TREASURY LAWS AMENDMENT (2022 MEASURES NO. 2) BILL 2022 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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TREASURY LAWS AMENDMENT (2022 MEASURES NO. 2) BILL 2022

2022 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES TREASURY LAWS AMENDMENT (2022 MEASURES NO. 2) BILL 2022 EXPLANATORY MEMORANDUM (Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Table of Contents Glossary................................................................................................. iii General outline and financial impact ...................................................... 1 Assisting businesses to meet their record-keeping obligations ................................................................... 7 Sharing economy reporting regime ............................ 17 Removing the self-education expenses threshold ..... 25 Increased Tribunal powers for small business tax decisions.................................................................... 31 Expanding eligibility for downsizer contributions ........ 41 Statement of Compatibility with Human Rights .......... 45 Attachment 1: Extracts from the Final Report of the Taskforce ........ 51

Glossary This Explanatory Memorandum uses the following abbreviations and acronyms. Abbreviation Definition AAT Administrative Appeals Tribunal AAT Act Administrative Appeals Tribunal Act 1975 ATO Australian Taxation Office Bill Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Commissioner Commissioner of Taxation FBT Fringe Benefits Tax FBTAA 1986 Fringe Benefits Tax Assessment Act 1986 GST Act A New Tax System (Goods and Services Tax) Act 1999 ITAA 1936 Income Tax Assessment Act 1936 ITAA 1997 Income Tax Assessment Act 1997 MEC Group Multiple Entry Consolidated Group MYEFO Mid-Year Economic and Fiscal Outlook TAA 1953 Taxation Administration Act 1953 Taskforce Black Economy Taskforce TPRS Taxable Payments Reporting System

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 General outline and financial impact Schedule 1 - Assisting businesses to meet their record-keeping obligations Outline Schedule 1 to the Bill amends Schedule 1 to the TAA 1953 to empower the Commissioner to direct an entity to complete an approved record-keeping course where the Commissioner reasonably believes the entity has failed to comply with its tax-related record-keeping obligations as an alternative to existing financial penalties. Date of effect The amendments made by Schedule 1 to the Bill commence on the first 1 January, 1 April, 1 July, or 1 October to occur after the day the Bill receives Royal Assent. The Commissioner will be able to issue a tax-records education direction to an entity three months after the day the Bill receives Royal Assent. Proposal announced Schedule 1 to the Bill implements the Black Economy - Assisting businesses to meet their reporting obligations measure from the 2019-20 MYEFO. Financial impact The 2019-20 MYEFO estimated the measure Black Economy - Assisting businesses to meet their reporting obligations - would have a small but unquantifiable gain to the budget over the forward estimates period. Human rights implications Schedule 1 to the Bill does not raise human rights issues. See Statement of Compatibility with Human Rights -- Chapter 6. Compliance cost impact Negligible. 1

General outline and financial impact Schedule 2 - Sharing economy reporting regime Outline Schedule 2 to the Bill amends Schedule 1 to the TAA 1953 to require electronic platform operators to provide information on transactions made through the platform to the ATO. This measure implements a recommendation of the report of the Taskforce. Date of effect The amendments made by Schedule 2 to the Bill commence on the first 1 January, 1 April, 1 July, or 1 October to occur after the day the Bill receives Royal Assent. The amendments made by Schedule 2 to the Bill apply from 1 July 2023 for transactions in relation to the supply of taxi travel and short-term accommodation and from 1 July 2024 for all other transactions. Proposal announced Schedule 2 to the Bill implements the measure Black Economy - introducing a sharing economy reporting regime from the 2019-20 MYEFO with a one-year delay. Financial impact The measure is estimated to have a cost to the budget of $8.2 million over the forward estimates period All figures in this table represent amounts in $[m]. 2021-22 2022-23 2023-24 2024-25 2025-26 -7.2 -7.3 -5.0 +4.9 +6.4 The measure also includes an estimated increase to GST payments to the States and Territories of $13.5m over the same period. Regulation impact statement Impact The measure is estimated to result in a total average annual regulatory cost of $0.022 million. 2

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Main points: • The Government is implementing a reporting regime for the sharing economy that will require operators of electronic distribution platforms to report information to the ATO relating to transactions made through their platform. • As found in the Final Report of the Taskforce, some sharing economy participants may not be aware of the tax obligations flowing from sharing economy activity and consequently, may not be meeting their obligations. • The reporting regime enhances Australia's tax reporting requirements to help ensure sellers are meeting their tax obligations and help ensure a level playing field with similar activities undertaken elsewhere in the economy. • Consistent with the Government's Regulation Impact Statement requirements, the Taskforce Final Report has been certified by the Department of the Treasury as meeting the requirements of a Regulation Impact Statement. • The reforms are expected to result in an overall compliance cost to business, arising from changes to platforms' systems to collect and report the required information. • The executive summary of the report and relevant chapter in relation to the sharing economy reporting regime are attached at the end of this explanatory memorandum. Human rights implications Schedule 2 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights -- Chapter 6. Compliance cost impact Minimal. Schedule 3 - Removing the self-education expenses threshold Outline Schedule 3 to the Bill removes the $250 non-deductible threshold for work-related self-education expenses by repealing section 82A of the ITAA 1936. 3

