Introductory Info
Date of introduction: 2024-06-05
House introduced in: House of Representatives
Portfolio: Treasury
Commencement: As set out in the body of the Bills Digest
Glossary
Purpose of the Bill
The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 is an omnibus Bill which amends the National Consumer Credit Protection Act 2009, in addition to various taxation and federal financial relations laws in the Treasury portfolio.
History of the Bill
Before the Senate agreed to divide the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (Omnibus Bill) into two Bills on 27 June 2024, both the Australian Greens and Coalition attempted to remove the former Schedule 1 (Build to rent developments) from the Omnibus Bill in the Lower House. Their proposed amendments were negatived by the Lower House (see details below).
Pursuant to the order agreed to on 27 June 2024 in the Senate, the Omnibus Bill was divided by the Senate into two Bills with effect from 2 July 2024 being:
The Treasury Laws Amendment (Build to Rent) Bill 2024 (BTR Bill) contains those amendments which were formerly in Schedule 1 of the Omnibus Bill.
Schedules 2 to 7 of the Omnibus Bill remain unchanged.
Structure of the Bill
The Bill, as divided by the Senate on 2 July 2024, contains 6 Schedules which retain their original numbering:
- 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
As the matters covered by each of the Schedules are independent of each other, the relevant background, stakeholder comments (where available) and analysis of the provisions are set out under each Schedule number.
This 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).
Committee consideration
Senate Economics Legislation Committee
The Bill has been referred to the Senate Economics Legislation Committee (the 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]
On 27 June 2024, the Senate agreed to divide the Omnibus Bill into two Bills—the Omnibus Bill (as divided by the Senate) and the BTR Bill. Pursuant to Senate standing order 115(3), the Omnibus Bill (as divided by the Senate) stands referred to the Committee and the report is due by 2 August 2024.
The Committee received 28 submissions from stakeholders. Stakeholder comments are canvassed under the relevant Schedule heading below.
The Committee published the report of its inquiry into the Bill on 2 August 2024. The Committee recommended that the Bill be passed.[2] The Coalition Senators made additional comments which are canvassed under the relevant Schedule heading in this Bills Digest.
Senate Standing Committee for the Scrutiny of Bills
At the time of writing this Digest, the Senate Standing Committee for the Scrutiny of Bills considered the Omnibus Bill and had commented on some, but not all, of the Schedules to the Bill.[3] The Committee comments are canvassed under the relevant Schedule heading below.
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.[4]
Parliamentary Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights considered the Bill but according to Report 5 of 2024, dated 26 June 2024, the Committee had no comment about the Bill (p. 6).
Schedule 2—Buy now, pay later
Schedule 2 of the Bill amends the Credit Act to extend a modified form of the Credit Code to BNPL contracts to provide protections to consumers that are proportionate to the relatively low risk posed by BNPL contracts.
Background
About buy now, pay later arrangements
BNPL products are an alternative to credit, as traditionally understood.[5] BNPL arrangements:
- involve a third-party providing consumer finance to cover purchases of goods and services and the payment of bills
- may involve consumers being charged low fixed fees
- charge merchants service fees for accepting BNPL and
- pay the merchants the value of the purchase upfront, less any fees, and collect repayments from consumers in instalments. [6]
BNPL contracts are generally limited to $2,000 per transaction.[7] In addition, BNPL arrangements do not provide consumers with cash.[8]
The BNPL industry has grown rapidly due to advancements in technology that have enabled businesses to build profitable markets for credit-like arrangements which are currently exempt from the Credit Code.[9]
It estimated that the value of BNPL transactions during the 2022–23 financial year was around $19 billion (equivalent to approximately 2 per cent of all Australian card purchases).[10]
Reports and inquiries into the BNPL industry
As a result of the digital technology-enabled growth of the BNPL industry, it has attracted significant sustained interest from regulators and parliamentary Committees in recent years. For instance:
The Australian Finance Industry Association’s voluntary BNPL Industry Code (Industry Code) came into effect on 1 March 2021. Breaches of the Industry Code are subject to monitoring, investigation and sanctions by the BNPL Code Compliance Committee. Consumers can also obtain remedies against Code members from the Australian Financial Complaints Authority (AFCA), or directly against members through contract law. However, the Industry Code (which is not examined in this digest) is not enforceable by ASIC and the failure of Code signatories to comply with their obligations does not attract criminal or civil penalties.[11]
In October 2021, the Parliamentary Joint Committee on Corporations and Financial Services, Mobile Payment and Digital Wallet Financial Services also examined the BNPL industry and recommended that:
- the Australian Finance Industry Association continues to monitor the effectiveness of the Buy Now Pay Later Code of Practice and ensure the Code is updated as and when necessary (recommendation 6) and
- the committee consider an inquiry into the BNPL industry 18 months after the industry Code of Practice came into effect (recommendation 13).
Benefits and risks of BNPL
The BNPL industry has generated both benefits and risks to businesses and consumers.
From a business perspective, BNPL has generated increased income as consumers have been able to access credit to increase their purchasing power.[12] From a consumer perspective, the BNPL industry:
- offers consumers a cheaper and easier way to access credit compared to traditional forms of credit such as credit cards and consumer leases and
- has increased levels of financial inclusion for consumers with limited access to mainstream, traditional credit.[13]
Despite these benefits to both businesses and consumers, it has been observed that there is ‘a trend involving users of more expensive and more problematic forms of credit shifting to BNPL instead of, or in addition to, mainstream credit’.[14]
Further, key concerns about the BNPL industry relate to unaffordable lending practices, unsatisfactory complaint resolution and hardship assistance, excessive late payment fees, a lack of transparency in the context of product disclosures and warnings and non-participation in credit reporting.[15] The Explanatory Memorandum notes that the result is that, despite the benefits noted earlier, the key concerns have resulted in ‘poor consumer outcomes … being observed at sufficient levels to justify regulatory intervention’.[16]
As a result, in July 2022 the Government announced it would begin consulting ‘with key stakeholders, including industry, consumer groups and regulators on how to improve the regulation of credit in Australia’, including BNPL.
