Australia's major tax changes in 2023: an expert guide

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast, brought to you by CPA Australia.

Simon Downes:
Hello, and welcome to With Interest. I'm Simon Downes, External Affairs Lead, here at CPA Australia. Tax is a topic that tends to get Australians' attention, whether we're talking about multinational tax, superannuation, or work from home deductions. $683 billion in tax was collected across all levels of government in 2021-22, which is used to fund everything from health, education, infrastructure, defence, as well as things like fishing rods for school children, and bio-security surveillance. With ever-growing debt and stubborn deficits, it's not just about where we spend this money, but also how it's collected, and from whom. Each year there are many changes made to our tax system, and joining me today to round up some of the key tax events and changes in 2023 is Head of Policy and Advocacy at CPA Australia, Elinor Kasapidis. Welcome to With Interest, Elinor.

Elinor Kasapidis:
Hi Simon. Thanks for having me on.

Simon Downes:
Given that tax is such a broad topic, we've chosen a few issues to discuss today. The High Court decision, that found Victoria's Electric Vehicle Levy was unconstitutional, a recent Administrative Appeals Tribunal decision dealing with private wealth issues, the planned introduction of payday super, recent proposed reforms on multinational taxation, and the increasing debt collection activity by the ATO. Let's start with October's High Court decision, which ruled that Victoria's Electric Vehicle Levy was unconstitutional. This potentially has far-reaching implications, and raises questions about the legitimacy of some state and local taxes and levies. Elinor, at the heart of this decision was a road user charge on electric vehicle drivers in Victoria. Just tell us about the charge, and why this became such an issue.

Elinor Kasapidis:
Thanks, Simon. Fuel excise is currently charged and collected by the federal government, to fund our roads and transport infrastructure. It's levied on fuel consumption, but electric vehicles are not subject to this regime. As a result, EV owners use the roads, but they don't contribute to the costs. Instead of supporting the federal government to develop a national road user charge for EV drivers equivalent to fuel excise, the Victorian government sought to impose a state-based levy instead. Two individuals then decided to challenge the levy on constitutional grounds, with the federal government joining in the action along the way. In a split decision, with a judgement running at almost 400 pages, the High Court agreed with these plaintiffs, and ruled that the levy was unconstitutional. It's now clear that the other states will not be able to proceed with their planned EV levies, and this decision raises broader questions, about whether many of the levies and taxes imposed by the states are in fact legitimate.

Simon Downes:
So what do you think this means for tax policy going forward?

Elinor Kasapidis:
Firstly, when it comes to contributing to our transport infrastructure, it's clear that this is a federal government responsibility, and we'd like to see this government start working on the design of a road user charge that is sustainable and fair. In the absence of a new model, as more and more Australians drive EVs, expecting fuel excise to fund all transport expenditure is literally giving EV drivers a free ride. I'd also note that it's incredibly disappointing that such a critical issue requires two individuals to decide to take on a state government and go to the High Court to get a decision. We'd like to think that the Attorney Generals, government departments and parliamentarians would have sufficient knowledge and access to advice to not make such a mistake, and where uncertainty existed, there should have been a channel for them to seek a judgement . It raises questions about how many other unconstitutional laws are out there, and is a strong example of the imbalance of power between citizens and their governments. Hopefully this decision also goes some way to stopping the ad hoc and poorly designed new taxes and levies that keep being imposed by state and territory governments, without consultation or citizens in mind. This brings me to my second point. We need to have a serious talk about taxation in this country. With state governments desperate for revenue, and faced with a shrinking number of options, we'll either end up with punitive rates on whatever they can tax, on top of very high federal income taxes, or we can start properly talking about reform of the GST and federal financial relations. Our latest intergenerational report clearly shows that Australia's productivity and growth challenges and inefficient taxation don't help. This decision signals that state governments are properly constrained by the Constitution in terms of what they can tax. So it's clearly now in their best interests to come to the table on GST. I'd also like to see a review of the constitutionality of all state and local taxes and levies, to ensure their legitimacy.

Simon Downes:
So that's the High Court. At the other end of the justice system, we've had a recent Administrative Appeals Tribunal decision go against the Commissioner of Taxation, which is now on appeal to the federal courts. Why is this worth noting, Elinor?