General outline and financial impact Removing the $250 non-deductible threshold reduces compliance costs for individuals claiming self-education expense deductions and simplifies the tax return process. Date of effect The amendments made by Schedule 3 to the Bill commence on the first 1 January, 1 April, 1 July, or 1 October to occur after the day the Bill receives Royal Assent. The amendments to the ITAA 1936 and ITAA 1997 apply to assessments for the 2022-23 income year and later income years. The amendments to the FBTAA 1986 apply to the FBT year starting on 1 April 2023 and to later FBT years. Proposal announced Schedule 3 to the Bill fully implements the measure Reducing compliance costs for individuals claiming self-education expense deductions from the 2021-22 Budget. Financial impact Schedule 3 to the Bill is estimated to have a negligible impact on receipts over the forward estimates period: 2020-21 2021-22 2022-23 2023-24 2024-25 - - - .. .. - Nil .. Not zero, but rounded to zero Human rights implications Schedule 3 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter 6. Compliance cost impact Schedule 3 to the Bill is expected to reduce compliance costs for individuals claiming self-education expense deductions. 4

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Schedule 4 - Increased Tribunal powers for small business tax decisions Outline Schedule 4 to the Bill amends the TAA 1953 to enable small business entities to apply to the Small Business Taxation Division of the AAT for an order staying, or otherwise affecting, the operation or implementation of decisions of the Commissioner that are being reviewed by the AAT. Date of effect Applications for review made on or after the day after Royal Assent. Proposal announced Schedule 4 to the Bill fully implements the measure Increased powers for the Administrative Appeals Tribunal in relation to small business taxation decisions from the 2021 - 22 Budget. Financial impact It is estimated that the proposal will have a small but unquantifiable cost to cash receipts. Human rights implications Schedule 4 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter 6. Compliance cost impact This measure is estimated to have a minor impact on compliance costs. 5

General outline and financial impact Schedule 5 - Expanding eligibility for downsizer contributions Outline Schedule 5 to the Bill amends the ITAA 1997 to allow individuals aged 55 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their main residence. Date of effect The amendments made by Schedule 5 to the Bill commence on the first 1 January, 1 April, 1 July, or 1 October to occur after the day the Bill receives Royal Assent and will apply to downsizer contributions made on or after the commencement of this Schedule. Proposal announced Schedule 5 to the Bill partially implements the Helping homeowners who want to downsize commitment announced by the Government on 15 May 2022 during the 2022 Federal Election. Financial impact Schedule 5 to the Bill is estimated to decrease receipts by $20.0 million over the forward estimates. 2021-22 2022-23 2023-24 2024-25 2025-26 - .. .. -10.0 -10.0 - Nil .. Not zero, but rounded to zero Human rights implications Schedule 5 to the Bill raises human rights issues. See Statement of Compatibility with Human Rights -- Chapter 6. Compliance cost impact This measure is estimated to have a low impact on compliance costs. 6

Assisting businesses to meet their record-keeping obligations Table of Contents: Outline of chapter .................................................................................. 7 Context of amendments ......................................................................... 8 Record-keeping ............................................................................... 8 The Taskforce ................................................................................. 8 Summary of new law.............................................................................. 9 Comparison of key features of new law and current law ...................... 10 Detailed explanation of new law .......................................................... 10 Tax-records education direction .................................................... 10 Recipients of the tax-records education direction .......................... 11 Circumstances when a tax-records education direction may be given.............................................................................................. 12 Consequences of not complying with the tax-records education direction......................................................................................... 13 Administration of the tax-records education direction .................... 14 Consequential amendments ................................................................ 15 Application and transitional provisions ................................................. 15 Outline of chapter 1.1 Schedule 1 to the Bill amends Schedule 1 to the TAA 1953 to empower the Commissioner to direct an entity to complete an approved record-keeping course where the Commissioner reasonably believes the entity has failed to comply with its tax-related record keeping obligations as an alternative to existing financial penalties. 7

Assisting businesses to meet their record-keeping obligations Context of amendments Record-keeping 1.2 In the normal course of carrying on a business, entities are required to keep and retain records of the transactions they enter into. The scope of these record keeping obligations depends on the nature, size, and the structure of a business. 1.3 These record-keeping obligations span across different Commonwealth taxation laws. In general, the record-keeping provisions under taxation law require entities carrying on a business or subject to indirect tax obligations to keep records that record and explain transactions, and other acts related to their tax affairs; which enable their tax liability to be readily ascertained. These records must be in English or must be readily accessible and easily convertible into English. 1.4 Generally, these records must be kept for 5 years after they are prepared or obtained, or 5 years after the completion of the transaction or acts to which they relate to (whichever is later). 1.5 Currently, where an entity is required to keep or retain records under a taxation law and fails to keep or retain records in the manner required by that law, they will be liable to an administrative penalty under section 288-25 in Schedule 1 to the TAA 1953. However, this administrative penalty does not apply to record-keeping obligations under certain taxation laws: • Part X of the FBTAA 1986 - includes record-keeping obligations related to retention of statutory evidentiary documents; and • Division 900 of the ITAA 1997 - includes record-keeping obligations related to keeping and retaining documents required to substantiate expenses. 1.6 Under section 298-20 in Schedule 1 to the TAA 1953, the Commissioner may remit all or part of an administrative penalty including record keeping penalties imposed by section 288-25 in Schedule 1 to the TAA 1953. The Taskforce 1.7 The Taskforce was established in 2016 to develop a policy response to combat the shadow economy in Australia, recognising that these issues cannot be tackled by traditional law enforcement measures alone. 1.8 The Taskforce's Final Report found that some entities carrying on businesses have difficulty complying with their record-keeping obligations. This results in omitted income being added to the shadow economy. The Taskforce's Final Report recommended that the requirements for tax-related record-keeping 8