Consultation on the proposed reforms
The Treasury conducted two rounds of consultation on proposed reforms to the regulation of the BNPL industry:
Policy position of non-government parties/independents
Some Members have expressed concerns about the amendments in Schedule 2 to the Bill. For instance, Centre Alliance MP, Rebekha Sharkie stated:
… this Bill grants concessions to the buy-now pay-later sector by not subjecting them to certain requirements, and consumer advocates argue that this concession is not necessary. I think we can do more in this place to strengthen this bill. Under watered down credit obligations for buy-now pay-later, only a partial check would be required—and for under $2,000 contracts just a negative credit check is required. Two thousand dollars is quite substantial when you start adding in late fees and other payments, and very quickly the amount can balloon. A partial or negative credit check is not a holistic measure of a person's capacity to pay. They may capture red flags. If it's above $2,000 it will allow them to see what other money is loaned. However, they won't capture payday loans and other scenarios. A person with a good credit score may still be in financial difficulty, leaving them open to unsuitable buy-now pay-later lending. So this is a big, ugly and harmful concession to the industry. [emphasis added]
Other Members are more supportive. For instance, Teal MP Kate Chaney stated:
I also support the measures in this schedule [2], which regulate the buy-now pay-later industry to provide appropriate and proportionate protections to consumers who enter buy-now pay-later contracts as a type of low-cost credit contract. It requires providers of low-cost credit contracts to hold and maintain an Australian credit licence and comply with the relevant licensing requirements and licensee obligations. Buy now, pay later has slipped through the cracks until now, and I'm pleased to see it being regulated appropriately to protect people.
Financial regulations are particularly important when they affect people who are vulnerable. The catchphrase for buy now, pay later is that it's easy and accessible. Unfortunately, this includes being easy and accessible to people who are already in or at risk of financial hardship. Buy now, pay later is not marketed as credit, but with no affordability assessment it can easily get you into debt. The Reviewof the small amount credit contractlawsfinal report, from a review which was established to consider and report on the effectiveness of these laws, was published in March 2016. Some of the recommendations have been implemented, and this legislation implements some more, including enhancing consumer protections for buy-now pay-later schemes and creating more robust anti-avoidance provisions so that all buy-now pay-later schemes are regulated equally.
The Coalition Senators who participated in the Senate Economics Committee inquiry into the Bill made additional comments to the final report. They recommended (p. 64):
… Treasury conduct a more detailed consultation on delegated legislation that accompanies the Bill, including to address duplicative fee caps and opportunities to harmonise modified responsible lending obligations with New Zealand’s BNPL regulatory framework.
Position of major interest groups
The submissions to the Senate Economics Legislation Committee suggest a range of views about the regulatory model proposed for BNPL among major interest groups that does not divide primarily along an industry participant/ consumer protection interest group basis. Generally speaking, the key issues raised by major interest groups include:
- the appropriateness of the modified Responsible Lending Obligations (RLOs)
- the amount of detail regarding the operation of the proposed modified RLOs left to the regulations
- the appropriate level of rigour that should be required by BNPL providers when verifying consumers information, including whether or not BNPL providers should be, under the modified RLOs, required to conduct credit checks
- whether BNPL providers should be required to participate in comprehensive credit reporting, as is the case for other consumer credit providers and
- whether the proposed rebuttable presumption that LCCCs below $2,000 are presumed to meet the consumer's requirements and objectives for the purposes of the suitability assessment.
These views are explored below in relation to the relevant provisions.
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.
Key issues and provisions
Schedule 2 aims to protect consumers who enter into BNPL arrangements by extending a modified form of the Credit Code to BNPL arrangements. To give context to the proposed reforms, a brief background to the Credit Act, Credit Code and Responsible Lending Obligations (RLO) is provided below.
Consumer Credit Act
Prior to the enactment of the Credit Act responsibility for consumer credit, including mortgages, was shared between the Australian Government (regulated by ASIC) and the state and territory governments (through their respective Fair Trading Offices). [17] The states and territories regulated credit and consumer lending through the Uniform Consumer Credit Code.[18]
The Credit Act was, in part, a response to the Productivity Commission Review of Australia’s Consumer Policy Framework which highlighted problems in cross jurisdictional regulation and recommended a national approach.[19]
The legislation was enacted on the basis of the referral of powers under section 51(xxxvii) of the Constitution by the states to the Commonwealth.[20] The Credit Act brought about:
- a comprehensive licensing regime for those engaging in credit activities via an Australian credit licence to be administered by ASIC as the sole regulator and
- industry-wide responsible lending conduct requirements for licensees.[21]
Under the Credit Act a person must not engage in a credit activity if the person does not hold an Australian Credit Licence (licence).[22] The Credit Act requires a licensee, amongst other things, to do all things necessary to ensure that the credit activities authorised by the licence are engaged in efficiently, honestly and fairly.[23]
National Credit Code
The Credit Code is located in Schedule 1 to the Credit Act. [24] All references in this Bills Digest to the Credit Act are references to sections of that Act whereas references to the Credit Code are references to clauses of the Code.
The Credit Code regulates many aspects of the provision of certain types of credit, including upfront and ongoing disclosure obligations, changes to the credit contract, advertising and marketing requirements, termination of the credit contract and penalties and remedies.[25]
It applies to credit contracts entered into on, or after, 1 July 2010[26] where:
- the lender is in the business of providing credit
- a charge is made for providing the credit
- the debtor is a natural person or strata corporation
- the credit is provided:
- for personal, domestic or household purposes or
- to purchase, renovate or improve residential property for investment purposes or to refinance credit previously provided for this purpose.[27]
Importantly, the Credit Code does not apply to every loan for personal domestic or household purposes—certain types of credit are specifically excluded from its application, including:
- short term credit provided for a period of less than 62 days, where the maximum fees and charges imposed do not exceed five per cent of the loan and on which the interest charges are equal to or less than 24 per cent per annum and
- BNPL arrangements.
