This is a preliminary Bills Digest produced to assist early consideration of the Bill. It provides links to some relevant sources. It will be replaced with a more comprehensive Bills Digest in due course. This preliminary Digest was originally published on 24 June 2024 and republished on 26 June 2024.

Schedule 1 (Build to rent developments) is not covered in this Digest, but is examined in the Bills Digest to the Capital Works (Build to Rent Misuse Tax) Bill 2024.

Purpose of the Bill

The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 amends the National Consumer Credit Protection Act 2009, various taxation and federal financial relations laws across several Acts.

Structure of the Bill

The Bill contains 7 Schedules:

• Schedule 1 deals with build to rent developments. It is examined in the Bills Digest to the Capital Works (Build to Rent Misuse Tax) Bill 2024.
• Schedule 2 extends the application of the National Credit Code in Schedule 1 to the National Consumer Credit Protection Act 2009 (Credit Act) to Buy-Now-Pay-Later (BNPL) contracts and establishes a new category of regulated credit, namely the low cost credit contract (LCCC).
• Schedule 3 amends the Medicare Levy Act 1986 to exempt lump sum payments in arrears to eligible employees from Medicare levy, to ensure these taxpayers are treated no less favourably than if the payments were paid when they were due.
• Schedule 4 amends the Taxation Administration Act 1953 (TAA) to require large multinational enterprises to publish selected tax information for specified jurisdictions (domestically and overseas) on a country-by-country or an aggregated basis.
• Schedule 5 amends the Income Tax Assessment Act 1997  (ITAA 1997) to partially implement specifically listed deductible gift recipients measures in the 2023–24 and 2024–25 Budgets.
• Schedule 6 amends the Federal Financial Relations Act 2009 (FFR Act) to support Commonwealth payments to states and territories according to the National Skills Agreement and any successor agreements.  
• Schedule 7 amends the Income Tax (Transitional Provisions) Act 1997 to extend the $20,000 instant asset write-off for small businesses with an aggregated annual turnover of less than $10 million until 30 June 2025.

Structure of this Bills Digest

This preliminary Bills Digest does not provide information in relation to Schedule 5 or Schedule 6 because they are adequately covered in the Explanatory Memorandum to the Bill (pp. 97­–108). However, financial implications and compliance cost are covered under the relevant heading below.

Committee consideration

Senate Economics Legislation Committee

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report. The initial reporting date was 24 June 2024. However, the Committee has agreed to seek an extension to 2 August 2024.[1]

At the time of writing this Digest, no submissions had been published online.

Senate Standing Committee for the Scrutiny of Bills

At the time of writing this Digest, the Senate Standing Committee for the Scrutiny of Bills had not considered the Bill.

Statement of Compatibility with Human Rights

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 Bill is compatible.[2]

Parliamentary Joint Committee on Human Rights

At the time of writing this Digest, the Parliamentary Joint Committee on Human Rights had not considered the Bill.

Schedule 2— Buy now, pay later

Schedule 2 of the Bill extends the application of the National Credit Code to BNPL contracts, in a modified form aimed at providing protections to consumers that are proportionate to the relatively low risk posed by BNPL contracts.

Commencement

Part 1 of Schedule 2 of the Bill commences on the day after Royal Assent. Parts 2 to 10 of Schedule commences on the earlier of Proclamation or 6 months after Royal Assent.

Government publications and websites

• Australian Securities and Investments Commission (ASIC), ‘Review of buy now pay later arrangements’, November 2018.
• ASIC, ‘Buy now pay later: An industry update’, November 2020.
• Chay Fisher, Cara Holland, and Tim West, ‘Developments in the buy now, pay later market’, Bulletin, Reserve Bank of Australia, March 2021.

Parliamentary Library Publications

• Paula Pyburne, ‘Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018’, Bills Digest, 51, 2018‑19, (Canberra: Parliamentary Library, 2018), 9–10.
• Julie Sienkowski, Matthew Collett and Paula Pyburne, ‘Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 [and] Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023’, Bills Digest, 49, 2023‑24, (Canberra: Parliamentary Library, 2024), 1, 19–20.

