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Recent Media

This section provides a selection of media items posted in the last seven days on issues within TaxWatch’s area of interest. Items of longer-term interest will then be transferred to the monthly archives and may also be filed under he relevant topic in the Tax Policy collection.


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Triguboff lashes $650m tax and levy slug

Ben Wilmot, The Australian, 21 September 2017

Harry Triguboff, Australia’s biggest builder of apartments, has lashed out at excessive red tape and hefty taxes levied on his property empire, revealing his Meriton group’s projects and its unit buyers ploughed about $650 million into federal, state and council coffers over the past financial year. The billionaire has opened up about his tax affairs as he faces an even heavier tax burden this year. His main customers, foreign property investors, are also being slugged with higher fees and taxes in NSW that are forecast to raise almost $2 billion for the state. As NSW’s largest unit developer, Meriton’s offshore buyers will be hit by a doubling of a surcharge targeting them from 4 to 8 per cent as Mr Triguboff warns the slowdown in the apartment market is worsening and developers face the prospect of absorbing the tax hit themselves. Mr Triguboff, who is concerned about the broader effects of falling prices on the economy and property sector, is fed up with the tax contribution both from his developments and the heavy levies on buyers. Referring to his own bills, Mr Triguboff said it was “one mighty big contribution from one man and one company”. “Imagine how much the figure is when you include the whole development industry — it’s in the tens of billions,” he said. “So why do governments make it so hard for Meriton and other major players who have track records, know what they are doing, and create thousands of jobs?” Mr Triguboff criticised the timing of the tax rise on foreign buyers, and Sydney’s multi-layered planning system. “New fees and taxes — like those brought in on July 1 in NSW on foreign buyers — and obstructive planning laws make no sense,” he said. “When a company such as Meriton is vibrant and a major contributor to the economy, you shouldn’t be holding it back.” He called for a change of mindset to support residential and commercial developers rather than hit them with high taxes. “The more governments encourage developers, the key players in Australia’s biggest industry, the more dollars they’ll reap,” he said. “It’s no good putting a foot on our throats and then wondering why the tax tills aren’t still loudly ringing.” Benefits flowing to governments from Meriton apartment operations showed the development industry’s value to the state and national economies, Mr Triguboff said. He revealed that last financial year, Meriton payments to the federal government via GST, company tax, and tax on employees totalled $295m. The NSW government made $46.1m from stamp duty on property purchases by Meriton and from Meriton-related payroll tax. Stamp duty paid by Meriton customers to Queensland and NSW totalled $83.6m. “Then there’s personal and company taxes, plus payroll tax, paid by our vast array of subcontractors. That comes in at well over $120 million.” Mr Triguboff said the benefits to governments from Meriton and rival developers trickled “down the line” to related industries, some of which are now under pressure as the residential boom is at risk. “We’re supporting jobs, and hence taxable incomes, right down the line — from industries such as flooring and lighting and even the corner cafes where our workers get their smoko,” he said. Property Council NSW executive director Jane Fitzgerald said taxes, charges and fees made up as much as 40 per cent of the price of a new home. “In an already unaffordable market this is an enormous burden,” she said. The NSW budget had measures to collect a further $545m from expanding infrastructure contributions and another hit was coming. “The layer cake of costs and charges accumulating, without suitable oversight of their effect on the market and affordability, undermines industry confidence,” she said. Top

Almost $18b in lost super waiting to be claimed

John Collett, The Sydney Morning Herald, 21 September 2017

Almost $18 billion of lost super is waiting to be claimed, with Sydney's Liverpool, Campbelltown, Surry Hills, Darlinghurst and Bondi featuring among the top 10 locations nationally for unclaimed funds. As at June 30, the Australian Tax Office held records of more than 6 million lost and unclaimed accounts. Mackay and Cairns and surrounding areas have the most lost super nationally. Each area has more than $60 million in lost super. Melbourne's Werribee and Cranbourne also feature in the top 10 list. Super becomes lost because, among other causes, members change jobs or addresses without telling their funds. Super funds are holding more than $14 billion of lost super, while a further $3.75 billion of unclaimed super is held directly by the ATO. Over half the amount of lost super held by super funds, $7.6 billion, belongs to people aged 40-55. Super funds have to inform the ATO of lost accounts so that it can use its extensive data-matching powers, including tax file numbers, to find the owners. A super account is deemed "lost" if the  fund cannot make contact with the account owner and there is no activity on the account. Lost super accounts with less than $6000 in them are automatically transferred to the ATO. The reason is that some super funds charge high fees on lost accounts, which can quickly eat into small accounts. There are no fees on the accounts held by the ATO and the accounts earn the rate of inflation. The easiest way to search for lost or unclaimed super was by using the ATO's online services through myGov, said Debbie Rawlings, an ATO assistant commissioner. "Over the past four financial years, we've reunited 1.68 million accounts worth $8.12 billion with the account owner, and there's plenty more to be found," Ms Rawlings said.     Top