Neither type of arrangement is subject to the Credit Code. In the case of short-term credit of the type noted above, this is because such arrangements are specifically excluded by the Credit Code.[28] In the case of BNPL arrangements, this is because those arrangements fall outside the Credit Code because no ‘charge is or may be made for providing the credit’.[29]
Responsible lending obligations
Chapter 3 of the Credit Act sets out the rules for responsible lending conduct (responsible lending obligations (RLOs)). [30] It is divided into Parts, each of which relates to a licensee who provides a certain type of credit. Relevant to the measures contained in Schedule 2 of the Omnibus Bill, this includes:
- Part 3-1 contains the rules that apply to licensees that provide credit assistance[31] in relation to credit contracts—such as a finance broker and
- Part 3-2 applies to licensees that are credit providers[32]—such as an authorised deposit‑taking institution (ADI), that is, a bank.
In each of those Parts, the RLOs are repeated with some variation, depending on the nature of the relevant lending contract.
What credit products are covered?
Currently, all holders of a licence must comply with the RLOs.[33] The RLOs apply only in relation to credit products provided to individuals and strata corporations (both referred to as consumers[34]) for personal, domestic and household purposes or for the purchase or improvement of residential property.[35]
This encompasses home loans, reverse mortgages, residential investment loans, personal loans, credit card contracts, medium and small amount credit contracts and consumer leases.[36] However, this currently does not include providers of BNPL arrangements.
Nature of the obligations
The RLOs are aimed at better informing consumers and preventing them from being in unsuitable credit contracts. Generally speaking, they require a licensee to make a preliminary assessment about whether the contract will be unsuitable for the consumer.[37] To do this, the licensee must make inquiries and verifications about the consumer’s requirements, objectives and financial situation.[38]
In addition, a licensee must assess that a contract will be unsuitable if:
- the consumer will be unable to comply with their obligations under the contract, or could only comply with substantial hardship
- the contract will not meet the consumer’s requirements or objectives
- the regulations prescribe circumstances in which a credit contract is unsuitable.[39]
This involves taking reasonable steps to independently verify certain information about the consumer, in part because information provided by consumers as part of an application for credit may not, in all cases, be reliable (for example, overstating income).[40]
Further, if the contract will be unsuitable for the consumer a licensee is prohibited from:
- entering into a credit contract or increasing the credit limit of a contract with a consumer or
- providing assistance to a consumer by suggesting that the consumer apply for, or assisting the consumer to apply for, a particular credit contract or an increase to the credit limit of a credit contract.[41]
Proposed changes
In summary, Schedule 2 will:
- regulate BNPL contracts under the Credit Act by:
- establishing low-cost credit contracts (LCCCs) as a new category of regulated credit and
- providing that BNPL contracts are a class of LCCCs.
- impose new obligations on LCCC providers including:
- to hold and maintain an Australian credit licence and
- to comply with the relevant licensing requirements and licensee obligations and
- impose a modified RLO framework on LCCC providers.
These elements are examined below.
Regulating low-cost credit and BNPL contracts
Schedule 2 to the Omnibus Bill establishes LCCCs as a new category of regulated credit, with BNPL contracts defined as a class of LCCCs.[42] The effect of this is to bring BNPL contracts under the Credit Act and allows additional forms of low-cost credit to be excluded or regulated via the regulations.
About low cost credit contracts
Schedule 2 defines a LCCC as a contract where credit is, or may be, provided and all of the following conditions are satisfied:
- the contract is a BNPL contract, or a contract of a kind prescribed by the regulations
- the period during which credit is, or may be, provided under the contract is no longer than the period (if any) prescribed by the regulations and
- the contract satisfies any other requirements prescribed by the regulations, including those that relate to fees or charges[43] payable under the contract.[44]
The effect of this is that other types of credit contracts, such as wage advances, may also be regulated in the future if prescribed by the regulations.[45]
About buy, now, pay later contracts
A BNPL contract is defined as a contract that is part of a BNPL arrangement.[46] In turn, a BNPL arrangement is defined as an arrangement where:
- a BNPL provider directly or indirectly pays a merchant some, or all, of the price of goods or services purchased by a consumer and
- there is a contract between the BNPL provider and the consumer for the provision of credit in relation to the transaction.[47]
Importantly, it does not matter:
- if any fees or charges are payable by the consumer or the merchant in connection with the arrangement or not
- when payment by the BNPL provider occurs or
- whether the contract is a continuing credit contract or if the merchant, consumer and BNPL provider are all parties to a single contract.[48]
The regulations can exclude arrangements from the above definition.[49]
New licensing requirements
Section 29 of the Credit Act prohibits a person from engaging in credit activities if the person does not hold an Australian Credit Licence (licence). However, as BNPL arrangements are typically an exempt form of credit under Credit Code, providers currently do not need to hold a licence.[50]
Proposed clauses 13B and 13C of the Credit Code specifically apply a modified form of the Credit Code to BNPL contracts and LCCCs. The effect of this is that providers of those products must:
- hold and maintain a licence and
- comply with the relevant licensing requirements and licensee obligations, with some modifications.[51]
Modified responsible lending obligations
Part 2 of Schedule 2 to the Omnibus Bill builds on the requirement for BNPL and LCCC providers to hold a licence by applying a modified set of RLOs. Item 14 of the Omnibus Bill inserts proposed Part 3-2BA into the Credit Act to provide a modified RLO framework exclusively for LCCCs. [52]
Key features of the modified RLO framework
Proposed section 133BXA allows a licensee who provides LCCCs and BNPL contracts to elect in writing to apply the modified RLO framework.[53] If a licensee does not make such an election, the existing RLO framework in Part 3-2 of the Credit Act applies. [54]
Under the modified RLO framework, a licensee is required to comply with the core obligations including:
- assessing the suitability of the LCCC for the consumer
- taking steps to make reasonable inquiries about the consumer's financial situation and
- verifying that information (a suitability assessment[55])
before entering an LCCC or increasing a consumer's credit limit.
