The compliance approach comprises two gateways, both of which must be satisfied for the IPP to apply the self-assessment risk framework.

PCG 2021/4 applies where all the below factors are met:²

• the IPP has an indirect or direct legal or beneficial interest in the firm and provides professional services to clients of the firm or involved in management of the firm;
• the firm income is not personal services income;
• the firm operates through a legal structure;
• the IPP has an indirect or direct equity ownership; and
• gateway 1 and gateway 2 are satisfied.

Two gateways must be satisfied for the IPP to self-assess using the risk framework:

• Gateway 1 — There should be a sound commercial rationale for entering into and operating the arrangement or structure, including an absence of the following indicators:
  • The arrangement seems more complex than is necessary to achieve the relevant commercial objective
  • The arrangement includes steps that appear only to provide a tax advantage with no other apparent purpose
  • The tax result of the arrangement appears at odds with its commercial or economic result
  • The arrangement results in little or no risk in circumstances where significant risks would normally be expected
  • The parties to the arrangement are operating on non-commercial terms or in a non-arm’s length manner
  • There is a gap between the substance of the arrangement and its legal form.
• Gateway 2 — The arrangement should not exhibit certain ‘high-risk features’, including:
  • The arrangement is described in an existing Taxpayer Alert
  • Financing arrangements are related to non-arm’s length transactions
  • Differences between accounting standards and tax law are exploited
  • Partnership interests are assigned in a manner that does not follow the principles laid out in FCT v Everett [1980] HCA 6 and FCT v Galland [1986] HCA 83 (about the assignment of partnership interests)
  • Multiple classes of shares and units are held by non-equity holders
  • Multiple assignments or disposals of an equity interest occur
  • Misuse of the superannuation system occurs, including assignments or disposals of an interest to associated self-managed superannuation funds (SMSFs)
  • Distributions of income are made to entities, other than the IPP, with losses.

If you cannot satisfy both gateways, your arrangement is considered high-risk and you cannot apply the self-assessment risk framework.

If gateways 1 and 2 are satisfied, the PCG prescribes a risk scoring table for taxpayers to use during their self-assessment. The table lists three factors and ascribes a score for each factor depending on the outcome. The aggregate score of the factors determines the relevant risk assessment.

An aggregated risk score in the:

• green zone means your arrangement is considered low-risk and the ATO will apply compliance resources to review your allocation of profit only in exceptional circumstances
• amber zone means your arrangement is considered to be moderate risk and the ATO is likely to conduct further analysis on the facts and circumstances of your arrangement
• red zone is considered high-risk and the ATO will conduct further analysis on the facts and circumstances of your arrangement as a matter of priority. If further analysis confirms the arrangement remain high-risk, the compliance activities may proceed to audit.

Any arrangements that commence from 1 July 2022 and satisfy all the criteria in paragraph 28 of the PCG are subject to PCG 2021/4.

Transitional arrangements

The compliance approach outlined in the PCG will be applied by the ATO from 1 July 2022.

The ATO has advised the following transitional arrangements apply:

• If your arrangement complies with the suspended guidelines, is commercially driven and does not exhibit any of the high-risk features listed above under gateway 2, you can continue to rely on the suspended guidelines for the years ending 30 June 2018 to 30 June 2022.
• If your arrangement was considered low-risk under the suspended guidelines and has a higher risk rating under the PCG, you can continue to rely on the suspended guidelines until 30 June 2024.

Further information can be found in our blog here.

List of Checklists

• Enacted measures commencing from 1 July 2022
  • Superannuation - This checklist contains enacted superannuation measures impacting trustees, employees and employers that commence on 1 July 2022.
  • Businesses - This checklist contains enacted business measures that commence on 1 July 2022. 
• Measures that will end by 1 July 2022 or shortly after
• Unenacted measures proposed to commence on 1 July 2022 - The measures in this table are unenacted and were proposed to commence on 1 July 2022. These measures were announced by the former government. It is unclear whether the new Government will proceed with these measures and, if so, whether the proposed start date of 1 July 2022 will be retained.

The full content of this article, including the detailed checklists, is available to download or via the PDF viewer on the right.

Further information

Labor’s election policy – Electric Car Discount

One of Labor’s election policies, the Electric Car Discount, is proposed to be implemented from 1 July 2022. The policy will exempt many electric cars from:

• Import tariffs — electric cars imported for less than the luxury car threshold for fuel efficient vehicles ($84,916 for 2022–23) will be excluded from the 5% import tariff.
• Fringe benefits tax — electric cars supplied by an employer and costing less than the luxury car threshold for fuel efficient vehicles will be exempt from FBT.