BHP willing to head to court against ATO tax bill

Nassim Khadem, The Sydney Morning Herald, 21 September 2017

BHP is willing to head to court to fight the Australian Taxation Office on a more than $1 billion tax bill over its Singapore marketing hub. The world's largest miner has continually defended its Singapore marketing hub, where it is accused of routing profits, and says it is confident of its position in a $1 billion dispute with the ATO over the amount of taxes payable on the sale of Australian commodities to its Singapore marketing business. BHP has been in a long-running dispute with the tax man over assessments spanning 11 years (2003 to 2013) that total $661 million in primary tax, plus interest and penalties, which take it to more than $1 billion. Under dispute is the margin on mark-ups on commodities sold to its Singapore operations, which many argue is a ploy to avoid tax in Australia, but which BHP denies. Tax bill keeps rising The tax bill keeps ticking higher each year as the dispute drags on. The ATO is now also auditing the company for years 2014 to 2016, the miner said in its annual Economic Contribution Report, although assessment for those years have not yet been issued. BHP Billiton is one of the few companies on the ASX 200 that voluntarily provides some detail about the taxes it pays in Australia and around the world. BHP's head of tax is Jane Michie and she has fronted previous hearings held by the Senate inquiry into corporate tax avoidance, in which she's defended the company's Singapore operations and the amount of tax paid. In Wednesday's report, BHP formally objected to the ATO bills. "BHP does not agree with the ATO's position," the miner said. "Consequently, we have objected to all of the amended assessments and intend to continue to defend our position, including by initiating court action if necessary." Singapore charges zero% Marketing hubs established by the major miners allow commodities dug up in Australia, such as iron ore and coal, to be "sold" to the companies' own operations in countries such as Singapore before they are subsequently sold, with a hefty mark-up, to China and other nations. As a result, billions of dollars in sales is taxed at Singapore's tax rate – which, with a range of incentives on offer from the island nation, has been reduced to zero in the case of BHP – rather than at Australia's higher 30 per cent corporate tax rate. While BHP has been paying Singapore's government a zero rate to date, under the agreement this rate is rising, but is still expected to remain well below Singapore's corporate tax rate of 17 per cent. Tax Commissioner Chris Jordan and his underlings have previously noted at various parliamentary hearings that the mark-ups used by miners and others in transfer pricing cases are too high. But BHP points out that 77 per cent of its sales and suppliers are in Asia and argues that the mark-up margin is appropriate to the risk and value add that is provided by its marketing operation in Singapore. Dual listing structure In the interim, BHP has, in line with usual practice that occurs when a tax bill gets issued, made partial payments to the ATO of about $328 million. The company noted that the transfer pricing dispute of $661 million is less than 2 per cent of total income tax the company paid over the period. Due to its dual-listed company structure, BHP's Singapore hub is owned 58 per cent by BHP Australia, and 42 per cent by BHP UK (the profits on the 42 per cent of the Singapore marketing hub that are owned by BHP UK escape the Australian tax net). The ATO earlier this year released new transfer pricing guidance aimed at helping companies with cross-border financing – in 2015 worth about $420 billion across the economy – meet their tax obligations. Almost half of the $420 billion related party loans are in the energy and resources sector (worth $202 million). About a quarter of related party loans are in the oil and gas industry (worth $97 million). BHP's other disputes Separate from the transfer pricing dispute is another dispute with the ATO that also relates to its Singapore operations and a portion of profits attributed there. In its 2017 annual report, BHP noted that "the group is currently in dispute with the ATO regarding whether profits earned globally by the group's marketing organisation from the on-sale of commodities acquired from Australian subsidiaries of BHP Billiton are subject to 'top-up tax' in Australia under the Controlled Foreign Companies rules". BHP said it received amended assessments relating to the 2006–2010 income years, which it objected to, and which were then allowed in part by the ATO, and without penalties. These now total $US33 million ($A43 million). "The Group has sought review of the disallowed objections," the miner said. Then, between May 2016 and May 2017, the company received amended assessments for primary tax of $US30 million relating to the 2012–2015 income years, and interest of $US4 million (with nil penalties). "The Group has formally objected to the amended assessments," BHP said. The company noted there was also a royalty reassessments dispute with the Queensland Office of State Revenue relating "primarily to the basis for calculating the value of coal for royalty purposes under Queensland law". The reassessments relate to the period from July 1, 2005, to September 30, 2015, and total $US173 million in royalties and US$80 million in interest (BHP share). ​​ Top

Sugar tax will just hurt the poor: Senator David Leyonhjelm

Clarissa Bye, The Daily Telegraph, 20 September 2017

LIBERAL Democrat Senator David Leyonhjelm has slammed the “fat police” over renewed calls for a sugar tax on soft drink, saying it was akin to the nanny state “rummaging through our fridges”. Prime Minister Malcolm Turnbull also slapped down the push by a coalition of health groups and universities for a 20 per cent tax on sugary drinks. “I think we have enough taxes and there are enough imposts­ on us all when we go to the supermarket and we go shopping,” Mr Turnbull said yesterday. “The other thing is, too, where do you draw the line? There is a lot of sugar in a bottle of orange juice, are you going to put a tax on that?” Writing in today’s The Daily Telegraph, Mr Leyonhjelm said a sugar tax would not affect the “inner-city, turmeric-latte sipping greenies riding their bicycles” but the poorest members of society. “The fat police are at it again, dressing up a new tax as a health issue,” he said. “But research does not show that making just one of the many menu ­offenders more expensive will help our hips get any smaller. Only our hip pockets. And those on low incomes will be hardest hit.” Sugar tax campaigners said 63 per cent of Australian adults and 27 per cent of children are either overweight or obese. The Obesity Policy Coalition estimates the annual cost of Australia’s weight and obesity problem between 2011 and 2012 was about $8.6 billion, ­including GP services, hospital care, absenteeism and government subsidies. “Without action, the costs of obesity and poor diet to ­society will only continue to spiral upwards,” OPC executive manager Jane Martin said. “The policies we have set out to tackle obesity therefore aim to not only reduce morbidity and mortality but also improve wellbeing, bring vital benefits to the economy and set Australians up for a healthier future.” Ms Martin said kids were bombarded with ads for junk food and high-sugar drinks that are cheaper than water. Many so-called healthy foods were also being laden with sugar and saturated fat. “Making a healthy choice has never been more difficult,” she said. Australia’s food and beverages industry opposes a sugar tax and argued that a broad and holistic approach was needed to tackle the problem. “We believe there is no single cause or quick fix solution,” a joint statement released by eight major food and drinks groups led by the Australian Food Grocery Council said. Top

Build-to-rent rules challenged

Ben Wilmot, The Australian, 20 September 2017

The tough new rules on Australia’s nascent build-to-rent sector proposed by the federal government could restrict investment in the area and crimp the asset class that has the potential to relieve pressure on the housing sector, a top analyst has warned.

Treasurer Scott Morrison last Friday unveiled rules that cut off the main avenue for global players to invest in upscale build-to-rent projects, prompting warnings the failure of the sector could worsen the affordability crisis.