However, under the modified RLO framework:
- requirements about the timing of inquiries and verification in relation to the suitability assessment are eased to a period of 90 days or other period prescribed by regulations[56] and
- a narrower set of specified risk factors must be taken into account in determining what constitutes reasonable inquiries and reasonable verification.[57]
Finally, under the modified RLO framework LCCC providers may:
- conduct inquiries and an assessment for an amount of credit larger than that initially offered to the consumer, and
- that assessment will apply for any subsequent credit limit increases up to that amount, up to a period of two years.[58]
The above are subject to a requirement that the LCCC provider complies with certain requirements, including maintaining and regularly updating an unsuitability assessment policy.[59]
Key issue: modified Responsible Lending Obligations
Opinions about the appropriateness of the proposed modified RLOs differed substantially between major interest groups. Some industry participant associations and trade unions welcomed the proposed ‘scalable’ nature of modified RLOs, even if expressing some concerns.[60]
However, other stakeholders questioned the appropriateness of the proposed modified RLOs, sometimes from differing perspectives. For example, law firm Hamilton Locke argues:
Although the changes have been described as a ‘modified’ RLO framework with a ‘reduction’ in what is reasonably required, it is difficult to see how these modified obligations fundamentally differ to the existing RLO framework or how they otherwise ease compliance for BNPL providers… In substance, it seems that the only real difference between the full RLO and the modified RLO is that one has ASIC guidance, and one has a legislated list of factors, to be considered when scaling the inquiries and verification… it is arguable that the application to a BNPL product of the full RLO and the modified RLO could produce similar outcomes in any case, because an LCCC provider who opts in to the full RLO is still entitled to make an assessment of what is ‘reasonable’ in light of all applicable circumstances, which will arguably include the prescribed list of factors in any case (p. 5) [emphasis added]
Afterpay, whilst not appearing to suggest that the proposed modified RLOs would operate in the same manner as the existing RLOs, argued they would not be ‘proportionate for low-value, low-risk BNPL products’ (p. 2). In contrast, the Mortgage and Finance Association of Australia (MFAA) argued that ‘the existing principles based responsible lending obligations are sufficient without the need for a bespoke framework’ whilst also noting its support for the Bill as ‘it regulates BNPL as credit’ (p. 1).
The view that the proposed modified RLOs will, in effect, operate in the same manner as the existing RLO framework, was not widely accepted by other industry stakeholders. For example, the Australian Retail Credit Association (ARCA) expressed concerns that ‘the modifications and allowances provided to LCCC/BNPL providers under the modified responsible lending framework would potentially create:
… a competitive distortion between the providers of BNPL products and other products (particularly credit cards and personal loan products). (p. 2)
The joint submission by a range of consumer groups (joint submission) argued that the:
Modified RLOs are still an improvement in protections for BNPL users on the status quo (of no responsible lending laws), but they also pose some risks compared with the existing responsible lending obligations for other credit products (Full RLOs) (p. 3) [emphasis added]
The joint submission further argued that rather than effectively imposing the same obligations as the existing RLOs, the proposed modified RLOs would operate differently as, in part, they do not require LCCC/BNPL providers to ‘obtain documentation (like bank statements) that confirm stated income and expenses figures’, as is the case under the existing RLOs (p. 7).
Key issue: role of regulations
The amendments in Schedule 2 to the Omnibus Bill allow key aspects of the proposed modified RLOs to be determined by regulations, including:
- whether an arrangement or a series of arrangements is not a BNPL arrangement (and hence regulated)[61]
- whether a contract is a LCCC, as well the duration of a LCCC and requirements as to fees or charges payable under a LCCC[62]
- the period and timing of inquiries and verification in relation to suitability assessments[63]
- ‘relevant matters’ that a LCCC/BNPL provider must make ‘reasonable inquiries’ about (and therefore if inquires were ‘reasonable’ or not)[64]
- the threshold amount used to differentiate normal LCCCs and ‘larger contracts’ – which in turn impacts on if the presumption of suitability exists, and nature of the assessments that must be undertaken before providing the consumer with credit[65]
- any requirements relating to LCCC/BNPL unsuitability assessment policies[66]and
- the contents of any information statements, certain contract documents required to be given to a consumer.[67]
A number of stakeholders noted that the operation of the proposed modified RLOs will either largely be determined, or significantly affected by, the contents of any regulations.[68] This led a number of stakeholders to:
- request that updated draft regulations be considered at the same time as the Bill and/or for further consultation regarding the content of proposed regulations relating to the modified RLOs be undertaken[69] and
- express various concerns about the contents of such regulations in relation to a range of issues including verification of information (Tech Council, p. 4); the proposed cap on fees (Afterpay, p. 2) and participation in credit reporting (ARCA, pp. 3–4).
Key issue: proposed rebuttable presumptions and suitability assessments
Under the proposed modified RLOs, a rebuttable presumption exists: LCCCs with a credit limit not above $2,000 are presumed to meet the consumer's requirements and objectives for the purposes of the suitability assessment, unless the contrary is proved.[70] The $2,000 threshold can be increased or decreased by regulations.[71]
In this regard, some stakeholders argued that these presumptions should be removed altogether, resulting in LCCC and BNPL providers being required to inquire about the requirements and objectives of prospective borrowers and their financial circumstances, regardless of the amount of credit provided.[72]
However, other stakeholders had different views. Law firm Hamilton Locke commented that ‘providing a presumption that a contract is not unsuitable without also providing relief from the obligation to conduct reasonable inquiries provides little real reduction in obligations’ (p. 7). This suggests that the interaction between the requirements to conduct reasonable inquiries and conducting unsuitability assessments under the proposed modified RLOs is not clear.