Consultation materials

• The Treasury, ‘Regulating Buy Now, Pay Later in Australia’, Options Paper, November 2022 and submissions.
• The Treasury, ‘Buy Now Pay Later regulatory reforms’, March 2024 and submissions.

Parliamentary Committee materials

• Senate Standing Committee on Economics, Credit and financial services targeted at Australians at risk of financial hardship, 22 February 2019, Chapter 5.
• Senate Select Committee on Financial Technology and Regulatory Technology, Interim Report, September 2020, Chapter 4.
• Parliamentary Joint Committee on Corporations and Financial Services, Mobile Payment and Digital Wallet Financial Services, October 2021, Recommendations 6 and 13; paras 3.46–3.60, 6.76–6.84; 6.128–6.139.

Other materials

• Lucinda O’Brien, Daniel Beratis, Ian Ramsay, ‘Financial hardship and complaints-handling in the Buy Now Pay Later industry: a recent empirical study’, Australian Journal of Competition and Consumer Law, 31(4), 2023.
• Daniel Beratis, ‘Regulating buy-now, pay-later products under the National Consumer Credit Protection Act 2009 (Cth)’, Journal of Banking and Finance Law and Practice, 33(3), 2023.
• Alexandra Douvartzidis, ‘Regulating the 'buy now, pay later' industry: should BNPL products will regarded as credit?’, Bulletin (Law Society of South Australia), 44(9), October 2022.
• Melissa Camp ‘Inquire now, regulate later: Australia's light-touch approach to regulating buy-now-pay-later products’, Australian Journal of Competition and Consumer Law, 30(2), 2022.
• Good Shepherd, ‘Safety net for sale: The role of Buy Now Pay Later in exploiting financial vulnerability’, November 2022.

Financial implications

The Explanatory Memorandum (p. 3) for the Bill states that Schedule 2 will have no or minimal financial impact on the Commonwealth.

Compliance cost impact

The Explanatory Memorandum (p. 3) for the Bill states that Schedule 2 is expected to have a moderate impact on compliance costs for industry participants.

Schedule 3—Medicare levy exemption for lump sum payments

A well-established principal of tax law is that lump sums of back-pay or any kind of retrospective adjustment of salary or wages are assessable (and taxed) in the year of their receipt. Further, absent specific statutory rules, lump sums in arrears of income cannot be apportioned (and therefore taxed) over the period in which the services were performed by the recipient.

Receiving a lump sum for unpaid or under-paid wages can result in having higher taxation amounts applied than otherwise have been levied if the wages had been paid correctly and on time. In addition, as lump sum payments in arrears are included in an individual’s taxable income in the year of receipt for the calculation of their liability for the Medicare levy.

This means that in certain circumstances receipt of a lump sum in arrears can adversely affect taxpayers by increasing their liability for the Medicare levy (due to their increased assessable income as a result of receiving the lump sum), an issue highlighted by the Senate Standing Committee on Economics report Systemic, sustained and shameful (para 2.36).

Schedule 3 aims to ensure low-income taxpayers are not denied concessional Medicare levy treatment solely because of receiving certain lump sum payments (for example, as compensation for past underpaid wages). It will do this by putting eligible recipients of certain lump sum payments in arrears into a similar position as they would have been had they been paid correctly and on time.

Commencement

Schedule 3 will commence the first 1 January, 1 April, 1 July or 1 October to occur after the Royal Assent.

Parliamentary Library Publications

John Thomas, ‘Tax Laws Amendment (2006 Measures No. 3) Bill 2006’, Bills Digest, 10–11, 2006–07, (Canberra: Parliamentary Library, 2006), 11–13.

Consultation materials

The Treasury, ‘Exempting lump sums payments in arrears from the Medicare levy’, April 2024.

Parliamentary Committee materials

Senate Standing Committee on Economics, Systemic, sustained and shameful, (Canberra, The Senate, March 2022), para 2.36.