The future of the sector — which has been pitched as a potential $300 billion saviour to drive investment into Australia’s housing supply — has been hit as rules proposed by the Treasurer would shut the door to foreign institutions receiving favourable tax treatment for most schemes.

CBRE’s head of research, Australia, Stephen McNabb, said that limiting the attractiveness for institutions to invest in the new area, which indirectly takes pressure off the existing market by providing an alternative supply source, was “contradictory”.

“If multifamily is an emerging delivery model for residential in the middle to high quality segment, then it is unclear why the government would want to restrict supply,” Mr McNabb said.

He said that multifamily — also known as build-to-rent — investments compared favourably to commercial classes because of their long-term stable income.

“This is precisely why institutions are exploring investment opportunities in the asset class,” he said, playing down government concerns that investors were simply chasing capital gains.

Mr McNabb said the tax system, by itself, should not be a make or break for investment into multifamily but argued that the government needs to tread a “complex pathway” to ensure its policy was not inhibiting an otherwise viable asset class.

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ATO still plays unfair legal games against small business

Robert Gottliebsen, The Australian, 20 September 2017

It looks like the officials in the Australian Tax Office have learned little in the last 10 months and are still thirsting to play unfair legal games against small business. Almost 10 months ago I thought we might see a better and fairer tax office because I had sat in the Federal Court in Sydney and watched lawyers for Australia’s Commissioner of Taxation, Chris Jordan, admitting he had made an unprecedented and humiliating error. Normally people learn from their mistakes. But, from what I can see, not this time. Readers will remember I had closely followed the case of the hero of Port Hedland, Rod Douglass, who had spearheaded the increased productivity in the port (and delivered the ATO big sums in extra profits tax revenue from BHP), being accused of fraud and tax evasion because he used partnership structures to provide his services to the port. Jordan and his henchmen went back some 10 years and falsely claimed penalties interest etc over that period. Fast forward 10 months from that tax backdown. I have not followed the later developments in the same detail but the Commissioner decided again to prosecute Douglass for breaches of the personal services act, although this time not for 10 years but for around two years. Douglass has already been well and truly financially destroyed by the ATO and now lives in Columbia but the legal team defended the second case. I must confess I have not studied the second case developments in the same way as the first one so this time around I am relying on Self Employed Australia’s material. I stepped back because it seemed a fairly straightforward test case: Was Douglass in breach of the personal services legislation and should he have been an employee? In straight forward cases like this the tax office is required to be a model litigant and, given the earlier back down, that’s what I expected. I was wrong. The case, while simple, was important. The Parliament has set out a series of clear rules as to when a person is self-employed. They include an apparently unambiguous overriding clause which states: For the purposes of paragraph (1)(a), (b) or (c) or (3)(a), (b) or (c), regard is to be had to whether it is the custom or practice, when work of the kind in question is performed by an entity other than an employee. So the Douglass legal team presented to the court a series of examples, which showed that it was custom and practice for contractors performing these sort of tasks to be organised as businesses/partnerships because they were not employees. And my earlier work certainly confirmed this. But nevertheless Chris Jordan and his people were perfectly entitled to bring foreword a series of “custom or practice “ situations in the industry to muster an opposing case. The court would then make a decision. And if Jordan had acted as a model litigant, as he is required to do, then he would have no argument from me although I would have thought after the backdown there would be better situations to run a test case. But instead his people played legal games. Apparently for Douglass’s people to get the Commissioner’s “industry and practice” papers they had to nominate the documents but could not nominate them because they didn’t know what documents to ask for. There are apparently a multitude of legal precedents that enable such games but they should not be played by Jordan’s people because of his model litigant obligations. The whole matter also came before the Inspector-General of Taxation where the Commissioner’s people revealed that the real truth was that they did not have any “custom or practice” papers in that industry. In other words they ran a test case without key evidence and hid behind a legal smokescreen. I can’t believe it but Self Employed Australia assures me that is true. It would seem that the ATO does not usually face the need to have “custom or practice” material because small enterprises do not have the resources to take the commissioner to court. This underlines the basic unfairness of the system My whole argument has been that Australia, as a society where small entrepreneurs are going to be more and more important in creating employment must have a low cost independent body or mechanism that enables small enterprises to have their tax disputes judged. Currently the ATO knows that if they play legal games in most cases small business cant afford the defence. I am afraid we keep seeing example after example where the tax office culture that led to the Cranston affair goes very deep. But an independent low cost appeal process for small business can reverse it. Large enterprises have the resources to use the courts and Chris Jordan has been brilliant in his prosecutions in this area. The government has taken a series of steps that are pro-small business but they are all of no account until this is fixed. Top

Nobel-prize winning economist Joseph Stiglitz on how to stop inequality and tax avoidance 