In contrast, Afterpay argued that the threshold for rebuttable presumption that LCCCs meet the requirements or objectives limb of the unsuitability test should be raised to $5,000 when granting credit or increasing a credit limit (p. 13).
Key issue: verifying consumer information and credit checks
It is widely regarded that under the current RLO regime, the requirement to take ‘reasonable steps’ to verify a consumer’s financial situation before making an unsuitability assessment will be satisfied, in part, by obtaining a recent credit report about the consumer and comparing its contents against information provided by the consumer and from other sources (such as bank statements).[73] Credit reports include information about:
- the amount of money an individual has borrowed
- the number of credit applications they have made
- how an individual has handled any past or current consumer loans or debts, and their repayment history (for example, if they make repayments on time) and
- instances where an individual has failed to meet repayment obligations, such as defaults, court judgments or bankruptcies.
In general, credit checks are divided into three ‘tiers’:
- Negative: includes credit enquiries, defaults, bankruptcies, judgements etc.
- Partial: sets out everything included in the negative tier, plus Consumer Credit Liability Information (various information about consumer credit such as the terms of the credit, principal and interest etc[74])
- Comprehensive: contains everything included in the negative and partial tiers, plus Repayment History Information.[75]
Stakeholders differed in their views about the requirements imposed by the proposed modified RLOs for verifying consumer information as part of assessing the suitability of a product for an applicant. Most notably this includes different views as to whether the proposed modified RLOs would, or would not, require LCCC/BNPL providers to conduct credit checks. For example, Hamilton Locke argues:
… under the Bill, a BNPL provider would be required to obtain certain information from a credit reporting body [a credit check]… as well as collect and verify the income and expenses of a customer (scaled to some indeterminate degree in accordance with the prescribed factors) in order to demonstrate compliance with the proposed RLOs (p. 6)
Other stakeholders expressed the view that the proposed reforms would require LCCC/BNPL providers to undertake credit checks:
- at the ‘negative’ tier for accounts up to $2,000 and
- the ‘partial’ tier for accounts more than $2,000.[76]
In contrast, several other stakeholders expressed the view that the proposed modified RLOs would not require LCCC/BNPL providers to conduct a credit check on applicants before entering into a LCCC or BNPL arrangement, especially for small amounts.[77]
As Schedule 2 to the Omnibus Bill does not appear to specifically impose a requirement for LCCC/BNPL providers to conduct any form of credit check, ultimately whether they are required to do so will be determined either by:
- the content of any regulations or
- the meaning of ‘reasonable inquiries’ and what is required to ensure ‘verification’ of a consumer’s financial situation, as determined by the courts.
In this regard, a number of stakeholders argued for:
- LCCC/BNPL being required to undertake comprehensive credit checks (ARCA, pp. 3–4, MFAA, p. 2)
- LCCC/BNPL providers being required to conduct a ‘partial’ credit check for amounts under $5,000 (Afterpay, p. 2) or for all transactions (TCA, p. 2) and
- A requirement for more robust measures requiring BNPL providers to verify a consumer’s finances (Legal Aid Queensland (LAQ), p. 3).
Scrutiny of Bills Committee
The Senate Standing Committee for the Scrutiny of Bills expressed concerns about whether some providers of low-cost credit contracts (LCCCs) may not be captured by the Privacy Act 1988 (due to having a turnover less than $3 million).[78]
Key issue: participation in credit reporting
Under the Credit Act, licensees must supply certain information to eligible credit reporting bodies about all of the open credit accounts held with the licensee or with other members of the licensee’s corporate group.[79]
The modified RLOs do not appear to require LCCC/BNPL providers to supply information to eligible credit reporting bodies, as is the case under the existing RLOs. Further, the Impact Analysis for Schedule 2 to the Bill (which reflects option 2) appears to suggest an intention that LCCC/BNPL providers:
- will be able to elect to ‘engage more meaningfully with the existing credit reporting regime’ and
- participation in credit reporting will remain voluntary for LCCC/BNPL providers ‘unless the provider is a big bank’ (Explanatory Memorandum, p. 189).
In this regard, a number of stakeholders argued for the participation of LCCC/BNPL providers in credit reporting:
- ARCA argued that ‘LCCC/BNPL providers should be subject to a ‘if not, why not’ approach to participating fully in credit reporting’ (pp. 3–4)
- MFAA argued that BNPL providers should be ‘included in comprehensive credit reporting in the same way as other consumer credit products’ (p. 2)
- Afterpay also suggested that participation by BNPL providers in credit reporting would be positive for the industry and consumers overall (pp. 11–12).
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.
Schedule 3—Medicare levy exemption for lump sum payments
Background
About the Medicare levy
The Medicare Levy Act 1986 provides for the payment by taxpayers of the Medicare levy and the Medicare levy surcharge (MLS). The Medicare levy helps fund some of the costs of Australia’s public health system known as Medicare. A taxpayer may also have to pay the MLS if they do not have an appropriate level of private patient hospital cover and earn above a certain income.
Effect of receiving a lump sum
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 its receipt.[80] 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.[81]
Receiving a lump sum for unpaid or under-paid wages can result in having higher taxation amounts applied than otherwise would have been levied if the wages had been paid correctly and on time. In addition, 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 and MLS.
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 and MLS (due to their increased assessable income which includes the lump sum), an issue highlighted by the Senate Standing Committee on Economics report Systemic, sustained and shameful (para 2.36).
Consultation
In April 2024, the Treasury conducted a consultation process in relation to an exposure draft Bill to exempt eligible lump sum payments in arrears from the Medicare levy and MLS from 1 July 2024. The measure was expected ‘to ensure low‑income taxpayers do not pay higher amounts of the Medicare levy and MLS as a result of receiving an eligible lump sum payment’ (for example, as compensation for underpaid wages).
