Yesterday, it was revealed in The Australian that a draft tax ruling issued by the Australian Taxation Office (ATO) in March 2017 could allow “passive” family investment companies to claim tax refunds and deductions, opening the door for wealthy families to claim back hundreds of millions of dollars in tax refunds and reductions. This draft ruling overturned the generally-accepted view that such family investment companies – which do not actively carry on a business – would not be eligible for the reduction in the company tax rate for small businesses from 30% to 27.5% over recent years.
Today, The Australian reports that Financial Services Minister Kelly O’Dwyer has advised the ATO that the Federal Government’s tax cuts for small businesses were not meant to apply to passive family investment companies. However, it has been revealed that the Government may need to amend the legislation to ensure that such investment vehicles cannot claim tax refunds and deductions:
The Australian’s revelations blindsided senior government figures, as the opposition yesterday pounced on the story.
Government sources said both Scott Morrison and the Minister for Revenue and Financial Services, Kelly O’Dwyer, became involved in the fallout from the revelations because the tax cuts had not been originally intended to help passive family companies.
Ms O’Dwyer released a statement yesterday offering “further direction” to the ATO to clarify the intention of its tax cuts.
“The policy decision made by the government to cut the tax rate for small companies was not meant to apply to passive investment companies,” she said.
“If any further direction is required on the government’s policy intention by the ATO, it will be provided by the government.”
However, BDO senior tax partner Tony Sloan said: “The government has a problem here.
“The ATO does not take dictation from politicians. There is a mountain of tax cases that support the ATO’s interpretation of the measures that ushered in the tax cuts”…
Mr Sloan says the legislation that introduced the tax cuts was “too broad” to exclude passive family investment companies.
The legislation states only that the tax cuts apply if a company “carries on a business” and meets a turnover threshold of $25 million for the current year…
“If the law doesn’t work, the government will have to fix it. That could mean having to change the tax measures as they stand through changes to the tax cut legislation.
Labor had a field day yesterday attacking the Government on this issue. Let’s hope they support the Government in passing any legislation to close this loophole.
