November 2010, the then Assistant Treasurer and Minister for Financial Services and Superannuation released5 an Options Paper Regulation of tax agents services provided by financial planners, to commence consultation with industry on the preferred regulatory option.6

Further details of the consultation process that commenced in November 2010 are set out in paragraphs 2.83 to 2.93 of the Regulation Impact Statement (RIS) which is included in Chapter 2 of the Explanatory Memorandum.7

Regulation Impact Statement

The RIS was prepared by the Treasury and assessed as adequate by the Office of Best Practice Regulation.8 The RIS states that the overall objective of the Government is that all tax advice provided for a fee or other reward is consistently regulated irrespective of whether that tax advice is provided by a financial adviser.9

The RIS considered three options as follows.

Option 1: A co-regulatory framework

As explained in the RIS, the essence of this proposal is to introduce a regulatory system in which ASIC and the TPB jointly regulate those financial advisors who provide tax advice as part of their financial advice services. The merits or otherwise of this option are considered in paragraphs 2.21 to 2.42 of the RIS.10 It concludes that Option 1 is the preferred option because ultimately it will ensure that financial advisors providing tax advice are regulated under the TASA 2009 in a similar manner to tax agents.

Option 2: Extend the financial advisers exemption from the TASA 2009

The proposal under this option is to extend the exemption of financial advisers from the application of TASA 2009. Financial advisors would be subject only to the AFSL regime under the Corporations Act. The RIS at paragraphs 2.45 to 2.47 adduces reasons why this option would be contrary to the Government’s objective of improving consumer protection.11

5. B Shorten (then Assistant Treasurer and Minister for Financial Services and Superannuation), Regulating financial planners who provide tax agent services, media release, 29 November 2010, accessed 24 June 2013. 6. Treasury, Regulation of tax agent services provided by financial planners, Options paper, November 2010, accessed 24 June 2013. 7. Explanatory Memorandum, Tax Laws Amendment (2013 Measures No. 3) Bill 2013, chapter 2, pp. 55 to 74, accessed

26 June 2013. 8. Ibid., paragraph 2.1, p. 55. 9. Ibid., paragraph 2.17, p. 58. 10. Ibid., paragraphs 2.21 to 2.42, pp. 59 to 64. 11. Ibid., paragraphs 2.44 to 2.47, p. 64.

6 Tax Laws Amendment (2013 Measures No. 3) Bill 2013

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Option 3: Let the exemption of financial advisors from the TASA 2009 end on 30 June 2013

The RIS refers to this option as maintaining the ‘status quo’. This is a misnomer as taking no action to extend the exemption beyond 30 June 2013 amounts to making financial advisors subject to the TASA 2009 and the AFSL regime under the Corporations Act, whereas currently they are subject only to the AFSL regime.

The RIS points out that that whilst this option has the benefit of levelling the ‘playing field’ for all persons providing tax advice, it may be detrimental to the regulators, namely, ASIC and the TPB, as well as affected financial advisors, unless transitional safety-net arrangements are provided.12

Committee consideration

The Parliamentary Joint Committee on Corporations and Financial Services reported on Schedules 3 and 4 of Tax Laws Amendment (2013 Measures No. 2) Bill 2013 (the No. 2 Bill) on 17 June 2013.13

On 6 June 2013, Government amendments to the No. 2 Bill were passed by the House of Representatives and one of the amendments removed Schedules 3 and 4, relating to tax (financial) services and other amendments to the TASA 2009, from the Bill.14 These Schedules were subsequently included as Schedules 1 and 2 of the current Bill.

A majority of Committee members recommended that, subject to Recommendations 1 and 2, the proposed amendments contained in Schedules 3 and 4 of the No. 2 Bill be reintroduced and passed.

Recommendation 1 included a proposal for the TPB to discuss with relevant stakeholders the current requirement in the TASA 2009 for a ‘sufficient number’ of individuals to be registered as tax agents before a company is eligible for registration.

In Recommendation 2 the majority recommended that from 1 July 2013 until 31 December 2013 unregistered financial services licensees and representatives be able to provide tax (financial) advice on certain conditions.

In a dissenting report the Coalition members stated that the legislative proposals should not be proceeded with at this point as more work needed to be done to get the changes right.

In addition, they recommended that the current transitional arrangements, deferring the application of the TASA regime to financial planners and advisors be extended for a further 12 months to 1 July 2014.

Financial implications

12. Ibid., paragraphs 2.49 and 2.50, p. 65. 13. Parliamentary Joint Committee on Corporations and Financial Services, Regulatory framework for tax (financial) advice services (previously Tax Laws Amendment (2013 Measures No. 2) Bill 2013, Schedules 3 and 4), June 2013, accessed 25 June 2013.