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 obligations should be clear and simple for entities carrying on businesses, and penalties for breaches of these rules should be designed so that the ATO has a range of administrative sanctions available at its discretion. 1.9 In response to the Taskforce's Report, it was agreed that the requirements for tax record-keeping should be clear and simple, and that entities carrying on businesses should adhere to strong record-keeping practices. The measure Black Economy - assisting businesses to meet their reporting obligations was announced in the 2019-20 MYEFO. Summary of new law 1.10 The amendments empower the Commissioner to issue a tax-records education direction requiring an entity to complete an approved record-keeping course where the Commissioner reasonably believes that there has been a failure to comply with one or more specified record-keeping obligations under a taxation law. 1.11 The tax-records education direction seeks to directly address the knowledge gaps and reduce cases of non-compliance with record keeping obligations by helping entities better understand their tax-related record-keeping obligations. 1.12 The key features of the tax-records education direction are as follows: • The Commissioner can issue a direction to an entity if the Commissioner reasonably believes the entity has failed to comply with one or more of its record-keeping obligations under a taxation law, excluding certain exempt obligations. • An entity that has received a tax-records education direction must complete or arrange for an appropriate person to complete the approved course of education and provide proof of completion to the Commissioner. • The tax-records education direction operates as an alternative to the administrative penalties that apply where an entity has failed to meet its record-keeping obligations under a taxation law. • If the entity complies with the tax-records education direction, they will not be liable to the administrative penalty for failing to meet their record-keeping obligations. • If the entity does not comply with the requirements of a tax-records education direction, they will be liable to the original administrative penalty. • The Commissioner may only issue a direction to an entity which the Commissioner reasonably believes is not disengaged or deliberately avoiding their record-keeping obligations. 9

Assisting businesses to meet their record-keeping obligations Comparison of key features of new law and current law Table 1.1 Comparison of new law and current law New law Current law An entity is generally liable to an An entity is liable to an administrative administrative penalty where it fails to penalty where it fails to comply with its comply with its record-keeping obligations record-keeping obligations under a taxation under a taxation law. As an alternative to law. the administrative penalty, the Commissioner may direct an entity (including an individual operating as a sole trader) to undertake an approved record- keeping course where the Commissioner reasonably believes that entity has failed to comply with its record-keeping obligations under a taxation law. Detailed explanation of new law 1.13 The tax-records education direction will be implemented as part of the existing education direction framework as set out in Division 384 in Schedule 1 to the TAA 1953. Tax-records education direction 1.14 The Commissioner may issue a tax-records education direction to an entity if the Commissioner reasonably believes that the entity has failed to comply with one or more of its record-keeping obligations under a taxation law as an alternative to an administrative penalty. The tax-records education direction requires the recipient to undertake (or arrange for an appropriate person within the entity to undertake) an approved course of education specified by the Commissioner and provide the Commissioner with evidence of completion of the course. [Schedule 1, items 9 and 16, section 384-12 in Schedule 1 to the TAA 1953, and definition of 'tax-records education direction' in section 995-1(1) of the ITAA 1997] 1.15 An entity's failure to keep appropriate records can occur for a variety of reasons including unintentional mistakes, knowledge gaps, or variations in levels of digital literacy. The purpose of the tax-records education direction is 10

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 to address these knowledge gaps and reduce cases of non-compliance through the use of an approved course of education which will help entities better understand their tax-related record-keeping obligations. 1.16 The tax-records education direction will operate as an alternative to the existing administrative penalty that applies where an entity has failed to meet its record-keeping obligations under a taxation law. This supports the recommendation outlined in the Taskforce's Report for the ATO to have a range of administrative sanctions at its discretion. [Schedule 1, items 1 and 2, section 288-25(2)(c) in Schedule 1 to the TAA 1953] 1.17 This means where an entity undertakes or, if the entity is not an individual, arranges for a person involved in the significant decision-making processes of the entity to undertake, the approved course of education and provides evidence of completion of the course to the Commissioner, the entity will not be liable to pay the administrative penalty under section 288-25 in Schedule 1 to the TAA 1953. 1.18 In this way, the tax-records education direction provides an alternative for the entity that allows the entity to avoid administrative penalties. The administrative penalty will not apply if the approved course of education is completed before the end of the specified period and if evidence of completion is provided to the Commissioner. This will encourage entities to undertake the education course and gain a better understanding of their record keeping obligations. Recipients of the tax-records education direction 1.19 The tax-records education direction is intended to address the knowledge gaps and reduce cases of non-compliance by helping entities better understand their tax-related record-keeping obligations. It is expected that the tax-records education direction will principally be exercised in the context of entities carrying on a business, and in particular small business entities. 1.20 As such, the Commissioner may issue the tax-records education direction to an entity that is carrying on a business. For example, the tax records education direction may be issued to a sole trader where the Commissioner reasonably believes the sole trader has failed to comply with one or more of its record-keeping obligations under a taxation law. 1.21 As an entity other than an individual cannot complete the course of education, the law requires that an individual undertakes the course of education. In the case of a sole trader, the individual acting as the sole trader should complete the course of education. In all other cases, the entity must ensure an individual who makes or participates in making decisions that affect the whole or a substantial part of their activities undertakes the approved course of education. [Schedule 1, item 10, section 384-15 in Schedule 1 to the TAA 1953] 11

