Opening address
Amy James-Velagic, Assistant Commissioner Private Wealth, welcomed members to the forum and introduced newly appointed co-chair Andrew Compton, Senior Tax & Risk Manager, Frasers Property Australia.
Louise Clarke, Deputy Commissioner Private Wealth, discussed the significance of the forum with respect to gathering intelligence and acknowledged the current economic difficulties and their broader impacts on the property and construction market.
Environmental Scan
Corporate plan 2024–25
The Australian Taxation Office (ATO) corporate plan 2024–25 highlights 6 key activities that encompass the ATO's core priorities and enable the achievement of its purpose and vision. The corporate plan also outlines 6 key focus areas of strategic importance which reflect the ATO's current operating environment and contribute to its key activities.
Frontline Operations changes
Service Delivery within the ATO has recently restructured and been renamed Frontline Operations. The changes aim to more strategically manage and prioritise work across the group in a holistic and integrated way.
ATO resources will not be reallocated from other areas as part of prioritising tax collection moving into a modern post-pandemic environment.
Key media themes
Observation that residential building numbers, labour shortages and insolvencies in the building industry continue to dominate the media coverage. The initial projects announced from the Housing Australia Future Fund and build to rent projects have also featured heavily of late.
Payment and lodgment 2023–24
The ATO provided a brief update on the payment and lodgment figures and performance metrics across the taxpayer population.
Build to rent - new measures
The ATO provided an overview of the status of Treasury Laws Amendment (Build to Rent) Bill 2024 and Capital Works (Build to Rent Misuse Tax) Bill 2024. These bills provide 2 new tax incentives, being an increase in the capital works deduction rate and a reduction in the final withholding tax rate on eligible managed investment trust fund payments from active developments.
GST at settlement and Taxable Payments Annual Reporting
The ATO provided updates on its continued efforts to provide education and support to conveyancers and intermediaries around GST at settlement, and to head contractors through its Head Contractor Dashboard initiative which leverages Taxable Payments Annual Report data to provide insights to large head contractors with 500 or more subcontractors.
Master Builders Australia economic forecast
Forecasts predict that Australia is unlikely to meet its 1.2 million homes target under the National Housing Accord.
Future prospects are reasonably favourable for both non-residential building and civil construction.
The biggest obstacle in the way of new home building is labour shortages.
Members discussed intelligence in the market in relation to potential increase in office fit-outs profitability, various members provided insights including tenancy/re-tenancy incentives, changes to hot desking models (re-fits to support this) and motivating/incentivising factor for employees to attend the office.
Top 3 issues within the industry
Each external member discussed their 3 top issues for the property and construction industry which provided an understanding of the breadth of topical issues across the industry including:
- tax technical
- engagement with the ATO
- regulation
- economic
- commercial
- industrial relation issues.
Focus areas - Public Groups, Private Wealth and Small Business
An overview of focus areas for the property and construction industry across our Small Business, Private Wealth and Public Group client experience segments from an assurance and risk perspective was provided. This included:
- capital verses revenue misclassification
- incorrect recognition of income and expenses
- related party financing
- omission of income on disposal of real property
- misreporting or underreporting of GST
- subcontractor non-compliance
- misuse of corporate entities
- Lodgment obligations.
Members discussed the challenges with communicating ATO key messages and public advice and guidance in a manner which would target or reach the intended audience within the industry.
Payment strategy
An update on the ATO payment strategy, including the objective and principles, debt client segments and the ATO's priority segments was provided.
Australian Securities and Investments Commission
Australian Securities and Investment Commissions (ASIC) annual insolvency data shows 11,053 companies entered external administration (EXAD) for the first time in 2023–24, an increase of 39% on the previous financial year.
The upward trend in EXADs has continued this financial year with 3,331 EXADs as of 22 September 2024, up 43.9% compared to the same period for the previous financial year of 2,315.
As of 22 September 2024, the top industries were:
- Construction 833 (26.5%)
- Accommodation and food services 649 (19.4%)
- Other services 315 (9.4%)
- Professional, Scientific and Technical Services (6.4%)
- Retail trade 185 (5.5%).
While the number of companies entering EXAD for the first time in 2023-24 at 11,053 is slightly higher than prior peaks seen in 2011-12 and 2012–13, it is proportionately smaller as there are now nearly 3.4 million companies in Australia compared to around 2 million in 2012. The current ratio of companies entering EXAD compared to the number registered is still below 2012-2013 levels.
Small Business Restructuring (SBR) appointments grew by over 200% in 2023-24 compared to 2022–23. As of 22 September 2024, 18.6% of all EXAD appointments were SBRs and based on that trajectory, SBR’s could exceed 2,000 appointments in 2024-25.