14. See the home page for the Tax Laws Amendment (2013 Measures No. 2) Bill 2013, accessed 26 June 2013.

Tax Laws Amendment (2013 Measures No. 3) Bill 2013 7

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The Explanatory Memorandum states that the financial impact of the amendments made by Schedule 1 and 2 is nil.

Statement of Compatibility with Human Rights

The Statement of Compatibility with Human Rights for Schedules 1 and 2 can be found at pages 51-53 of the Explanatory Memorandum to the Bill. As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Schedules are compatible with human rights because to the extent that it they limit human rights, those limitations are reasonable, necessary and proportionate.15

The Parliamentary Joint Committee on Human Rights considered the Bill in its Tenth Report of 2013.16 While finding that the Bill was ‘unlikely to raise human rights concerns’17, the Committee commented:

… a number of civil penalty provisions are proposed, yet the statement of compatibility does not assess whether these provisions are properly characterised as 'civil' or 'criminal' under human rights law. The committee intends to write to the Treasurer to draw his attention to the committee's recently issued Practice Note 2 (interim) that sets out the type of analysis it considers may be appropriate to include in statements of compatibility accompanying bills that introduce or incorporate civil penalty regimes.

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Provisions to give effect to the changes

Schedule 1 amendments to the TASA 2009

Items 1 to 43 of Part 1 of Schedule 1 amend the TASA 2009 to create the new regulatory regime within the TASA 2009 for entities in the financial services industry that give tax advice, called the ‘tax (financial) advice service’. This term is specifically defined in the new section 90-15 inserted into the TASA 2009 by item 43 of Schedule 1.

The Explanatory Memorandum in paragraphs 1.24 to 1.2619 gives a summary of the new law and in paragraphs 1.27 to 1.11220 gives a detailed explanation of the new law.

Schedule 2 amendments to the TASA 2009

The amendments made by Schedule 2 to the TASA 2009 include provisions relating to registration requirements and other technical amendments. The Explanatory Memorandum gives details of these amendments in paragraphs 1.113 to 1.147.

15. Explanatory Memorandum, op. cit., paragraphs 1.169 to 1.176. 16. Parliamentary Joint Committee on Human Rights, Tenth report of 2013, 26 June 2013, accessed 26 June 2013. 17. Ibid., p. 1. 18. Ibid., p. ix. 19. Explanatory Memorandum, op. cit., paragraphs 1.24 to 1.26, pp. 13 to 15. 20. Ibid., paragraphs 1.27 to 1.112, pp. 16 to 36.

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Amendments made by Schedule 3—Deductible gift recipients

Background

Organisations with deductible gift recipient status (DGRs) can receive income tax deductible donations. DGRs can be endorsed under the ITAA 1997 under a number of general categories or can be specifically listed in Division 30.

The income tax law allows deductions for taxpayers who make gifts of $2 or more to DGRs.

Proposed changes

The listings of the Australian Council of Social Services Incorporated and Make a Mark Australia Incorporated as DGRs, which have not been previously announced, will apply to gifts made after 30 June 2013.

Statement of Compatibility with Human Rights

The Statement of Compatibility with Human Rights for Schedule 3 of the Bill can be found at pages 76-77 of the Explanatory Memorandum to the Bill. As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that Schedule 3 is compatible with human rights as it does not raise any human rights issues.21

As set out above, the Parliamentary Joint Committee on Human Rights considers that the Bill is ‘unlikely to raise human rights concerns’.22

Financial impact

The Explanatory Memorandum to the Bill states that the financial impact of the measure in Schedule 3 is as follows:23

Organisation 2013-14 2014-15 2015-16 2016-17

The Australian Council of Social Service Incorporated

Nil -$0.015m -$0.015m -$0.015m

Make a Mark Australia Nil -$0.01m -$0.01m -$0.01m

21. Ibid., paragraphs 3.11 to 3.15, pp. 76 to 77. 22. Parliamentary Joint Committee on Human Rights, op. cit., p. 1. 23. Explanatory Memorandum, op. cit., p. 5.

Tax Laws Amendment (2013 Measures No. 3) Bill 2013 9

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Organisation 2013-14 2014-15 2015-16 2016-17

Incorporated

Provisions to give effect to the changes

The amendments made to the ITAA 1997 by items 1 and 2 of Schedule 3 include the Australian Council of Social Service Incorporated and Make a Mark Australia Incorporated as specifically listed DGRs.

Items 3 and 4 of Schedule 3 update the index in Division 30 to include the new listings.

10 Tax Laws Amendment (2013 Measures No. 3) Bill 2013

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