Policy position of non-government parties/independents
At the time of writing the position of non-government parties and independent Members and Senators on the measure contained in Schedule 3 of the Bill could not be determined.
Position of major interest groups
None of the submissions to the Treasury consultation process are publicly available.
Submissions to the Senate Economics Legislation Committee for inquiry into the Omnibus Bill do not specifically address the amendments in Schedule 3.
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)
|
2022–23
|
2023–24
|
2024–25
|
2025–26
|
2026–27
|
Total
|
|
-
|
-
|
-
|
-1.0
|
-1.0
|
-2.0
|
Source: Explanatory Memorandum, 4.
Compliance cost impact
The Explanatory Memorandum (p. 4) for the Bill states that the impact on compliance costs is low.
Key issues and provisions
Medicare levy and Medicare levy surcharge
The Medicare levy is a levy that is payable by resident taxpayers and is used to help fund some of the cost of Australia’s health care system. In contrast, the MLS is a separate levy from Medicare levy. The MLS is designed to encourage taxpayers to take out private patient hospital cover and use the private hospital system. Unlike the Medicare levy, which applies broadly, the MLS only applies to taxpayers on higher incomes who do not have private health cover.
A resident taxpayer’s liability for the Medicare levy is assessed against their taxable income each income year. No Medicare levy is payable (or a reduction applies) where a taxpayer’s income falls within the Medicare levy individual or family low-income thresholds, or individual income phase-in threshold in the Medicare Levy Act.[82] Where the taxable income or combined family taxable income exceeds the stated threshold amounts, the Medicare levy phases in at a rate of ten cents in the dollar until it reaches the full rate of levy.[83] The table below sets out the current thresholds for the Medicare Levy.
Table 2 2023–24 Medicare Levy income thresholds and phase-in limits
|
Type of taxpayer
|
Individual/family taxable income below which Medicare levy is not payable
|
Individual/family taxable income where a reduced Medicare levy is payable
|
Individual/family taxable income above which ordinary Medicare levy is payable (phase in limit)
|
|
Individual
|
$26,000
|
$26,001–$32,500
|
$32,501
|
|
Family with no children/students
|
$43,846
|
$43,847–$54,807
|
$54,808
|
|
Family with 1 child/student
|
$47,873
|
$47,874–$59,841
|
$59,842
|
|
Family with 2 children/students
|
$51,900
|
$51,901–$64,875
|
$64,876
|
|
Family with 3 children/students
|
$55,927
|
$55,928–$69,908
|
$69,909
|
|
Family with 4 children/students
|
$59,954
|
$59,955–$74,942
|
$74,943
|
|
Family with 5 children/students
|
$63,981
|
$63,982–$79,976
|
$79,977
|
|
Family with 6 or more children/students
|
$68,008 for 6 children/students and an additional $4,027 for each extra child or student.
|
$68,00–$85,010 for 6 children/students and an additional $5,034 for each extra child or student.
|
$85,011
|
Source: Wolters Kluwer, Australian Income tax Commentary, ‘¶860-100 Medicare levy and low income thresholds: 2013/14 and later income years’, as at March 2024; Medicare Levy Act, sections 7 to 9.
The MLS is only payable if the individual’s income exceeds the relevant MLS threshold amounts in the Medicare Levy Act, as set out in the table below.
Table 3 MLS income thresholds and rates for 2024–25
|
Threshold
|
Base tier
|
Tier 1
|
Tier 2
|
Tier 3
|
|
Single threshold
|
$97,000 or less
|
$97,001-$113,00
|
$113,001-$151,000
|
$151,001 or more.
|
|
Family threshold
|
$194,000 or less
|
$194,001 – $226,000
|
$226,001 – $302,000
|
$302,001 or more
|
|
MLS rate
|
0%
|
1%
|
1.25%
|
1.5%
|
Source: Australian Tax Office, ‘Medicare levy surcharge income, thresholds and rates’, March 2024.
Consistent with the general principal that lump sums of income are taxed in the year of their receipt, certain lump sum payments paid in arrears are included in a taxpayer’s taxable income in the year of receipt for the calculation of their liability for the Medicare levy and MLS.
This means that it is possible for taxpayers who would ordinarily be exempt in whole or in part from the Medicare levy, or not be subject to MLS, to become liable due to receiving a lump sum paid in arrears, arising from previous tax years.
Medicare levy tax offsets
Currently there are two tax offsets for certain lump sum payments which can reduce both liability for income tax (and therefore the Medicare levy) and the MLS.
The first is the lump sum payment in arrears tax rebate (LSPATR, sections 159ZR to 159ZRD of the ITAA 1936). The LSPATR provides a tax offset to limit the tax payable by an individual for eligible lump sum payments. The tax payable (excluding Medicare levy) is limited to an amount comparable to the amount that would have been payable, had the income been received in the year in which it was accrued, provided certain criteria are met.
The second is the MLS lump sum payments in arrears tax offset (MLS LS offset, pursuant to Subdivision 61-L of ITAA 1997) which reduces the MLS payable (but not the ordinary amount of Medicare levy) when a substantial lump sum is paid to a taxpayer in the current year—provided that the lump sum was accrued in whole or in part in a previous tax year.