Nassim Khadem, The Sydney Morning Herald, 18 September 2017 

One of the most memorable images from the 2016 US election campaign was of Donald Trump celebrating his delegate victory with McDonald's – he's eating a Big Mac and fries on his luxury private jet.  The flamboyant wealthy businessman, now US President, managed to convince ordinary Americans, discontent with the power of big corporations and globalisation, that he was a man of the people.  "They [Americans] are going to be hurt a lot by his policies," Columbia University professor and Nobel Prize-winning economist Joseph Stiglitz says.  The former World Bank chief economist and adviser to former US president Bill Clinton is bold and unorthodox, and that's part of his charm.  He isn't afraid to advocate ideas that challenge conventional thinking and to question the power of corporations.  When I ask him about how to fight global tax avoidance, he proposes a global minimum tax rate of 20 per cent.  And on the issue of climate change, he suggests that if rich high-emitting countries such as Australia and the United States don't eventually come to the table, companies should be subject to a cross-border carbon tax.  It's not that Professor Stiglitz is anti-business, but rather that he wants everyone to share from advances in technology and economic growth.  "One of the reasons for the anti-globalisation movement is that people realise that the system of globalisation has worked very well for very rich people and for the corporations, but not for individuals," he says in an exclusive interview with Fairfax Media.  A worsening divide  Trump and Brexit were a rebellious response, he says, from people who feel they have been left out. But he worries their fates will now worsen.  The general shift to right-wing leaders globally is already resulting in protectionist, anti-globalisation policies. And those policies, he says, unfortunately, are most damaging to the poor.  This is a key topic explored in Professor Stiglitz' book: Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump.  But making the Trump-loving population understand their deteriorating plight is a hard feat.  "There's a view that they don't really look at the policies," he says. "They only look at; 'does he seem to care about us'? As a great actor, he has persuaded them he cares about them, even as he picks their pockets."   According to Washington-based Economic Policy Institute, which maps inequality across the US, between 1979 and 2007, the average income of the bottom 99 per cent of US families grew by 18.9 per cent, while the average income of the top 1 per cent grew over 10 times as much – by 200.5 per cent. It's at levels not seen since the late 1920s.  "You have a lot of inequality and inequality affects the politics; then they [Trump's administration] pass laws that reinforce inequality," Professor Stiglitz says.  He gives the example of the Republicans push to get rid of inheritance taxes. Known in the US as the estate tax, it taxes the right of an individual to transfer property at their death, which according to the IRS, now only falls only on those with assets worth more than $5.49 million and double that for couples.  "We're talking about a few thousand families with lots and lots of money," he says. "The Republican party is coming out on the side of the very, very wealthy."  'Fiscal paradises'  Tax rates and incentives can also exacerbate divides.  Trump has proposed to cut America's company tax rate from 35 per cent to 15 per cent.  In a world of greater tax competition where countries like Ireland and Singapore offer 12.5 per cent and 17 per cent rates respectively, companies say if the US doesn't cut taxes, they will move offshore.  "I think it's largely a hollow threat, but not completely," Professor Stiglitz says.  "The first tax reform we need is to get a global agreement to end the tax competition race to the bottom and make sure that there isn't massive tax avoidance. But obviously this isn't the corporate agenda- they like this race to the bottom."  Despite the OECD/G20 global plan against profit shifting, known as Base Erosion and Profit Shifting (BEPS), he says multinational tax avoidance still occurs.  "We haven't eliminated the tax havens," says Professor Stiglitz who two years ago help set up the Independent Commission for the Reform of International Corporate Taxation, ICRICT, to fight for changes that reduce inequality and strengthen human rights.  "The fiscal paradises are still there. Panama is still there. Money laundering is still going on."  Abuses continue  While BEPS eliminated some of the absolutely worst abuses, it did not eliminate many of the other bad abuses, he says. It put an end to no-tax jurisdictions, but it didn't end very-low tax jurisdictions.  He notes companies including Starbucks and Apple are still engaging in the legal practice of profit shifting to lower-tax nations.  The less revenue we raise from corporate income tax the more revenue we have to raise from individual income tax. "So, in a way you're shifting taxes [the burden] from corporations to individuals," he says.  Aside from BEPS, there's also been unilateral moves by governments – including Australia's – to try tax multinationals.  Tax experts are warning that once there's a share of the pie to tax, there will be more disputes between governments about who gets what share of that pie.  Apple's spat with the European Commission is a case in point, and US Treasury appears to be backing Apple boss Tim Cook's position that its US income.  Could this result in tax revenue wars? "That could happen if we don't get more cooperation," Professor Stiglitz says.  His solution is a global minimum corporate income tax of 20 per cent and limiting tax breaks to rare exceptions.  "I would not want to say there would be no exceptions – for example, the global community could get together and say, 'it's very important for us to encourage research in infectious diseases and give encouragement through the tax system – but basically there would be a framework that says, 'no you can't engage in tax competition through the patent box or anything'."  GFC Mark II?  The same system that has allowed zero tax rates for decades also enabled the Global Financial Crisis.  Professor Stiglitz says the financial sector never paid for the economic damage – which he estimates amounts to $US5 to $US10 trillion, and that's before the human toll is taken into account.  "They paid fines but those fines were minuscule compared to the damage that they [the financial wrongdoers] have done to our economy. [On top of that], there's he damage to peoples' lives, the loss of homes, the loss of families and the loss of jobs. It's just been a disaster.  And while there should be individual culpability, those in the big end of town escaped prosecution.   "Nobody at Goldman Sachs did the misdeeds even though misdeeds were done," he says. "Nobody at Lehman Brothers did the misdeeds even though misdeeds were done. The financial sector behaved badly but nobody did it."  The economy is "far from repaired. We don't have a robust financial system. The system is betting that we won't have another big shock. It's betting it can manage small-and-medium-sized shocks. But we know that on occasion, there's big shocks. And when the big shocks come, they know we will bail them out again."  The economy is also at risk from the impacts of climate change. Australia is a nation that went down the path of considering a carbon tax, but then retreated following a massive campaign from big business.  And in the aftermath of Trump's withdrawal of the US from the Paris accord, Professor Stiglitz, can only hope this is a "passing phenomena".  "We will have an election in 2020, and we will rejoin in 2021 – that's my hope."    Top

EU plans new tax to stop Google sending 'bags of money' offshore 

Mark Deen, Radoslov Tomek and Viktoria Dendrinou, The Australian Financial Review, 17 September 2017 