Labor proposes to review the measure after three years of its implementation.

More information on the announcement can be found here.

Tax Rates Tables

These tables prepared by The Tax Institute provides helpful tax and superannuation rates and thresholds. The Tax Rates Tables can be found here.

The Tax Rates Tables will be updated regularly, so you will have access to the most recent information throughout the year.

Tax Practitioner Board (TPB) new CPE policy

From 1 July 2022, the TPB’s new continuing professional education (CPE) policy commences. This requires the completion of 120 CPE hours for tax agents and 90 CPE hours for BAS agents over a three-year period. The new policy aligns the TPB’s CPE period with other professional associations. The criteria for education considered as CPE continues to vary between the TPB and the other professional associations.

For education to count towards the CPE hours, the education must be relevant to the services the agents is providing. As of 1 July 2022, a 10% cap will permanently allow health and well-being education to be classified as CPE for agents. The TPB recognises the importance of mental health and well-being for agents to provide service for their clients.

More information on eligible CPE can be found here.

Preview of changes from 1 July 2023

Measures that will commence on 1 July 2023

The former government announced a number of measures that are proposed to commence on 1 July 2023. These measures remain unenacted and it is unclear whether the new Government will proceed with these measures and, if so, whether the proposed start date of 1 July 2023 will be retained.

These include:

• Streamlining of transfer balance account reporting
• The expansion of the patent box regime to include the agricultural sector and low emissions technology innovations
• The requirement for ABN holders to annually re-confirm their details on the ABR
• Changes to related party disclosures for charities for matters other than key management personnel
• The ability for taxpayers to choose whether to self-assess the effective lives of eligible depreciable intangible assets (such as patents, registered designs, copyrights and in-house software) or to continue to use the tax effective life currently specified in the law.

Measures that conclude on 30 June 2023

The list below sets out the tax measures that are either currently legislated, or are expected, to expire on 30 June 2023.

These include:

• Company loss carry back tax offset
• Temporary full expensing
• NALI transitional approach set out in PCG 2020/5
• Expansion of the sharing economy reporting regime to other transactions (beyond the supply of taxi travel and short-term accommodation)
• The temporary 50% reduction in the superannuation pension minimum draw down rates
• Small business technology investment boost (still to be legislated).

These measures were all enacted by the former government (other than the small business technology investment boost). If the Government chooses, and if legislated, the expiration date of these measures could extend beyond 30 June 2023.

Final thoughts

The above checklists are not an exhaustive list of all the tax provisions practitioners should consider for 2022–23. The convening of the 47^th Parliament on 26 July 2022 and the Federal Budget 2022–23, expected to be released on or around 25 October 2022, will provide practitioners with more certainty as to whether the unenacted measures discussed above will be legislated.

The Tax Institute’s Tax Policy and Advocacy (TPA) team have prepared a suite of products and resources to assist practitioners with understanding what has changed for 2022–23.

These products include:

• End of Financial Year planning checklist that contains key considerations for end of financial year planning and compliance. This checklist will be updated for developments throughout the year.
• Tax Rates Tables containing a comprehensive summary of federal and state tax rates for recent years.
• State of Tax Policy Report: May 2022, issued on a regular basis, contains the status of tax legislation, bills and announcements with helpful hyperlinks to source materials.
• Incoming Government Brief: June 2022, provided to the Treasurer, the Hon Dr Jim Chalmers MP and more than 20 other recipients on 20 June 2022, provides a summary of the key tax and superannuation priorities for the new Government.

The Tax Institute’s TPA team are committed to providing relevant and practical resources to support our members. Our website is regularly updated with new resources which we encourage you to view here.

Abbreviations and acronyms

Footnotes

¹ Item 17 of the table in section 170(10) of the ITAA 1936 allows the Commissioner to amend an assessment at any time for the purpose of giving effect to section 100A. It is widely understood that this means that the trustee of a trust can be assessed under section 99A at any time to give effect to section 100A, but section 170(10) also allows the Commissioner to amend the assessment of any other taxpayer to give effect to section 100A. This includes beneficiaries who may have been previously assessed under section 97 of the ITAA 1936 so that there is no double taxation.

² PCG 2021/4 at [28].

DISCLAIMER: The material and opinions in this article should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.