These concessions can limit the tax payable and a taxpayer’s liability, but only when the taxpayer has received an eligible lump sum in arrears. However, as noted by the Explanatory Memorandum (p. 78):
… neither of these two tax concessions reduce the ordinary amount of Medicare levy payable if a recipient receives a lump sum payment in arrears that was accrued in the previous year or years that increases the individual’s current year Medicare levy liability as a result of the Medicare levy threshold being exceeded. [emphasis added]
Proposed changes
The amendments in Schedule 3 of the Omnibus Bill aim to ensure low-income taxpayers are not denied concessional Medicare levy treatment because of receiving certain lump sum payments (for example, compensation for past underpaid wages) outside the current LSPATR and MLS LS offset rules. This is achieved, in part, by importing a number of relevant definitions from section 159ZR of the ITAA 1936.[84]
The Bill inserts proposed section 9A into the Medicare Levy Act to exclude lump sum payments comprised of certain types of income from the calculation of the Medicare levy, provided certain conditions are met. Those conditions include, amongst other things, that the lump sum is an amount that is assessable income that was accrued in part or whole in an earlier income year and is comprised of:
- salary or wages that accrued during a period of more than 12 months before they were paid
- salary and wages paid to a person after re-instatement to duty following a period of suspension to the extent the payment accrued during the suspension period
- various superannuation income streams, annuities, compensation, sickness and accident payments
- Commonwealth education or training payments
- various exempt pensions, benefits, allowances and settlement amounts or
- payments under a law of a foreign country of exempt pensions, benefits, allowances and settlement amounts.[85]
In addition, the lump sum paid in arrears must include a total amount comprised of the above that is ten per cent or more of the individual’s normal taxable income after the deduction of the total arrears amount.[86] Normal taxable income is defined as excluding certain items such as employment termination payments, unused leave payments, superannuation benefits and net capital gains, net capital gains included in assessable income and above-average special professional income.[87]
Other relevant criteria are set out on page 81 of the Explanatory Memorandum.
Where the taxpayer meets the eligibility requirements, their individual taxable income for Medicare levy liability purposes is adjusted by excluding the total arrears amount they received.
The effect of this is to put eligible recipients of a broader range of lump sum payments paid in arrears into a similar position that they would have been had they been paid correctly and on time, and therefore ensuring that no, or a lower rate of, Medicare levy potentially applies.
Commencement
Schedule 3 will commence the first 1 January, 1 April, 1 July or 1 October to occur after the Royal Assent.
Schedule 4—Country-by-country reporting
Background
Schedule 4 to the Omnibus Bill 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 country-by-country (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.[88]
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.
GRI 207: Tax
The Global Reporting Initiative (GRI) is an independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts.
GRI 207: Tax (2019) (GRI 207) was issued by the Global Sustainability Standards Board (GSSB) in response to stakeholder demands for greater transparency around tax. GRI 207 disclosures enable an organization to provide information on how it manages tax, and information about its revenue, tax, and business activities on a country-by-country basis. Specifically, Disclosure 207-1 deals with the entity’s approach to tax, while Disclosure 207-4 covers CBCR tax data. GRI 207 is the basis for many of the requirements in the legislation.
CBCR in Australia
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.[89] 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.
Consultation
This Bill has been the subject of a three-stage consultation. Relevant stakeholders have provided submissions, and the Treasury has made changes to each iteration of the draft legislation. A summary of the consultation process is set out below.
Initial consultation – August-September 2022
On 2 September 2022, the Treasury completed a broad consultation on a 3-part discussion paper ‘Government election commitments: Multinational tax integrity and enhanced tax transparency’. Part 3 of the paper dealt with multinational tax transparency, including (at pp. 21–27) public CBCR. In this initial consultation, the Treasury received 70 submissions and published 60 non-confidential submissions.
Second consultation - April 2023
The Government consulted on public CBC reporting in April 2023. Treasury received 56 submissions and published 51 non-confidential submissions.
Third consultation - February 2024
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. Treasury received 39 submissions and published 35 non-confidential submissions.
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’.[90]
When the Bill was debated in the House of Representatives, Luke Howarth (LNP) stated:
Schedule 4 of this bill is the next stage of Labor's chaotic attempt to implement its misguided multinational tax agenda. These proposals were originally supposed to be introduced to parliament last September, but embarrassingly, again, they were pulled, with last-minute amendments in response to significant stakeholder backlash, including from the United States embassy. At the time, Labor promised to do further work to align the proposed public reporting standards with the well-established European Union framework, but they have come back with a very similar reporting regime that goes much further than the EU and does little to address widespread concerns from the business community. While exemption processes have been included for firms to prevent information being made public, this is only provided on an annual basis.[91]
Kate Chaney (Independent) said:
Across the board, stakeholders are supportive in principle of this bill, but I note there are some unresolved issues that could be addressed either through delegated legislation or through ATO guidance. These include the following. CBC disclosure requirements should be consistent with both international and domestic rules. Commercially sensitive information that's released under reporting requirements should be protected. The materiality threshold should include a minimum dollar value and a proportionality test based on an entity's presence in Australia. Clarity is needed on the administrative aspects of this proposed measure regarding how to submit information to the commissioner and what constitutes a material error, and it requires proactive engagement from the ATO.[92]
Rebekah Sharkie (Centre Alliance) described Schedule 4 as ‘a very good measure’.[93]
The Coalition Senators who participated in the Senate Economics Committee inquiry into the Bill made additional comments to the final report. They recommended (p. 67):
… the Bill be amended to align the proposed country-by-country reporting standards to globally recognised standards, including by:
- Including a 5-year deferral period to protect commercially sensitive information
- Providing further detail on how the ATO’s discretionary exemption would operate
- Aligning the non-cooperative jurisdiction list with the EU Directive
- Providing further detail on how jurisdictions will be listed or delisted and
- Reviewing the regime within one to two years of its commencement.
Position of major interest groups
In submissions to the Senate Standing Committee on Economics:
CPA Australia Ltd recommended that:
- Switzerland, Singapore and Hong Kong be removed from the final list of specified jurisdictions for disaggregated reporting.
- Australia’s new public CBC rules be subject to a post implementation review to ensure the rules are operating effectively and whether there are opportunities to harmonise multiple frameworks to reduce taxpayer compliance cost.
SC Johnson recommended that:
- the legislation be amended to provide an option, consistent with the EU Public CBC Directive ("EU Directive"), to defer public reporting for five years to protect confidential and commercially sensitive data.