France's campaign to impose a new European Union-wide levy for digital companies such as Amazon.com Inc. and Facebook Inc.ran into early difficulties amid opposition led by Ireland  French Finance Minister Bruno Le Maire told colleagues at an EU meeting in Tallinn, Estonia, that the bloc should agree to a tax on the digital industry by mid-2018 as a matter of fairness. Ten countries, including Germany, Italy and Spain, have formally backed the initiative. Eight others have reservations, he said, led by Ireland.  "The very, very considerable difficulties in taxation of this sector" became clear at this meeting, Irish Finance Minister Paschal Donohoe told reporters on Saturday, explaining that any such levy should include the U.S. and other Group of 20 countries. Ireland joined other nations in raising "very big questions about how such a measure could be implemented," he said.  European Union finance ministers are developing a new way to tax digital companies such as Amazon.com and Facebook to raise money from an industry that they say provides less than it should to public coffers.  "We are responsible to our taxpayers to deal with it, we can't just watch how bags of money are transferred elsewhere," Slovak Finance Minister Peter Kazimir said in an interview. "I favor imposing immediate levies, similar to sales tax, but only as a temporary solution before we reach a global agreement."  Traditional taxation practices have failed to capture business from an industry where value added tends to be virtual rather than material and digital companies have sought to take advantage of loopholes created by uncoordinated European regulation.  Even as national governments accept that the current taxation system needs to be altered, the path forward is fraught with difficulties.  US involvement  "You need to know what the impact is and if it's going to change a whole system of taxation," Maltese Finance Minister Edward Scicluna said on Saturday. "One has to look at it globally rather than partially, because it involves the U.S., it involves China."  Austrian Finance Minister Hans-Joerg Schelling proposed that current discussions only apply to a temporary solution before passing that outline on to the Organization for Economic Cooperation and Development, a group that advises its 35 members on policy, for a more comprehensive fix.  The battle has intensified since the European Commission last year ordered Apple to pay as much as 13 billion euros ($15.5 billion) plus interest in back taxes, saying Dublin illegally slashed the iPhone maker's obligations to woo the company to Ireland. Apple and the Irish government are fighting the decision. In another case, Google in July won its battle against a €1.12 billion-French tax bill after a court rejected claims the search-engine giant abused loopholes to avoid paying its fair share.  Le Maire invoked the EU's need to counter anti-European political movements in his campaign for the tax, calling to mind French President Emmanuel Macron's hard-fought election victory over populist Marine Le Pen in May as a reason to accept the reform.  "Citizens in Europe are outraged by the situation," Le Maire said at a press conference in Tallinn following a meeting of EU finance ministers. "They cannot understand that such huge companies are not paying their share of tax when small companies are obliged to pay."  One challenge for France is that all 28 current members of the EU need to agree to initiatives concerning taxation, meaning one country alone could block the plan.  Dmitri Jegorov, undersecretary for tax and customs policy at the Estonian Ministry of Finance, said they're prepared to offer a two-staged approach -- that includes a quick fix as well as a longer-term solution -- in the event there's a stand-off over the proposal.  "It will be extremely difficult for anyone to say on the ministerial level that everything is just fine," Jegorov said.    Top

Scott Morrison slams property sector for wanting unfair build-to-rent tax breaks

Jacob Greber, The Australian Financial Review, 17 September 2017

Treasurer Scott Morrison has lashed out at the property sector and Labor opposition saying they are effectively demanding for developers a tax concession that would be out of reach for most other Australian investors. Speaking from China, Mr Morrison staunchly defended the government's surprise decision last week to block managed investment trusts from buying residential property except for affordable housing. "You cannot currently put residential properties in a MIT," Mr Morrison told The Australian Financial Review. "The sector is asking for a tax concession not available for Australian investors." Mr Morrison's decision was announced on Thursday and dated to take effect from 4.30pm on the same day, triggering consternation within the property industry which is eager to ramp up Australia's nascent build-to-rent sector. They say the move to limit the reach of managed investment trusts risks killing off build-to-rent development before it even starts, and will hamper the industry's ability to deliver more low-cost rental accommodation. Managed investment trusts are defined by the Australian Tax Office as a type of unit trust that invests in passive income assets such as shares, property or fixed-interest. Tax on the income from the trusts is paid directly by individual beneficiaries at their top marginal tax rates. Ken Morrison, chief executive of the Property Council of Australia, said until last Thursday property companies have been able to lodge applications to the ATO for tax rulings that build-to-rent would satisfy MIT arrangements as they are primarily about income and not capital gains. "We have seen the ATO issue individual rulings" to that effect, the property council chief executive said. "We look forward to working with the government on this issue as we believe build-to-rent offers enormous possibilities for Australia. Shadow treasury spokesman Chris Bowen on Friday slammed the move, saying the Treasurer's announcement had ambushed the property and construction sector over a potential billion dollar addition to the real estate market. The treasurer hit back over the weekend by lampooning Labor's approach to housing affordability, which he said amounted to increasing taxes "on mum and dads investing in real estate while giving foreign investors a new 50 per cent tax cut." Major players are already gearing up to roll out build-to-rent projects, which aim to service long-term renters through an institutional landlord, a model that is well established in the US and Europe. While the model promises to help address one of the greatest complaints of renters – the lack of stable long-term professional landlords and too many "cottage-industry" players – the economics of building-to-rent is not without challenge, given the collapse in rental yields in cities around the nation, but in Sydney in particular. However, industry sources say the relative declining allure of commercial property means build-to-rent has become more attractive. Capital gains are also less assured in today's high-priced market. Mirvac called late last month for interested parties to form a "club" of build-to-rent investors and commit up to $1 billion for long-term rental apartments with an expected yield of 4.5 per cent, according to Street Talk. The government said last week the MIT restriction was an "integrity measure" that would prevent trusts from investing in houses, units and apartments to hold for long-term rent. "This change provides legislative clarification of the long-standing convention that the primary purpose of the MIT concessional tax treatment is to apply to passive investment income," the Treasurer said in a statement on Thursday. "This change is crucial to maintaining the integrity of the tax base and will help direct foreign investment to where it's needed most." Top

