Abolition of deductions for travel to and from tax havens
The Labor Party wants to stop companies claiming deductions for travel to and from tax havens. The proposed change would automatically deny flight expenses and other travel-related deductions where the expense relates to a jurisdiction on a Tax Haven Blacklist.
An individual, business or legal entity may apply to the ATO for a deduction for the expenses by providing complete substantiation of all costs, and demonstrating that the costs were incurred in the production of assessable income in Australia. If the deduction is denied, then Fringe Benefits Tax may be applicable. Currently taxpayers claim travel related expenses using a self-assessment system, subject to possible ATO review or audit.
In circumstances where there is nothing illegal about doing business in tax havens, such a measure may not properly balance the need for integrity with the additional compliance costs for taxpayers. Having said that, the amount of deductions claimed in this respect are unlikely to be material.
Denial of bad debt deductions
As part of its crackdown on tax avoidance, the Labor Party is resurrecting a policy from its 2012-13 Federal Budget that never eventuated to identify a tax deduction for a bad debt written off, where the debtor is a related party not in the same tax consolidated group. Currently a business can restructure itself for tax purposes and obtain a tax benefit for writing-off a bad debt from a related party.
The Labor Party estimates the measure will raise roughly $20 million in extra revenue over four years. This appears to be a very small gain for the introduction of very complex legislation. There is no evidence that the existing anti-avoidance laws are failing in this respect.
Increased penalties for promoting tax evasion
The Labor Party is proposing to increase penalties for individuals and entities promoting tax evasion and avoidance. It will double penalties under the Promoter Penalties regime to allow courts to impose maximum fines of up to $2.1 million for individuals and $10.5 million for body corporates.
The current regime is punitive, but has only been sparingly used by the ATO. Increasing the penalties available sends a message, but only further enforcement of the law will really have an impact.