Elinor Kasapidis:
For those in Australia who run or advise on private wealth and closely held businesses, and there are millions of them in Australia, private companies and family trusts are part of the bread and butter of how these groups operate. In the case, which is called Bendel, the AAT found that unpaid present entitlements were not loans, and therefore were not deemed to be Division 7A dividends. It sounds very technical, but in essence, it will be a big deal because Division 7A is one of the only tools available to the ATO, to deal with people using their business to fund their lifestyle and private consumption, without paying the right amount of tax. With more than 100,000 companies owed almost $100 billion from loans to shareholders and their associates, decisions related to private company wealth have the potential to impact many Australians. What we're also seeing through cases like this, as well as earlier decisions in Guardian and Bblood, which deal with another anti-avoidance provision called Section 100A, is that the ATO is increasingly taking on taxpayers in the court, and we're getting greater judicial clarity on these issues. For the millions of directors and trustees of family businesses, it's never been more important to keep business and private dealings separate, and to ensure you're paying the correct amount of tax. Having a good advisor, keeping proper accounts, and making sure your paperwork is a hundred percent are essential.

Jacqueline Blondell:
If you're enjoying this podcast, you should check out our in-depth business and finance show, INTHEBLACK. Search for INTHEBLACK on your favourite podcast app today. And now back to With Interest.

Simon Downes:
Speaking of business, work on the government's payday super initiative has commenced, with submissions recently being made to the Treasury on its 49 question consultation paper. Bringing super guarantee payments into line with employee paydays seems like a no-brainer. Why does it look like such a big body of work though, Elinor?

Elinor Kasapidis:
Generally, we support the policy of lining up super contributions with people's paydays. Superannuation contributions are built around deadlines, where super guarantee contributions are due once a quarter, so when you think about the chain that runs from employers to super funds, you have to coordinate it in such a way that the policy looks like employers are getting their super paid to their fund in a reasonably fast timeframe, like how employees currently get their payroll paid almost instantly. These proposed policy changes will impact a wide range of legislative provisions, employer compliance requirements, the onboarding of employees with an employer, payment and reporting systems and processes, services provided by intermediaries in that chain - such as payroll providers, clearing houses, and practitioners - and the administration part by the ATO. When you think about that list, as a result, we need to carefully consider every aspect of the policy and its impact. So yes, Simon, that's what makes it a very large project.

Simon Downes:
Well, it's good to see that some detailed thinking on this programme is being sought from the start. Just quickly, we have an example at the other end of the spectrum, with the proposed changes to Australia's thin capitalization rules, aimed at multinationals. What's going on here?

Elinor Kasapidis:
So thin capitalization is essentially how much debt a company is carrying to run its business, and the government is amending the thin capitalization rules in line with OECD recommended approaches. There was a project called Base Erosion and Profit Shifting, and this falls under action number four. Now with a start date of the 1st of July, 2023, the new rules apply to Australian entities which are foreign-controlled, and or which control foreign entities or have foreign branches. Such entities may be denied interest deductions, where the thin cap rules apply and they're intended to stop excessive interest deductions. Now CPA Australia has made submissions throughout the various consultations with the Treasury and at the Senate Economics Committee, and we've raised concerns that the rules have too wide an application, and will capture not just transactions carried out to minimise tax, but also genuine business activities.

Simon Downes:
Before we close out today's show, I wanted to ask you about another tax development that I recently became aware of, and that is the change of approach by the ATO on debt collection, by which I mean, they're ramping up their debt collection efforts. What can you tell us about this, Elinor?

Elinor Kasapidis:
The ATO has now gone on the record, to signal its return to normal debt collection operations post-COVID, and is now actively seeking payments of tax debts. More than $50 billion in collectible debt is outstanding, with 90% of it owed by businesses, the majority being from small businesses. Now the avenues available to the ATO are extensive, and they include garnishee notices, director penalty notices, directions to pay superannuation guarantee, disclosure to credit reporting bureaus, and even prosecution. Payment arrangement terms are also tightening, so if you have tax debts, it's important to get up to date or enter a payment arrangement, to avoid escalating consequences. Avoiding the letters and the calls is not going to help you. Tax practitioners can help talk with the ATO on your behalf, and for businesses that are really struggling, seeing an insolvency practitioner can assist you decide on your options.

Simon Downes:
Well, there's always something going on in the world of tax, but that's all we've got time for today. So thank you very much to our guest expert, Elinor Kasapidis, who's Head of Policy and Advocacy here at CPA Australia. As a reminder, CPA Australia members can subscribe to our weekly tax news updates. This way you can hear tax news as it happens. Just go to your subscription preferences to subscribe now, and check out the show notes for more information on the topics we've been talking about today, and for a link to a recent podcast on the super objective and better targeted superannuation consultation paper. From all of us here at CPA Australia, thanks for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest, by leaving us a review, and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business, and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode. We hope you can join us again, for another episode of With Interest.