Build to rent emerging as $300b housing industry 

Carolyn Cummins, The Sydney Morning Herald, 14 September 2017 

Build-to-rent will be a game changer for the Australian housing market as an estimated $300 billion worth of residential assets may be owned by institutional investors within the next couple of decades if the multifamily sector evolves in the same vein as the US, according to a CBRE report.  Multifamily developments are gaining traction in Australia and the major residential investors Lendlease, Mirvac and Stockland are all looking to offer the product.  While it will not be a panacea to housing affordability, the developers believe it will help first home buyers and investors with limited funds to enter the market.  CBRE's head of research for Australia Stephen McNabb said the multifamily sector represented about 15 per cent of properties with five or more units in the US, a position obtained after 25 years of growth.  In total, the sector accounts for 20 per cent to 25 per cent of the $US2 trillion in institutional property investment in the US, ranking it as the second largest investor allocation after office property.  "Factoring in that 35 per cent of Australia's population rent, if the market here evolved to the level of the US, up to 5 per cent of the country's dwelling stock by value could be institutionally owned in several decades," Mr McNabb said.  "In today's dollars, that represents about $300 billion worth of residential assets or about 300,000 apartments."  Lendlease chief executive Steve McCann said at the full year results that, while imposition of GST in Australia made it uncompetitive for developers compared with building for resale, the build-to-rent sector was emerging as a new asset class.  "The units-to-rent sector is one we are entering as it is well established in the US and London," Mr McCann said. "It provides a potential new asset class in our investment segment.  "In Australia, it is a possible product for us, but there are tax issues that make it a challenge. The sector needs government support to make it viable."  Knight Frank's director of research and consulting in Australia Paul Savitz has predicted that, during the next five years, it is expected that close to 40,000 purpose-built student accommodation (PBSA) beds across Australia will be developed, as both domestic and global institutions awaken to the potential of this maturing investment class.  "For those ineligible for affordable housing, or for those unable or unwilling to enter the owner-occupier market, there has been a reliance on small-scale, largely unregulated 'amateur mum and dad landlords' who either rent out their own former homes or accumulated portfolios of properties," Mr Savitz said.  "The professional, large-scale institutions now focusing on this new investment asset class are looking to build and construct, keeping these dwellings for the long term, and harvesting the income from rents, in the same way as the new wave of PBSA institutions are operating."  Mr McNabb said while build-to-rent would take pressure off existing housing stock, it would not, by itself, be a panacea for housing affordability.  "There will, however, be economic benefits in reducing household debt and the potential to transform financing of the sector away from traditional intermediated finance for development and end-product purchasers," Mr McNabb said.  New funds  "The federal government would need to consider how zoning and tax changes can provide certainty to the asset class."  Mirvac has already forged a path with the engagement of UBS to launch a build-to-rent apartment vehicle with a potential value of $750 million.   Susan Lloyd-Hurwitz, chief executive of Mirvac, said she saw an opportunity for an institutional rental market to operate in Australia and "we are currently preparing to invite investors to join us in the opportunity".  "Build-to-rent can provide secure, quality, long-term and professionally-managed rental accommodation in key urban locations providing people with this choice and security," Ms Lloyd-Hurwitz said.  Mirvac will create a fund for its "Liv by Mirvac" platform, which will start with a complex in Sydney Olympic Park then expand with demand.  Funding will be another key consideration, according to Simon Cowley of CBRE's debt and structured finance team.  "In the early phases, the capital stack will be formed mainly through equity rather than debt," Mr Cowley said.  "It will entail institutional investment via either the forward-funding or forward-commitment route, via joint ventures with developers and through partnering with asset managers with expertise in this sector."  Frank Lowy's Westfield is also teaming up with apartment operator Greystar to launch its first residential tower in San Diego in the US as it enters the build-to-rent apartment sector.  Westfield has indicated it will pursue build-to-rent schemes in both US and Britain, and the project at its Westfield UTC mall in San Diego is the first to launch. Greystar, based in South Carolina, is the largest apartment operator globally and runs more than 415,000 units in about 140 cities.  Top

OECD urges rich nations like Australia to address income inequality 

Nassim Khadem, The Sydney Morning Herald, 14 September 2017 

Australia would benefit from cutting personal income tax and addressing high levels of income and wealth inequality, a new Organisation for Economic Cooperation and Development (OECD) report shows. The Paris-based think tank examined rich countries' approaches to tax reform and found that while nations had moved to cut corporate taxes not enough was being done to reduce the divide between the rich and poor. Inequality of market incomes (before taxes and transfers) has continued to increase slightly since the global financial crisis on average in OECD countries, it said, with 20 out of 33 countries examined reporting an increase. This has worsened the drag on economy-wide household spending, it said. Need for inclusiveness While a number of countries have embarked on reforms aimed at "fostering inclusiveness" and lowering personal income taxes on low and middle income earners and on families, Australia has not. Instead, Prime Minister Malcolm Turnbull's signature tax reform plan focused on company tax cuts. The OECD's head of tax policy Pascal Saint Amans told Fairfax Media that while the report's aim was not to assess the tax policy merits of specific measures in countries, Australia could benefit if it moved down the same path of also handing down personal tax cuts. "Tax cuts to low and middle income earners, in particular, can be an important way of supporting increased labour market participation and stronger economic growth," he said. "Well targeted tax cuts can also play an important role in promoting more inclusive growth." The report said in some countries there had been moves to shift the tax burden on capital income from the corporate to the personal level, "which is likely to have positive effects on both equity and growth". Redistribute wealth? "Tax reforms that contribute to strengthening progressivity and redistribution will play a key role in addressing today's high levels of income and wealth inequality and in bridging the divide between those who have benefited from growth and those who have not," the report said. Labor's Andrew Leigh said: "Since the mid-1970s, earnings have risen three times as fast for the top tenth of Australian workers as for the bottom tenth. The labour share in the economy is at a four-decade low, and the home ownership rate is at a six-decade low. We want tax cuts for low and middle income earning Australians, not the big end of town." But low growth rates, coupled with improvements in public budgets, have pushed many countries to cut corporate income tax rates. The think tank said continuing reductions in corporate tax rates had lowered the average across its 35 members to 24.7 per cent in 2016 (from 32.2 per cent in 2000). Eight countries reduced their corporate tax rates in 2017, with cuts averaging 2.7 percentage points. And three announced forthcoming tax cuts, including Australia (with planned cuts from 30 per cent to 25 per cent), Britain and France. Tax competition intensifies US President Donald Trump has also signalled he wants to cut America's corporate tax rate to 15 per cent, which will further intensify tax competition. The OECD's report said competition on corporate tax rates was intensifying, partly as a response to weak investment. There was also evidence of increased competition through new or enhanced tax incentives for R&D and intellectual property related activities, it said. The report also looked at measures governments have implemented to tackle tax avoidance, following its global plan to fight the problem known as, Base Erosion and Profit Shifting (BEPS). It says the Turnbull government's Diverted Profits Tax ( DPT), also dubbed as the Google tax, "acts as a deterrent aimed at increasing corporate income tax revenues as well as preventing tax avoidance". But tax experts warn DPT could also create revenue disputes between taxing authorities, including the United States and Australia. 'Uncertain' tax outcomes Mr Saint-Amans said "in relation to Australia's Diverted Profits Tax, we have previously said that we discourage countries from taking unilateral actions such as these". "Where countries implement unilateral and uncoordinated measures this can give rise to greater uncertainty in tax outcomes," he said. Mr Saint-Amans said the report did show a trend of countries around the world cutting corporate income tax. "This is largely driven by a desire to maintain competitiveness, attract investment, create jobs and boost growth," he said. "In the case of Australia, its current corporate income tax rate rate remains above the OECD average and its revenues from corporate income tax – as a share of total revenues – are higher than most OECD countries. " Angel Gurría, secretary-general of the OECD, said the increase in corporate tax competition "raises challenging questions for governments seeking to strike the right balance between maintaining a competitive tax system and ensuring they continue to raise the revenues necessary to fund vital public services, social programmes and infrastructure". Top