- there be a public hearing as it does not believe the legislation, nor the accompanying Explanatory Memorandum adequately addresses its concerns.
The Financial Accountability & Corporate Transparency (FACT) Coalition welcomed the legislation. It recommended that:
- the Minister’s initial determination of covered jurisdictions should include all jurisdictions on the ATO’s list of Specified Countries or Jurisdictions, regardless of whether those jurisdictions would otherwise be covered under the EU Directive, and that Puerto Rico be included in the initial determination, given the central role that the territory plays in the tax strategies of numerous large United States-based multinationals.
Several, but not all, of the submissions to the February 2024 Treasury consultation accepted the concept of public CBCR. Some submissions, including that of the Tax Institute of Australia (TIA), welcomed the changes that had been made in the exposure draft following earlier consultation. However, several stakeholders expressed specific concerns including:
- the measures should be more closely aligned with both the EU approach to CBCR and existing domestic reporting requirements[94]
- GRI 207 is a voluntary standard and consequently some requirements prescribed in the legislation will be a completely new task for many MNEs[95]
- there should not be a requirement to report using audited consolidated financial statements – reporting using other types of financial statements should be allowed[96]
- there is a lack of a rigorous process to assess which jurisdictions should be categorised as a ‘specified jurisdiction’[97]
- Switzerland, Singapore and Hong Kong should not be on the list of CBC reporting jurisdictions (in the draft Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024)[98]
- more clarity is needed (for example in the legislation) on how confidential and/or commercially sensitive information is to be treated[99]
Some submissions reiterated opposition to the concept of country-country reporting.[100]
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,[101] 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’[102]) that meet the eligibility criteria, which are broadly:
- the entity is a constitutional corporation, a partnership or a trust[103]
- 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)[104]
- 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[105]
- $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.[106]
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.[107] 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’.[108]
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.[109]
Exemptions
The Commissioner of Taxation (Commissioner) has exemption powers to respond to exceptional circumstances.[110] 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.[111]
Penalties
The Bill imposes an administrative penalty for failing to publish information on time. The maximum penalty is 2,500 penalty units.[112] When combined with the ATO’s powers to pursue enforcement action, this penalty should act as a deterrent.
In commenting on the amendments in Schedule 4 to the Omnibus 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 7—$20,000 instant asset write-off for small business entities
Background
Small business entities[113] that use the simplified depreciation rules[114] 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.[115]
The IAWO eligibility criteria (such as an entity’s aggregated turnover) and the section 328-180 threshold for the IAWO have changed over time.[116] 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 ITAA1997 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 into the Parliament to amend section 328-180 of the Income Tax (Transitional Provisions) Act 1997. The first Bill for the 2023–24 temporary increase of the IAWO threshold to $20,000 for small businesses received Royal Assent on 28 June 2024. The second Bill is the current Bill. The amendments in Schedule 7 to the Omnibus Bill extend the $20,000 IAWO threshold for small businesses to 2024–25 income year.
2023–24 income year
The first IAWO measure was introduced into 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 was the subject of debate in both Houses of the Parliament from September 2023. However, its progress was delayed 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.[117] 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.
On 25 June 2024, the Senate informed the House of Representatives that it did not again insist on its amendments. That being the case, the 2023 Bill passed both Houses on 25 June 2024 and received Royal Assent on 28 June 2024.
2024–25 income year
The second IAWO measure is contained in Schedule 7 to the current Bill is a targeted 12‑month extension of the $20,000 instant asset write-off as explained below.
Position of major interest groups
CPA Australia,[118] Australian Chamber of Commerce and Industry (ACCI),[119] Mortgage and Finance Association of Australia (MFAA),[120] and the Tax Institute[121] have all welcomed the temporary increase to the IAWO threshold for 2024–25 income year. However, they have also submitted that the temporary increase on a yearly basis should be made permanent in order to give businesses certainty in their investments. If the increase to the IAWO threshold cannot be permanent, some (such as CPA Australia) suggested that the government should allow the measure to operate for a longer period (such as a 5-year period with a sunset clause[122]).
CPA Australia pointed out that the Small Business Energy Incentive which was established by Schedule 2 to the 2023 Bill was effectively lost. This was because the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024 did not receive Royal Assent until 28 June 2024—just 2 days before the measure was due to expire on 30 June 2024.[123] This did not give businesses sufficient time to purchase and install the relevant assets. CPA Australia submitted that this measure should be extended for a longer period, or be made permanent, to encourage small businesses to invest in energy efficient assets. [124]
CPA Australia also recommended that the Government:
… no longer offer one year tax incentives for business. The parliamentary process is such that such incentives often only become law days or weeks prior to their expiry. This means there is little to no opportunity for business to take advantage of such incentives, defeating the policy intent. Policy makers should be aware that prudent businesses and advisers don’t act on an announcement – they wait until it becomes law and detail is released.[125]
Both ACCI[126] and the Tax Institute[127] further submitted that the Government should increase the IAWO threshold from $20,000 to $30,000 and the aggregated turnover to $50 million.
Financial implications
The Explanatory Memorandum (p. 8) for the Bill states that Schedule 7 is estimated to decrease receipts by $290.0 million over the five years from 2023–24.
Table 4 Financial impact of Schedule 7 ($ million)
|
2023–24
|
2024–25
|
2025–26
|
2026–27
|
2027-28
|
Total
|
|
-
|
-
|
-670.0
|
-60.0
|
440.0
|
-290.0
|
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.
Key issues and provisions
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.
Items 1–4 in Schedule 7 to the Omnibus Bill amend section 328-180 of the Income Tax (Transitional Provisions) Act to extend the $20,000 instant asset write-off by 12 months until 30 June 2025.
Commencement
Schedule 7 to the Bill commences on the later of:
- the first day of the first quarter after Royal Assent and
- immediately after the commencement of Schedule 1 to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024, which commenced on 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.