Assisting businesses to meet their record-keeping obligations 1.22 The tax-records education direction is not available to entities that are disengaged from the tax system or those who deliberately avoid their record keeping obligations under a taxation law. As the purpose of the tax-records education direction is to facilitate a better understanding of record keeping obligations, financial penalties and, in cases of serious non-compliance, other criminal sanctions, are the appropriate penalty for those disengaged from the tax system or those that deliberately avoid their record keeping obligations. [Schedule 1, item 9, section 384-12(2) in Schedule 1 to the TAA 1953] 1.23 However, the Commissioner will issue a tax-records education direction to an entity where the Commissioner reasonably believes that the entity has made a reasonable and genuine attempt to comply with, or believed they were complying with their record-keeping obligations. Circumstances when a tax-records education direction may be given 1.24 The tax-records education direction can be given where an entity has failed to comply with one or more of its record-keeping obligations under a taxation law, with some exclusions. The education direction will specify these record keeping failures and the time or period of the failure. [Schedule 1, item 9, section 384-12(1) in Schedule 1 to the TAA 1953] 1.25 The tax-records education direction cannot be issued for record-keeping obligations under a taxation law where non-compliance with those obligations is excluded from giving rise to an administrative penalty under section 288-25 in Schedule 1 to the TAA 1953 (see above). [Schedule 1, item 9, section 384-12(1) in Schedule 1 to the TAA 1953] 1.26 Specifically, a tax-records education direction cannot be issued in relation to a failure to comply with a record-keeping obligation under: • Part X of the FBTAA 1986; or • Division 900 of the ITAA 1997. 1.27 As these record-keeping obligations do not give rise to an administrative penalty, the tax-records education direction cannot be used as an alternative to the administrative penalty in this instance. 1.28 Further, the tax-records education direction cannot be issued to an entity that has failed to comply with its record-keeping obligations under the Superannuation Guarantee (Administration) Act 1992. This is because a failure to comply with an obligation to keep records under that Act is separately covered by the superannuation guarantee education direction. [Schedule 1, items 9 and 16, section 384-12(1) in Schedule 1 to the TAA 1953, and definition of 'superannuation guarantee education direction' in section 995-1(1) of the ITAA 1997] 12

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 1.29 The superannuation guarantee education direction is centred on broader compliance with an employer's obligations under the Superannuation Guarantee (Administration) Act 1992. It also has different requirements to the tax-records education direction. A key distinguishing feature of the superannuation guarantee education direction is that a failure to comply with superannuation guarantee education direction is an absolute liability offence under section 8C of the TAA 1953. Further, a failure to comply with the superannuation guarantee education direction results in an administrative liability of 5 penalty units. 1.30 Conversely, a failure to comply with the tax-records education direction does not constitute an offence under section 8C of the TAA 1953. Rather, where an entity fails to comply with the requirements of a tax-records education direction, they will be liable to the original administrative penalty set out in section 288-25 in Schedule 1 to the TAA 1953 (see below). That is, there are no additional penalties applied if an entity does not comply with a tax-records education direction. 1.31 As the tax-records and the superannuation guarantee education directions have different requirements, it is appropriate for them to operate separately. As such, Schedule 1 to the Bill makes minor amendments to Division 384 in Schedule 1 to the TAA 1953 to effectively separate these education directions. [Schedule 1, items 4, 5, 6, 7 and 8, section 384-10 in Schedule 1 to the TAA 1953] 1.32 Schedule 1 to the Bill does not amend the existing operation of the superannuation guarantee education direction. Particularly, it does not amend how consequences for the failure to comply with the superannuation guarantee education direction operate and are treated under section 8C of the TAA 1953. These compliance provisions are now set out in section 384-17 in Schedule 1 to the TAA 1953. [Schedule 1, item 10, section 384-17 in Schedule 1 to the TAA 1953] Consequences of not complying with the tax-records education direction 1.33 The entity that is given a tax-records education direction must complete or arrange for the completion of the approved course of education before the end of the specified period as set out in the written direction. Further, the entity must provide the Commissioner with evidence of completion of the course. [Schedule 1, item 10, section 384-15(3) in Schedule 1 to the TAA 1953] 1.34 If an entity fails to comply with these requirements of the tax-records education direction, they will be liable to the original administrative penalty as set out in section 288-25 in Schedule 1 to the TAA 1953. [Schedule 1, items 1 and 2, section 288-25(2)(c) in Schedule 1 to the TAA 1953] 13