Poor gain as inequality narrows 

David Uren, The Australian, 13 September 2017 

 The poor have done well over the past six years, gaining the fastest income growth as measures of ­inequality have declined.  Countering Bill Shorten’s narrative that inequality is increasing, all income groups are better off now than they were six years ago, with Australian Bureau of Statistics surveys of income and spending showing that household earnings have outstripped inflation.  For the poorest fifth of the population, incomes have risen 24.2 per cent since 2009-10 while the next poorest fifth are earning 20.7 per cent more. At the other end of the income spectrum, the top-earning fifth of the population have seen their wages rise 19.1 per cent while the next top quintile earns 18 per cent more.  The faster pace of income growth among the poorest households partly reflects big rises in pension rates under the former Labor government.  Although income inequality is higher now than it was in the 1980s, the ABS survey shows it peaked in 2007-08, when people in the highest income quintile were earning an average of 4.35 times the income of those in the lowest quintile. That share has dropped to 3.91 times, which is no higher than it was 15 years ago.  The ABS survey shows that living costs overall have risen 15.2 per cent since 2009-10, which is about four percentage points fewer than the rise in incomes.  However, the gains for the poor have been much greater, with spending costs rising only 13.1 per cent over the six-year ­period, or 11 percentage points lower than their income growth.  Spending for high-income earners has risen much more rapidly, increasing 19.1 per cent, exactly matching the increase in their incomes.  The improved standard of living for those on the lowest ­incomes is underlined by fewer people reporting financial stress. The ABS looks at a series of indicators of stress, such as whether people cannot pay utility bills, have gone without meals, have sought financial assistance from friends or are unable to heat their home. The number reporting no indicator of financial stress has risen from 54 per cent to 59 per cent.  By far the fastest-rising living cost has been income-tax payments to the federal government, which are 47.3 per cent higher than they were six years ago. Tax has risen at more than double the pace of income growth, boosted by the growing share of incomes caught by higher tax brackets.  On average, people are spending $123 more on tax each week than they were six years ago, which compares with a $188 rise in the average weekly cost of all household goods and services.  These averages conceal huge variation. Most people in the poorest 20 per cent of the population are outside the income tax net, while those in the second quintile pay an average of only $54 a week.  This rises to an average of $1216 a week for those in the top quintile of income earners.  Housing has been the other big cost increase, costing an average $56 a week more than six years ago, as rising prices force home buyers to take on more debt.  Including households with no borrowings, the average debt is equal to average income, up from 89 per cent six years ago.  The share of households with debts more than three times their annual incomes has risen from 24.2 per cent to 27.2 per cent in that period.  However, the ABS finds that only 4 per cent of households are over-indebted, carrying debts that are greater than 75 per cent of their assets.  Top

Bill to hike Medicare levy to raise $8 billion NDIS funding set to face Parliament

Caitlyn Gribbin, ABC News, 17 August 2017

A bill to increase the Medicare levy and raise $8 billion to fund the National Disability Insurance Scheme (NDIS) will be introduced to Parliament today. The levy is a charge paid by most taxpayers to fund Australia's public health system and the Government wants to increase it from 2 per cent to 2.5 per cent. The Coalition will introduce the bill to the House of Representatives today, but it will need to convince the Senate to pass it. The rise is due to come in from July 2019, and the money raised would go toward fully funding the NDIS, which is facing a multi-million-dollar funding black hole. But Labor will only support the increase for Australians earning more than $87,000 a year, arguing high-income earners must pay a greater contribution. The Coalition is continuing negotiations with the Greens and Senate crossbenchers. Senator Derryn Hinch is on board with the changes, while the Nick Xenophon Team and One Nation said they were still in discussions with the Government. The levy increase would equate to an extra $375 a year for those earning $75,000. Treasurer Scott Morrison has previously said the Government would not engage in horse-trading to get the bill through Parliament. The Opposition has continued to insist the Coalition should instead abandon its planned corporate tax cuts, and extend a temporary deficit levy on high-income earners, which is due to expire this year. Top

Senators negotiate Medicare levy hike

Cameron Stewart, The Australian, 17 August 2017

Negotiations with the Greens and key Senate crossbenchers have given the federal government confidence it can hike the Medicare levy to fund the national disability insurance scheme. But the Greens say they're yet to have any party room discussion on the issue. As well, independent Jacqui Lambie says she's still talking with Treasurer Scott Morrison about the income level at which a rise from 2 per cent to 2.5 will kick in. "I want the NDIS and I have no problem with the 0.5 per cent, it's at where do we start," she told ABC radio on Thursday. Senator Lambie doesn't like the government's position of having those earning $28,000 a year paying an extra $75. But she believes Labor's compromise of having the levy rise begin for those earning more than $87,000 a year is too high. "I think we can find some middle ground here," she said. Greens MP Adam Bandt said reports Mr Morrison was confident a deal was imminent was news to the minor party. "The Medicare levy and any proposed deal haven't been the subject of discussion in our party room," he told reporters in Canberra. Ahead of introducing the legislation in parliament on Thursday, Mr Morrison called for bipartisanship to help Australians with disabilities and their families. But he stressed having different cut-in rates for the increased levy risked the integrity of the tax system. "When you try and make the Medicare levy a progressive tax, you create real complexities," he told reporters in Canberra. "People will lose an incentive to earn more in that situation because if they're on $87,002 then they're paying an extra levy for their entire income," he said. Top

