Advocacy

The ATO issued Draft Taxation Ruling TR 2024/D3 which explains its various interpretations on aspects of the “Third Party Debt Test” under the new thin capitalisation rules. This test is an alternative elective test to the default “Fixed Ratio Test”. Broadly, for debt deductions to satisfy the requirements under the Third Party Debt Test the borrowed funds need to be use for commercial activities in connection with Australia with the lender only having recourse for the payment of the debt to Australian assets of Australian entities.

PCG 2024/D3 was updated in December 2024 with two additional schedules that (1) provide transitional compliance approaches for aspects of the Third Party Debt Test and (2) outline the ATO’s likelihood of seeking to apply anti-avoidance rules to restructures undertaken in response to the new thin capitalisation rules.

We made a comprehensive submission in response to the Draft Ruling and Draft PCG where we outline our views on key concepts such as “Australian asset”, “commercial activities” and “recourse”, as well as various other issues that arise out of the ATO’s guidance.

You can read our submission here

PCG 2024/D4 contains the ATO’s compliance approach to the application of section 207-159 which was introduced in November 2023 and applies to make certain corporate distributions unfrankable where they are funded by an issue of equity interests. We made a submission to the ATO outlining the need for certain binding technical interpretations about the application of the provision as well as seeking further ‘low-risk’ examples for private companies to cover arrangements that are explicable by non-tax considerations such as asset protection.

You can read our submission here

In December 2024, the ATO published a draft taxation determination (TD 2024/D3) outlining their view that a deemed dividend can arise under Division 7A where a private company guarantees a bank loan made to another private company in the group, where that bank loan is then on-lent or on-paid to a related trust or individual. Refer to our article on this new ATO guidance (see here). 

Pitcher Partners have made a submission in response to the draft taxation determination setting out our interpretation of the relevant provisions and advocating for sensible safe harbours for taxpayers who enter into ordinary commercial financing arrangements that are within scope of the provisions. 

You can read our submission here. 

In April 2024, Australia’s new thin capitalisation rules become law (see here).

Broadly, thin capitalisation applies to entities part of multinational groups that incur debt deductions (e.g. interest) of more than $2 million for an income year (on a group basis).

You can read our submission here. 

In April 2024, Treasury released for comment exposure draft legislation (see here) seeking to introduce income tax concessions for Build-to-rent property developments to give effect to a Federal Budget announcement made on 9 May 2023.

Pitcher Partners made a submission to Treasury outlining our concerns with the policy settings such as the affordable dwelling requirements and the lack of withholding tax concessions in respect of capital gains.

You can read our submission here.

In November 2023, legislation introducing a new integrity rule became law. New section 207-159 of the Income Tax Assessment Act 1997 will make certain corporate distributions made on or after 28 November 2023 unfrankable where they are funded by capital raising.

Pitcher Partners made a submission to the ATO outlining the key areas of concern that the new measure raises for private companies in particular.

You can read our submission here.

The Government has listened to ours and others feedback and proposed several amendments to the legislation. These proposed amendments have been referred back to the Committee for further consideration and report by 5 February 2024.

You can read our submission here.

Thin capitalisation legislation – July 2023 

In June 2023, legislation containing new thin capitalisation rules from 1 July 2023 was introduced into Parliament. Broadly, thin capitalisation applies to entities part of multinational groups that incur debt deductions (e.g. interest) of more than $2 million for an income year (on a group basis). You can read our submission here. 

Public country-by-country reporting – May 2023 

In April 2023, the Government released exposure draft legislation for public comment seeking to introduce public country-by-country reporting obligations for income years commencing on or after 1 July 2023 for multinational groups with a tax presence in Australia. We made a submission to Treasury. Find out more. 

Denying deductions for payments relating to intangibles – May 2023 

In April 2023, the Government released exposure draft legislation for public comment seeking to introduce a new measure to deny deductions for payments for the exploitation of intangible assets that are made by significant global entities to associates in foreign jurisdictions with a corporate tax rate of less than 15%. We made a submission to Treasury. Find out more. 

30% tax on earnings of superannuation balances over $3 million – April 2023 

In February 2023, the Government announced an intention to pursue an increase in the tax rate applying to superannuation earnings on member balances over $3 million. We made a submission to Treasury confirming that we do not support the current policy design approach. Find out more. 

New thin capitalisation rules (Exposure Draft) – April 2023 

In March 2023, Treasury released exposure draft legislation for public comment containing new thin capitalisation rules proposed to apply from 1 July 2023. We made a comprehensive submission in response to the exposure draft legislation. Find out more. 

Post-implementation review of income for NFPs – March 2023

The Australian Accounting Standards Board (AASB) sought feedback on income recognition for not-for-profits (NFPs) through its post-implementation review (PIR) paper issued in November 2022. We made a submission to the AASB on these proposals. Find out more.

Development of simplified accounting requirements for NFPs – March 2023

The Australian Accounting Standards Board (AASB) published a discussion paper in September 2022 intending to create simplified accounting requirements for smaller not-for-profits (NFPs).  We made a submission to the AASB on these proposals. Find out more.

Climate-related financial disclosures – February 2023

In December 2022, Treasury released a consultation paper seeking initial views for the design and implementation of the Government’s commitment to standardised, internationally-aligned requirements for disclosure of climate-related financial risks and opportunities in Australia. We’ve made a number of recommendations to Treasury. Find out more.

Non-arm’s length expense rules for superannuation funds – February 2023

The non-arm’s length expense (“NALE”) rules for complying superannuation entities were introduced with effect from 1 July 2018.  In January 2023, Treasury released a Consultation Paper considering potential reforms to the non-arm’s expense rules for superannuation funds. We made a submission to Treasury. Find out more.

Franked distributions and capital raising – October 2022

In September, Treasury released exposure draft legislation to implement an integrity measure to make corporate distributions unfrankable where they were funded by capital raising. We’ve made a number of recommendations to Treasury. Find out more.

Shortened period of review – September 2022

In August, Treasury released draft regulations that would exclude entities with “complex affairs or significant international dealings” from the shorter two-year POR that had been extended to medium businesses in 2020. We’ve made a recommendation to Treasury. Find out more.

Multinational tax integrity – September 2022

In August, Treasury released a consultation paper seeking feedback on amending Australia’s thin capitalisation rules. We’ve made a number of recommendations to Treasury. Find out more.

Section 100A – May 2022

Early in 2022, the ATO released long-awaited guidance on the application of Section 100A. These guidance products highlighted many arrangements, including past arrangements, involving trust distributions that would be seen as high risk by the ATO. We made a submission to the ATO. Find out more.

Division 7A – May 2022

At the same time that the ATO released their public guidance on section 100A, the ATO updated its view regarding the treatment of unpaid present entitlements (“UPEs”) for Division 7A purposes. We made a submission to the ATO and, following a consultation with us, the ATO has simplified the proposed timing rules. Find out more.