Financial implications

The Explanatory Memorandum (p. 4) for the Bill states that Schedule 3 is estimated to decrease taxation receipts by $2.0 million over the 5 years from 2022–23.

Table 1: Financial impact of Schedule 3 ($ million)

Source: Explanatory Memorandum, 4.

Compliance cost impact

The Explanatory Memorandum (p. 4) for the Bill states that the impact on compliance costs is low.

Schedule 4—Country-by-country reporting

Background

This Schedule implements Australia’s public country-by-country reporting (CBCR) regime by amending the Taxation Administration Act 1953 (TAA) to require certain large multinational enterprises to publish selected tax information on a CBC basis for specified jurisdictions, and on either a CBC basis or an aggregated basis for the rest of the world.

CBCR has been described as involving:

the disclosure by a company, either publicly or in confidence to governments, of tax figures and potentially, other financial data on a country-by-country basis for all jurisdictions in which it operates.[3]

According to Treasury (p. 5) in its exposure draft explanatory materials:

The objective of [public CBCR] is to improve information flows to help the public, including investors, to compare entity tax disclosures, to better assess whether an entity’s economic presence in a jurisdiction aligns with the amount of tax they pay in that jurisdiction.

In 2013, the OECD and G20 countries adopted the Action Plan on Base Erosion and Profit Shifting  (BEPS Action Plan) which identified 15 clearly defined actions for implementation aimed at improving international tax cooperation and tax transparency. Action 13 (p. 23) (Re-examine transfer pricing documentation) relevantly stated:

The rules to be developed will include a requirement that MNEs [multinational enterprises] provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common template.

As required by subdivision 815–E of the Income Tax Assessment Act 1997 (ITAA 1997), since 2016, large MNEs have been required to provide country–by­–country (CBC) statements to the Australian Taxation Office (ATO) annually. These statements are not released publicly.

In May 2022 the Australian Labor Party (ALP) made an election commitment to a Multinational Tax Integrity Package (MTIP). Under MTIP Element 3, significant global entities (SGEs) will be required to prepare for public release of certain tax information on a CBC basis (as per BEPS Action 13) and a statement on their approach to taxation, for disclosure by the ATO. Australian public companies (listed and unlisted) will be required to disclose information on the number of subsidiaries and their country of tax domicile.

On 23 June 2023 Dr Andrew Leigh, Assistant Minister for Competition, Charities and Treasury, issued a media release on multinational tax in which he foreshadowed that: ‘The government will also continue to engage with stakeholders on our commitment to introduce a public country-by-country reporting regime.’

In the October 2022–23 Budget (in Budget Paper 2, p. 17), the Government committed to the public release of certain tax information on a CBC basis.[4] Dr Leigh referred to the measure in an address to the Australia Institute 2023 Revenue Summit on 27 October 2023.

In the 2023–24 Mid‑Year Economic and Fiscal Outlook (MYEFO) (at p. 197) the Government deferred the start of the measure from 1 July 2023 to 1 July 2024, with further consultation on specific parameters, including the appropriate level of disaggregated reporting. The measure was not included in the 2024-25 Budget.

On 7 June 2024, Dr Leigh issued a media release announcing that the CBC measure had been introduced into Parliament. The media release stated:

[Public CBC reporting] puts the onus on large multinationals (with annual global income of A$1 billion or more) to be upfront about where they pay tax and how they plan their tax strategies.

Public consultation

The Government initially consulted on public CBC reporting in April 2023. 56 submissions were received for this consultation, including 5 confidential submissions.

On 12 February 2024 Treasury released exposure draft legislation and explanatory materials for the CBC measure. Dr Leigh issued a media release announcing the exposure draft. The consultation was open until 5 March 2024. 39 submissions were received, including 4 confidential submissions.  

Parliamentary Library publications

• Elo Guo-Hawkins and Jaan Murphy, ‘Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023’, Bills Digest No.10 2023–24 (Canberra: Parliamentary Library, July 2023).
• Elo Guo-Hawkins, Addressing the tax gap, Budget Review October 2022–23 (Canberra: Parliamentary Library, October 2023).