Treasurer Scott Morrison confident of shock Medicare levy deal with Senate

James Massola, The Sydney Morning Herald, 16 August 2017

The Turnbull government is optimistic it can strike a shock deal with the Senate crossbench and pass the $7.8 billion Medicare levy, one of the centrepiece measures of the 2017 budget. In a move that defies predictions the 0.5 per cent levy rise would stall in the Senate - and possibly be put on ice until after the next federal election - Treasurer Scott Morrison will on Thursday bring the bill to the Parliament. The 0.5 per cent levy rise is supposed to start from July 1, 2019 and is designed to help fill the 10-year, $55.7 billion funding shortfall for the National Disability Insurance Scheme. Mr Morrison has led behind the scenes negotiations with the Greens and members of the Senate crossbench in recent weeks and senior government sources said those meetings had been very "constructive" and the prospect of a deal was a "live option". The introduction of the legislation is a clear sign of the federal government's confidence it can secure the votes it needs in the Senate. Despite the five current absences from the Senate because of the citizenship crisis, illness and retirement, the government must secure the four votes from Pauline Hanson's One Nation, three votes from the Xenophon Team and three of the five other crossbenchers. Alternatively, a deal with the Greens and one more senator would suffice, because of pairing arrangements. Government sources said they were confident "we have a couple of different paths to victory here". Mr Morrison told Fairfax Media on Wednesday evening the NDIS had enjoyed bipartisan support from its inception because all parties recognised "the need for this vital service and the importance of caring for those who need it the most". "The only thing we have not agreed on is funding the program," he said. "Now is the time to finish what has been started, and fully fund the NDIS once and for all. The Turnbull government chose the Medicare levy, asking most Australians to contribute according to their means - because this is the responsibility of all of us." "A few years ago, Bill Shorten asked Australians to do the very same thing, and contribute to the NDIS by a 0.5 per cent increase in the Medicare levy. He voted 'yes' then, and now he wants to vote 'no' to suit his political agenda, pitting Australians against Australians." Mr Morrison said Labor should "do the right thing" and back the legislation, but this is unlikely to happen as Labor has said it will only support the rise for taxpayers in the top two tax brackets - that is, people earning more than $87,000 a year - and argued it is unfair to raise taxes on singles earning as little as $21,655 and families earning $36,541. Labor adopted this position despite a split in the shadow cabinet, revealed by Fairfax Media in May. The Greens raised similar concerns to Labor back in May, as did senator Nick Xenophon, while Senator Hanson said she was not convinced the extra money raised would fund the NDIS. The government believes, however, it will be able to put these concerns to bed. According to figures from the Treasurer's office, based on data from the Australian Tax Office, it is not necessarily the case that any single person earning more than $22,000 will be hit by the Medicare levy rise. According to the data, about 9 million adult Australians don't pay the Medicare levy. A single parent earning less than $49,871, a pensioner on less than $42,806 or families with three kids on less than $57,399 pay a reduced rate of Medicare levy, or even no levy at all, because of various exemptions and protections. Top

Australian wages stall at record low of 1.9 per cent

Eryk Bagshaw, The Sydney Morning Herald, 16 August 2017

The wages of working Australians are going nowhere, new figures show, stalling at a record low while the earnings of more than 10 million private sector employees fall below the cost of living. The figures, published by the Australian Bureau of Statistics on Wednesday, show wages grew by just 0.5 per cent in the June quarter, or 1.9 per cent over the year, placing mounting pressure on household budgets. The result also means the Turnbull government is now barely keeping up with its budget forecast of a 2 per cent wage rise, a figure it is banking on to return to surplus by 2020-21. It has fallen well short the 2.5 per cent rise it forecast for the year to June in the 2016 budget. The private sector's 0.4 per cent growth for the three months to March is the weakest result since the global financial crisis, with only healthcare and education workers recording a rise much above inflation. Overall, wage growth for private employees slowed to just 1.8 per cent, below the cost of living of 1.9 per cent for the year to June, while the wages of public sector workers grew by 2.5 per cent. The Bureau's chief economist Bruce Hockman said the low wage growth was partly a result of continuing underemployment. "Underemployment is an indicator of spare capacity in the labour market and a key contributor to ongoing low wages growth," he said. Treasurer Scott Morrison has repeatedly said Australians would "see better days ahead" on the back of record jobs growth, echoing the sentiments of Reserve Bank Governor Philip Lowe. "With the strongest jobs growth since before the financial crisis of 240,000 jobs it is important that we continue to make the right choices to see these results flow into wages," he said. Labor's employment spokesman Brendan O'Connor said Mr Morrison had scored the trifecta of flat wage growth, the proliferation of insecure work, and a falling share of GDP accruing to employees. Mr Morrison said wages wouldn't improve by increasing taxes on business. "Your wage is not going to go up by Bill Shorten taxing someone else's wage more," he said. "Labor's plan to increase the tax burden is driven by pursuing the politics of envy not the economics of opportunity." Goldman Sachs economist Andrew Boak said he believed the peak disinflationary period for wages had passed on the back of the 3.3 per cent increase in the minimum wage, a 33-year high in corporate profits and the longest continued expansion in jobs growth since 2011. But the best-performing states of NSW and Victoria continued to record disappointing wage growth, bucking the widely held theory that near-full employment would lift wages. "The weakness in annual wage growth wis once again broad-based across the states and sectors" said Capital Economics chief economist Paul Dales. "In other words, hardly anyone is escaping the low wage problem," he said. Top