ASIC’s statistics taken from reports lodged by registered liquidators show construction industry EXADs are not dissimilar to all EXADs with:
- approximately 80% with $100,000 or less in estimated assets and liabilities between $100,0001 and $5 million
- over 75% had less than 25 creditors
- unsecured creditors in approximately 50% are collectively owed less than $250,000
- over 80% do not pay a dividend to unsecured creditors.
Property Council of Australia
An industry sentiment survey was conducted in September 2024. The survey gauges the property industries sentiments about the outlook for Australia’s national and state and territory economies, views on property asset class performance, employment intentions, expected workflows and critical industry drivers.
The survey canvasses the views of owners, developers, agents, managers, consultants and government across all major industry sectors and regions.
Despite a marginal rise in confidence among the property industry, the latest Procore/Property Council Survey shows a lack of housing supply continues to drag on property industry confidence. Just a few months into the national target window of 1.2 million new homes by 2029, we know we will fall short by a third unless further reforms are adopted. Housing remains a concern for industry confidence, as the industry anticipates delivering fewer homes while expecting prices to keep rising.
Thin capitalisation and debt deduction creation rules
The new thin capitalisation rules and debt deduction creation rules (DDCR) apply to all taxpayers regardless of whether they are public or private groups. The DDCR will apply to related party financing arrangements in the property and construction sector.
A 90% assets threshold exemption does not exempt an entity from the DDCR, the DDCR can operate in relation to wholly domestic transactions, that is, transactions not involving non-residents.
From the 1 July 2024 commencement date, the DDCR disallows interest deductions created by both historical and new transactions.
Division 7A complying loans are not exempt from the operation of the DDCR.
The ATO is seeking feedback and practical insights from members about the potential impact that changes to Thin Capitalisation and DDCR may have for stakeholders in the P&C sector, including:
- the perceived level of awareness of the rules amongst P&C stakeholders
- how the ATO and industry might work together to support stakeholders with their obligations under the rules.
Public advice and guidance
The ATO provided a brief update on the status of public advice and guidance on the property and construction small scale land subdivisions and developments web content. Members were advised that consultation via email will occur in November or December 2024.
Retirement villages advice and guidance
Recognising the complexity of Retirement Village (RV) and their evolving business and operating models; the ATO conducted a pre scoping exercise to gain a deeper understanding of RV lifecycle and to identify opportunities to enhance taxpayer compliance.
The pre scoping revealed a gap in the availability of a centralised source of practical education and awareness addressing the tax issues (income tax and GST) relevant to each stage of the RV lifecycle.
The updated RV web content aims to provide foundational web content, offers practical guidance on the tax considerations (income tax and GST) and highlights their implications across the various stages of the RV lifecycle.
Other business
Members discussed potential forward agenda items including private equity, marketing and communication from the ATO to industry and thin capitalisation.
Attendees
|
Organisation |
Member |
|---|---|
|
ATO |
Amy James-Velagic (Co-chair), Private Wealth |
|
ATO |
Anthony Marvello, Small Business |
|
ATO |
Louise Clarke, Private Wealth |
|
ATO |
Nadia Alfonsi, Public Groups |
|
Alvarez & Marsal Australia & New Zealand Pty Ltd |
Matthew Evans |
|
Arcem Advisory |
Phil Shepherd |
|
Australian Constructors Association |
Meg Redwin |
|
Frasers Property Australia |
Andrew Compton (Co-chair) |
|
KPMG |
Anna Chong |
|
Master Builders Australia |
Shane Garrett |
|
Pitcher Partners |
Simon Chun |
|
Property Council of Australia |
Matthew Wales |
|
RSM |
Adam Crowley |
|
The Tax Institute |
Simon Clark |
Guest attendees
|
Organisation |
Attendee |
||
|---|---|---|---|
|
ATO |
Andrew Fenn, Private Wealth |
||
|
ATO |
Daniel Carter, Private Wealth |
||
|
ATO |
David Hall, Private Wealth |
||
|
ATO |
Karen Price, Private Wealth |
||
|
ATO |
Kasey Macfarlane, Private Wealth |
||
|
ATO |
Marielle Delgado, Frontline Compliance |
||
|
ATO |
Rosie Cicchitti, Private Wealth |
||
|
ATO |
Stephen Dodshon, Public Groups |
||
|
Australian Securities and Investments Commission |
Carl Sibilia |
||
|
BDO |
Elysia Rothwell |
||
|
Chartered Accountants ANZ |
Brian Lane |
||
|
Housing Industry Association |
Michael Buordolone |
Apologies
|
Organisation |
Member |
|---|---|
|
ATO |
Jill Kitto, Frontline Compliance |
|
Australian Securities and Investments Commission |
Thea Eszenyi |
|
BDO |
Andres Reith |
|
Chartered Accountants ANZ |
Karen Liew |
|
Housing Industry Association |
Alessandra Schladetsch |
|
Queensland Building and Construction Commission |
Natasha Dennis-Weller |
|
Revenue NSW |
David Allan |