Policy position of non-government parties/independents

In November 2021, the Greens issued a statement supporting the publication of CBCR (at p. 4).

In August 2023, Independent Kylea Tink stated in Parliament that public CBCR is ‘urgently needed’.[5]

Position of major interest groups

Several, but not all, of the submissions to the February 2024 consultation accepted the concept of public CBCR. Some submitters, including the Tax Institute of Australia (TIA), welcomed the changes that had been made in the exposure draft following earlier consultation.

Several submissions, for example those of the Financial Services Council and the Business Council of Australia, argued that the measures should be more closely aligned with both the EU approach to CBCR and existing domestic reporting requirements. The Corporate Tax Association (CTA), the TIA and Chartered Accountants Australia & New Zealand (CAANZ) made mostly technical comments. Several submissions (for example, the CTA (p. 4), the TIA (p. 2) and CAANZ (p. 4)) questioned the inclusion of Switzerland, Singapore and Hong Kong on the list of CBC reporting jurisdictions (in the draft Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024). Some submissions (for example the Australian Chamber of Commerce and Industry (p. 4) and the CTA (p. 7)) argued that more clarity is needed on how confidential and/or commercially sensitive information is to be treated.

Two tax academics (Professor Kerrie Sadiq and Dr Rodney Brown) criticised some of the changes to the exposure draft. Their criticisms included:

• legislating two separate categories of reporting defeats the objectives of the legislation and potentially facilitates obfuscation of profit shifting
• the list of specified countries excludes Cyprus, Ireland, Luxembourg and the Netherlands – although these are EU countries, they also appear on lists of tax havens and
• several items had been removed from the list of items that must be published – these were effective tax rates, expenses from related party transactions and details of intangible assets. The authors argue the removal of these three items reduces the effectiveness of public CBCR.

Financial implications

The Explanatory Memorandum (p. 5) for the Bill states that Schedule 4 is estimated to have an unquantifiable impact on receipts.

Compliance cost impact

The Explanatory Memorandum (p. 5) for the Bill states that the measure is expected to have an initial compliance cost as affected entities familiarise themselves with the new reporting requirements. However, the design approach adopted is intended to minimise the cumulative cost on tax entities by aligning, to the extent possible, with existing reporting and governance processes. The compliance cost is expected to decrease over time as it becomes part of standard reporting requirements. 

Key issues and provisions

Closing the tax gap

As the ATO has noted, CBC reporting is part of a suite of international measures aimed at combating tax avoidance. The intent of the measure is to help close the international tax gap,[6] by making SGEs more transparent about their taxable income throughout the world. As at the October 2022–23 Budget, the MTIP was expected to reduce the tax gap by around $970 million over the forward estimates.

Eligibility criteria

The public CBC reporting requirements apply only to those entities (known as ‘country-by-country reporting parents’[7]) that meet the eligibility criteria, which are broadly:

• the entity is a constitutional corporation, a partnership or a trust[8]  
• the entity is a member of a CBC reporting group (which has an annual global income of A$1 billion or more and is consolidated for accounting purposes as a single group)[9]
• is an entity that is not controlled by another entity in that group according to Australian accounting principles
• is either an Australian resident or a foreign resident with an Australian permanent establishment[10]
• $10 million or more of its ‘aggregated turnover’ for the income year is Australian-sourced and
• it is not an exempt entity or included in a class of exempt entities.[11]

The $10 million threshold means that entities with a small Australian presence will be excluded.

A large accounting firm, BDO, has commented that:

Australian entities with no overseas related parties can be CBC reporting parents, if they have more than AUD $1 billion in aggregate turnover for the relevant year and at least AUD $10 million of that income is Australia-source. Therefore, large Australian domestic businesses will likely be subject to these disclosure requirements.

Information that must be disclosed

Country-by-country disclosures will be required for Australia and a list of ‘specified countries’ which will be confirmed by a Ministerial determination.[12] For all other countries, disclosure of information on an aggregated basis will be permitted.