Assisting businesses to meet their record-keeping obligations 1.35 This approach ensures that the tax-records education direction operates as an alternative to the administrative penalty and entities are encouraged to comply with the requirements of the tax-records education direction, without being further penalised if they choose not to undertake the course. This ensures that entities are encouraged to comply with the requirements of the tax-records education direction - which will help them better understand their record-keeping obligations, and by extension assist them with accurately reporting their tax-related liabilities. Administration of the tax-records education direction 1.36 A tax-records education direction given by the Commissioner will not be a legislative instrument within the meaning of section 8 of the Legislation Act 2003. 1.37 Insofar as the tax-records education direction is intended to assist entities meet their record-keeping obligations, they are not intended to determine or alter the law and is therefore not of a legislative character. Further, this approach is consistent with the existing education direction framework administered as set out in Division 384 in Schedule 1 to the TAA 1953 where such directions are not legislative instruments either. 1.38 The tax-records education direction will be implemented through and administered in accordance with the existing operational rules that are set out in Division 384 in Schedule 1 to the TAA 1953. This includes operational rules related to: • approval of courses of education; • variation or revocation of an education direction on Commissioner's own initiative; • variation of an education direction on a recipient's request; and • a recipient's objection rights to an education direction. [Schedule 1, items 11, 12, 13, 14, and 15, sections 384-20(1), 384-30, 384-25(1) and (7), and 384-40(a) in Schedule 1 to the TAA 1953] 1.39 As such, this means that a recipient of the tax-records education direction can object to the Commissioner's decision to issue a direction, vary a direction, or refuse to vary a direction on the recipient's request by making a request in accordance with Part IVC of the TAA 1953. [Schedule 1, item 15, section 384-40(a) in Schedule 1 to the TAA 1953] 1.40 The Commissioner's decision to issue or vary a tax-records education direction will be exempt from the operation of the Administrative Decisions (Judicial Review) Act 1977. This approach is consistent with how the Commissioner's decision to issue or vary superannuation guarantee education direction is treated under the Administrative Decisions (Judicial Review) Act 1997. This is 14

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 appropriate as entities are provided with full review rights under Part IVC of the TAA 1953 which is a well-established and comprehensive review scheme for taxation decisions. Part IVC review is equally as accessible and effective as review under the Administrative Decisions (Judicial Review) Act 1977. Consequential amendments 1.41 Part 2 of Schedule 1 to the Bill makes minor consequential amendments to the TAA 1953 to reflect that the compliance provisions with respect to superannuation guarantee education direction are now set out in section 384-17 in Schedule 1 to the TAA 1953. [Schedule 1, items 17 and 18, section 8C(1)(fa) of the TAA 1953, and section 298-5(c) in Schedule 1 to the TAA 1953] Application and transitional provisions 1.42 The Commissioner will be able to issue a tax-records education direction to an entity three months after the day the Bill receives Royal Assent. [Schedule 1, item 19] 1.43 The amendments apply to failures to comply with record-keeping obligations under a taxation law that occur both before and after the Bill receives Royal Assent. 1.44 Providing the Commissioner with the ability to issue a tax-records education direction in relation to breaches of record keeping obligations that occurred before the commencement of the Bill is appropriate and wholly beneficial to businesses. This is because the amendments will allow entities to choose to complete the approved record-keeping education course as an alternative to paying the financial administrative penalties if they wish. 1.45 The transitional provision ensures that an education direction given in relation to a failure to comply with an obligation to keep records under the Superannuation Guarantee (Administration) Act 1992, before the commencement of Schedule 1 to the Bill, will continue in force (and will be dealt with) as if it had been given under the requirements of superannuation guarantee education direction, as amended by Part 1 of this Schedule. [Schedule 1, item 20] 15

Sharing economy reporting regime Table of Contents: Outline of chapter ................................................................................ 17 Context of amendments ....................................................................... 17 The sharing economy and tax ....................................................... 17 The Taskforce ............................................................................... 18 The Taxable Payments Reporting System .................................... 19 Summary of new law............................................................................ 19 Comparison of key features of new law and current law ...................... 20 Detailed explanation of new law .......................................................... 20 Commencement, application, and transitional provisions .................... 23 Outline of chapter 2.1 Schedule 2 to the Bill amends Schedule 1 to the TAA 1953 to require electronic platform operators to provide information on transactions made through their platforms to the ATO. This measure implements a recommendation of the report of the Taskforce. 2.2 All legislative references in this Chapter are to Schedule 1 to the TAA 1953 unless otherwise stated. Context of amendments The sharing economy and tax 2.3 The Australian economy has fundamentally changed in recent decades. Traditional employment models have shifted in favour of more flexible options including contracting, self-employment and use of labour hire. Consumers are increasingly paying to 'use' rather than 'own' assets, creating new income opportunities for the owners of assets. These two trends have led to the 17

