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Tax Telegraph, July 2013

CasesReviews of arm's length debt test and debt/equity rules

On 4 June 2013, the Assistant Treasurer announced the terms of reference for the Board of Taxation's review of the thin capitalisation arm's length debt test and post-implementation review of the debt and equity rules. These reviews were previously announced by the Government in the 2013-14 Federal Budget.

The first review will examine the arm's length debt test as it applies to the thin capitalisation rules. The Board has been asked to consult on ways to make the arm's length test more effective by reducing compliance costs for business and making it easier for the ATO to administer. In addition, the Board will consider who should be eligible to access the arm's length test and in what circumstances. The Board's report is due by December 2014.

The second review will combine a post-implementation review of the debt and equity rules with a consideration of whether there can be improved arrangements within the Australian tax system to address any inconsistencies between Australia's and other jurisdictions' debt and equity rules that could give rise to tax arbitrage opportunities. The Board's report is due by March 2015.

Regulations to support sustaining the superannuation contribution concession

On 31 May 2013, Treasury released exposure draft regulations (and an explanatory statement) to support the changes introduced to reduce the tax concession for concessional superannuation contributions of high income earners to 15%. These changes are contained in the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 and Superannuation (Sustaining the Superannuation Contribution Concession) Imposition Bill 2013 which have both passed the House of Representatives and will move to the Senate. The ED regulations amend the Income Tax Assessment Regulations 1997 to:

  • Set out the meaning of defined benefit contributions and specify how to calculate an individual's defined benefit contributions in a financial year for the purposes of the measure

  • Specify a list of individuals, who, by reason of being State higher level officer holders, will be exempt from the measures in relation to certain superannuation contributions made to constitutionally protected funds.

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