The CBC reporting parent is required to publish:

• its own name
• the names of each entity in the CBC reporting group and
• a description of the CBC reporting group’s ‘approach to tax’.[13]

Other information to be published includes:

• a description of main business activities
• number of full-time employees
• revenue from unrelated parties
• revenue from overseas related entities
• profit/loss before income tax for the period and
• income tax paid and accrued.[14]

Exemptions

The Commissioner of Taxation (Commissioner) has exemption powers to respond to exceptional circumstances.[15] According to the Explanatory Memorandum (pp. 87–88), in considering an exemption request, it would be appropriate for the Commissioner to consider such matters as whether the disclosure of the information could impact national security, breach Australian law or the laws of another jurisdiction, or result in ‘substantial ramifications’ for an entity by revealing commercially sensitive information.

Correction of errors

If a CBC reporting parent becomes aware of a material error in the published material, it must, no later than 28 days after it becomes aware of the error, correct the error.[16]

Penalties

The Bill imposes an administrative penalty for failing to publish information on time. The maximum penalty is 2,500 penalty units.[17] When combined with the ATO’s powers to pursue enforcement action, this penalty should act as a deterrent.

In commenting on the Bill, BDO has noted:

As the reporting requirements are for CBC reporting parents, it remains to be seen how the ATO will administer penalties for late lodgement or noncompliance when the reporting parent is an entity domiciled outside of Australia. There is no guidance on this yet, but there is a strong possibility that penalties will be applied to the Australian entity when the CBC reporting parent is not located in Australia.

Commencement and application

The amendments commence on the first day of the first quarter after Royal Assent. If enacted, the rules will apply to reporting periods beginning on or after 1 July 2024.

Schedule 5—Deductible gift recipients

Financial implications

The Explanatory Memorandum (p. 6) for the Bill states that Schedule 5 is estimated to decrease the underlying cash balance by $4.3 million over the five years from 2023–24.

Table 2: Financial impact of Schedule 5 ($ million)

Source: Explanatory Memorandum, 6.

Compliance cost impact

The Explanatory Memorandum (p.7) for the Bill states that Schedule 5 has a low compliance cost impact.

Commencement

Part 1 of Schedule 5 will commence on the day after Royal Assent.

Item 13 of Schedule 5 will commence on the later of the day after Royal Assent and immediately after the commencement of item 1 of Schedule 3 to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (2023 Bill) (if enacted). Item 13 will not commence at all if item 1 of Schedule 3 to the 2023 Bill does not commence on or before Royal Assent of this Bill.  

Item 14 of Schedule 5 will commence on the day after Royal Assent. However, item 14 does not commence at all if item 1 of Schedule 3 to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (2023 Bill) commences on or before the day after Royal Assent of this Bill. 

Schedule 6—National skills and workforce development payments

Financial implications

The Explanatory Memorandum (p. 7) for the Bill states that the financial impact of Schedule 6 will be nil.

Compliance cost impact

The Explanatory Memorandum (p.7) for the Bill states that the compliance cost impact of Schedule 6 will be nil.

Commencement

Schedule 6 commences the day after Royal Assent.

Schedule 7—$20,000 instant asset write-off for small business entities

Background

Small business entities[18] that use the simplified depreciation rules[19] are entitled to an immediate deduction (the ‘instant asset write-off’ (IAWO)) for depreciating assets costing less than the threshold set out in section 328-180 of the Income Tax Assessment Act 1997 (ITAA 1997), to the extent that the asset is to be used for tax-deductible purposes.

The IAWO was also available to medium sized businesses (aggregated turnover between $10 million and $50 million) and larger businesses (aggregated turnover under $500 million), but only for qualifying depreciating assets first used, or installed ready for use, before 1 July 2021.[20]

The IAWO eligibility criteria (such as an entity’s aggregated turnover) and the section 328-180 threshold for the IAWO have changed over time.[21] Most recently, the threshold for the IAWO was suspended during the operation of temporary full expensing from 6 October 2020 to 30 June 2023, and was due to revert to $1,000 as specified in section 328-180 of the ITAA 1997 on 1 July 2023.