Sharing economy reporting regime emergence of the sharing economy, also sometimes known as the gig economy. 2.4 There is no universally accepted definition of the term 'sharing economy'. The sharing economy involves two parties entering into an agreement for one to provide services and/or loan personal assets to the other, for a payment. Traditionally this kind of activity would occur between related parties and take place informally. The internet has helped to formalise this activity and created opportunities for parties to earn a regular income through these activities by making it easier for otherwise unrelated parties to identify one another and to facilitate these types of transactions. Many of these types of transactions are now facilitated through an electronic platform. 2.5 Australia's sharing economy continues to grow and develop at a significant pace. However, this growth has resulted in a transparency gap because tax reporting systems currently do not adequately capture information about transactions in this part of the economy. This creates the risk of sellers not paying the right amount of tax. Lack of knowledge and understanding about tax and associated obligations, recent formalisation of this income generating work, the electronic platform-seller relationship, and lax record keeping contribute to this problem. 2.6 On the other hand, non-compliance can also be deliberate. In this case it allows the shadow economy to thrive. Poor tax compliance, whether deliberate or unintentional, provides an unfair advantage against those who undertake similar activities in the economy and comply with their tax obligations, leading to an uneven playing field. The Taskforce 2.7 The Taskforce was established in 2016 to develop an innovative, forward-looking, multi-pronged policy response to combat the shadow economy in Australia, recognising that these issues cannot be tackled by traditional law enforcement measures alone. 2.8 To combat the tax compliance risks posed by the sharing economy, the Taskforce's final report recommended that a compulsory reporting regime be implemented. A regime where the operators of electronic platforms are required to report payments made to their users, to the ATO and other government agencies as appropriate. 2.9 The Taskforce's Final Report found that without a reporting regime in place, it would be difficult for the ATO to gain information on compliance of sharing economy participants unless targeted audits were used. It found that formalising reporting requirements would also send a clear signal to sharing economy participants that in most cases payments would be taxable. It also found that this would align Australia with international best practice, as working with sharing economy electronic platforms operating across multiple 18

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 jurisdictions to bring them into domestic tax and regulatory frameworks was identified as a matter of international cooperation. 2.10 In response to the Taskforce's Final Report, the Government agreed to implement measures to ensure the integrity of the tax system, including introducing a third-party reporting regime requiring electronic platforms to report information to the ATO for data-matching purposes. The measure Black Economy - introducing a sharing economy reporting regime was included in the 2019-20 MYEFO. Legislation was before the 46th Parliament which lapsed when Parliament was prorogued in April 2022. 2.11 The Government agreed to reintroduce this Bill, with deferred commencement date as outlined above (see date of effect). The Taxable Payments Reporting System 2.12 The sharing economy reporting regime will be implemented by applying the TPRS to certain transactions undertaken through electronic platforms. 2.13 The TPRS is located in Subdivision 396-B and is a data matching framework that requires entities to report information about certain transactions to the ATO. The TPRS covers transactions in the building and construction industry, supplies of cleaning, security or surveillance services, supplies of information technology services and other transactions outlined in the table in section 396-55. 2.14 The information provided to the ATO under the TPRS helps identify entities that may not be meeting their tax obligations. Summary of new law 2.15 Schedule 2 to the Bill makes amendments to Subdivision 396-B so that the TPRS applies to certain transactions made through an electronic platform. The operators of electronic platforms will be required to report these transactions to the ATO. 2.16 Generally, if an electronic platform facilitates a supply that is connected to Australia for consideration between two entities, then the operator of the platform is required to report information about the transaction to the ATO. The requirement will not apply if the transaction only relates to a supply of goods where ownership of the goods is permanently changed, where title to real property is transferred, or the supply is a financial supply. The requirement will also not apply if the transaction occurs between entities that are members within the same consolidated or MEC group. Platforms will also not be required to report transactions subject to a withholding obligation under Division 12. 19

Sharing economy reporting regime Comparison of key features of new law and current law Table 2.1 Comparison of new law and current law New law Current law Entities that operate electronic distribution No equivalent. platforms are required to report details about transactions relating to supplies made through those platforms, to the ATO. Detailed explanation of new law Entities required to report 2.17 The amendments require an entity that is the operator of an electronic distribution platform to report information to the Commissioner about certain transactions that are made through that platform. [Schedule 2, item 1, item 15 in the table in section 396-55 in Schedule 1 to the TAA 1953] 2.18 For the purposes of the reporting regime, an electronic distribution platform is defined by section 84-70 of the GST Act, disregarding paragraph 84-70(1)(c) of that Act. 2.19 This means that an electronic distribution platform is a service delivered by means of electronic communication (defined by the Electronic Communications Act 1999). It includes platforms operating over the internet; including through applications, websites, or other software. 2.20 To meet the definition of an electronic distribution platform, a platform must allow entities to make supplies available to an end-user consumer through the platform. A service is not considered an electronic distribution platform if it only advertises or creates awareness of possible supplies, operates as a payment platform, or serves a communications function. 2.21 The definition of an electronic distribution platform for the purposes of the sharing economy reporting regime carves out paragraph 84-70(1)(c) of the definition in the GST Act. This paragraph is carved out as if it applied in this context it could have the effect of removing an entity (that would otherwise be an electronic distribution platform) from the regime if that entity supplies any inbound intangible consumer supplies and none of those supplies are made by means of electronic communications. The reporting regime is intended to apply to a wide range of entities and therefore the definition of an electronic 20

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 distribution platform for this purpose carves out an otherwise limiting factor that could inadvertently narrow the definition in certain contexts. 2.22 An electronic distribution platform can facilitate a transaction between two otherwise unrelated parties in the sharing economy. These platforms, at the most basic level, play the role of an intermediary between the buyer and the seller. At a more complex level, the platform operator can manage and mitigate the inherent risk in the transaction for the buyer and the seller, play a quality assurance role, and ensure a seamless experience for the buyer and seller. In some cases, the platform will also process the payment, however a platform will still meet the definition of an electronic distribution platform if it uses a third-party payment services provider for processing payments made in connection with the platform. In most cases, there is no employer-employee relationship between the seller and the platform operator. Transactions that are required to be reported 2.23 Generally, the amendments require transactions to be reported to the Commissioner if they involve the provision of consideration (within the meaning of the GST Act) by a buyer to a seller for a supply made through the platform by the seller. [Schedule 2 item 1, item 15 in the table in section 396-55 in Schedule 1 to the TAA 1953] 2.24 Consideration includes any payment, act or forbearance that is connected to a supply (see section 9-15 of the GST Act). In the sharing economy platform context, consideration will usually be in the form of a monetary payment made to the seller via the platform. 2.25 A supply includes a supply of goods, services, real property, or advice and information (see section 9-10 of the GST Act). Transactions that only involve the sale of goods or real property (the transfer of legal title to the goods or real property) or financial supplies are specifically excluded by the reporting regime. Transactions that involve the rental of goods or real property that are made through an electronic distribution platform are captured by the reporting regime. 2.26 The supply must be a supply connected to the indirect tax zone to be covered by the reporting regime. For the purposes of the reporting regime, the meaning of indirect tax zone includes Australia's external territories. 2.27 Among other examples, a supply of goods is connected to the indirect tax zone if, broadly, goods are delivered in, made available in or removed from the indirect tax zone (see subsections 9-25(1) to (3) of the GST Act). A supply of goods is also connected with the indirect tax zone if it is an offshore supply of low value goods to a consumer (see subsection 9-25(3A) of the GST Act). 2.28 Similarly, cases where supplies of things other than goods or real property are connected with the indirect tax zone include where the supply is done in the 21

Sharing economy reporting regime indirect tax zone or the supply is made through an enterprise a supplier carries on in the indirect tax zone, or the supply is made to an Australian consumer (see subsection 9-25(5) of the GST Act). Supplies a non-resident makes through an enterprise it does not carry on in the indirect tax zone are generally not connected with the indirect tax zone if they are made to a GST-registered Australian resident. 2.29 A supply must be made through the platform for the related transaction to be captured within the scope of the TPRS. This ensures that the requirement only applies to a transaction when the platform has a greater level of involvement in the transaction than merely advertising the opportunity, referring the buyer to the seller, or processing a payment. 2.30 Similar to other items in the table in section 396-55, transactions where the seller and the operator of the platform are members of the same consolidated or MEC Group, or where a portion of the consideration has been withheld in accordance with the withholding regime in Division 12, are not required to be reported. In the case of consolidated or MEC Groups, intra-group transactions are generally disregarded for tax purposes. In the case of payments of consideration subject to Division 12 withholding obligations, these payments have existing reporting obligations within the TAA 1953, so there is no need to capture the related transactions through the TPRS. 2.31 Transactions that only involve the supply of goods to a consumer are not captured by this reporting regime. This includes supplies that are composite supplies of goods (where the dominant part of the supply is a supply of goods but the supply includes some other incidental or ancillary elements). The platform will only be required to report details about services provided in relation to those goods if the service was performed through the operator's platform and constituted a separate supply. Reporting transactions 2.32 Operators are required to report information in the approved form to the Commissioner either annually, or at such other times as the Commissioner determines by legislative instrument. Operators must give the report to the Commissioner on or before the 31st day after the reporting period ends, or at another time as the Commissioner determines by legislative instrument (see section 396-55). 2.33 The Commissioner may inform an operator in writing that it is not required to report transactions made through its platform under the third-party reporting regime, or that it is not required to report specified classes of transactions (see subsections 396-70(1) to (3)). An operator who is dissatisfied with a decision of the Commissioner to exercise or not exercise this discretion may object under the procedures set out in Part IVC of the TAA 1953. Merits review is available under Part IVC. Any notice of a decision to exempt an operator generally or for a class of transactions is not a legislative instrument. The 22