Two consecutive Budget announcements

In the 2023–24 Budget (pp. 27–28), the Government announced a temporary increase to the IAWO threshold from $1,000 to $20,000 for small businesses with aggregated annual turnover threshold of less than $10 million in the 2023–24 income year.

On 14 May 2024, as part of the 2024–25 Budget (pp. 14-15), the Government announced that it would extend the $20,000 IAWO for small business entities by a further 12 months until 30 June 2025.

To achieve these temporary increases, two separate Bills were introduced to the Parliament to amend section 328-180 of the Income Tax (Transitional Provisions) Act 1997. They have not yet been enacted.

2023–24 income year

The first IAWO measure was introduced to the Parliament in September 2023 as Schedule 1 to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (2023 Bill). Schedule 1 to the 2023 Bill has been debated in both Houses of the Parliament but has not proceeded due to disagreement between the Chambers about amendments proposed by the Senate.

The relevant amendments were proposed by the Opposition (on sheet 2337) to increase the IAWO threshold to $30,000, and the turnover threshold to $50 million covering both small and medium businesses.[22] On 27 March 2024, the Senate agreed to amendments which were transmitted to the House of Representatives.

On 15 May 2024, the House rejected the Senate’s proposed amendments stating:

The House of Representatives considers that the settings in Schedule 1 to the Bill (as transmitted to the Senate) properly implement the 2023-24 Budget measure to increase the instant asset write-off threshold to $20,000 until 30 June 2024, and provide appropriate, fiscally and economically responsible, support to small businesses. To prevent any delay in small businesses getting these promised tax benefits as part of Tax Time 2024, the House of Representatives does not agree to these amendments. 

The House of Representative’s rejection was reported back to the Senate. However, the Senate insisted on its amendments on 16 May 2024.

The Senate’s decision to insist on the proposed amendments was reported back to the House of Representatives. However, on 28 May 2024, the House insisted on disagreeing to the amendments insisted on by the Senate. No further action has been taken in relation to the 2023 Bill so far.

However, on 23 June 2024, the Sunday Telegraph reported that with time running out for the 30 June 2024 deadline, ‘it can be revealed the Coalition is willing to support Labor’s original bill.’

2024–25 income year

The second IAWO measure is contained in Schedule 7 to the current Bill.

In his Second Reading Speech (p. 13) on 5 June 2024, Assistant Treasurer Stephen Jones stated:

Schedule 7 to the Bill will support small-business growth and investment through a targeted 12-month extension of the $20,000 instant asset write-off.

Up to four million small businesses, with aggregated annual turnover of less than $10 million, will be able to immediately deduct eligible assets costing less than $20,000 until 30 June 2025.

The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.

For assets for eligible small businesses which cost $20,000 or more, they can be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.

This measure builds on the Albanese government's record of delivering measures to assist small businesses.

Commencement

Schedule 7 to the Bill commences on the later of:

1. the first day of the first quarter after Royal Assent and
2. immediately after the commencement of Schedule 1 to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, if enacted.

However, Schedule 7 does not commence at all if the event mentioned in paragraph (b) does not occur. If Schedule 7 does not commence, the IAWO threshold reverts to the legislated threshold of $1,000 from 1 July 2024.

The Explanatory Memorandum (p. 114) notes that, subject to the timing of the passage of the Bill, the Schedule 7 amendments may apply retrospectively.

Financial implications

The Explanatory Memorandum (p. 8) for the Bill states that Schedule 7 is estimated to decrease receipts by $290.0 million over the five years from 2023–24.

Table 3: Financial impact of Schedule 7 ($ million)

Source: Explanatory Memorandum, 8.

Compliance cost impact

The Explanatory Memorandum (p. 9) for the Bill states that Schedule 7 is expected to have a minimal regulatory impact.