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Commissioner may also, by legislative instrument, exempt a class of entity from reporting, either generally or in respect of a specific class of transaction (see subsection 396-70(4)). 2.34 The Commissioner may specify the information required to be reported in the approved form, but all such information must relate to the identification, collection, recovery, or reduction of a possible taxation liability. It is expected that the Commissioner will typically request the identifying information of the seller and the details of their transactions made through the platform. 2.35 The general rules that apply to information that must be reported under Division 396 will apply to the operators of electronic distribution platforms. This means that if an operator has given the Commissioner a report and they subsequently become aware that it contains a material error, they must give the Commissioner an updated report within 28 days of becoming aware of the material error (see section 396-75). A material error includes omitting or misstating information where this would lead to the incorrect calculation of an individual's tax liability. Similarly, if an operator has failed to give a report, or a corrected report, to the Commissioner by the time required, an administrative penalty applies (see subsection 286-75(1)). 2.36 An administrative penalty also applies if a report includes any false or misleading statements (see subsection 284-75(1)). A statement in this case includes submitting information about transactions required to be reported under the TPRS framework in the approved form. However, an administrative penalty will not apply where the operator can show it took reasonable care to ensure the accuracy of the information provided (see subsection 284-75(5)). An operator taking reasonable care must generally give the appropriate serious attention to complying with their obligations under taxation law. The Commissioner has published guidance on how the ATO applies these terms. Commencement, application, and transitional provisions 2.37 The amendments contained in Schedule 2 to the Bill apply from 1 July 2023 for transactions in relation to the supply of taxi travel (within the meaning of the GST Act) and short-term accommodation; and 1 July 2024 for all other transactions. [Schedule 2, item 2] 2.38 The different application dates are warranted because data matching protocols already exist between the ATO and the operators of platforms that commonly facilitate taxi travel (this includes ride sharing services see - Uber B.V. v Federal Commissioner of Taxation [2017] FCA 110) and short-term accommodation transactions. Therefore, these entities do not need a lengthy lead time to ensure compliance. 23

Removing the self- education expenses threshold Table of Contents: Outline of chapter ................................................................................ 25 Context of amendments ....................................................................... 26 Operation of existing law...................................................................... 26 $250 self-education expense threshold ......................................... 26 Self-education expenses and fringe benefits tax ........................... 27 Background to the existing law ............................................................ 27 Summary of new law............................................................................ 28 Detailed explanation of new law .......................................................... 28 Determining the deductibility of self-education expenses .............. 28 Consequential amendments ................................................................ 29 Income Tax Assessment Acts 1936 and 1997 .............................. 29 Fringe Benefits Tax Assessment Act 1986.................................... 29 Commencement, application, and transitional provisions .................... 30 Commencement ............................................................................ 30 Application..................................................................................... 30 Outline of chapter 3.1 Schedule 3 to the Bill removes the $250 non-deductible threshold for work-related self-education expenses by repealing section 82A of the ITAA 1936. 3.2 Removing the $250 non-deductible threshold reduces compliance costs for individuals claiming self-education expense deductions and simplifies the tax return process. 25

Removing the self-education expenses threshold Context of amendments 3.3 In December 2020, Treasury released a discussion paper Education and training expense deductions for individuals. It consulted on allowing individuals to deduct education and training expenses they incur, despite the expense not being related to their current employment. 3.4 The paper also canvassed the removal of the $250 non-deductible self-education expenses threshold. 3.5 Stakeholders unanimously supported the removal of the $250 threshold as it no longer serves its original purpose and adds regulatory costs and complexity for individuals. 3.6 The removal of the $250 work-related self-education expense threshold was included in the 2021-22 Budget. Operation of existing law 3.7 Self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a sufficient connection to the individual's current income-earning activities. A sufficient connection exists if the study enables the individual to maintain or improve required skills or knowledge for their employment or is likely to lead to an increase in the individual's income from their current income-earning activities. $250 self-education expense threshold 3.8 In certain circumstances, section 82A of the ITAA 1936 requires individuals to reduce their claim for self-education expenses by $250. 3.9 Where section 82A of the ITAA 1936 applies, the total allowable deduction for self-education expenses under section 8-1 of the ITAA 1997 cannot be greater than the amount by which the net amount of 'expenses of self-education' exceeds $250. In practice, this means only the excess of the self-education expenses over $250 may be considered for deduction under section 8-1 of the ITAA 1997. 3.10 Section 82A of the ITAA 1936 applies to expenses of self-education necessarily incurred by an individual for or in connection with an organised course of education provided by a school, college or university, on a full or part time basis. 3.11 An individual may have expenses that are not deductible under section 8-1 of the ITAA 1997 that are still considered 'expenses of self-education' for the purpose of the section 82A calculation (e.g., childcare costs related to 26

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 attendance at self-education activities). These self-education expenses count towards (reduce) the $250 threshold but cannot reduce the amount by more than $250. 3.12 'Expenses of self-education' do not include student contribution amounts or amounts in repayment of a debt specified in subsection 82A(2) of the ITAA 1936. These same amounts are also not deductible under the ITAA 1997 (see section 26-20 of the ITAA 1997). Self-education expenses and fringe benefits tax 3.13 Where an employer provides a fringe benefit comprising work-related self-education expenses to an employee, the employer can reduce the taxable value of the fringe benefit by applying the relevant 'otherwise deductible' rule for the fringe benefit in section 19, 24, 37, 44 or 52 of the FBTAA 1986. 3.14 The 'otherwise deductible' rule allows the employer to reduce the taxable value of the fringe benefit by the amount of the income tax deduction the employee would otherwise have been entitled to claim had the employee incurred (and not been reimbursed for) the relevant costs. 3.15 The 'otherwise deductible' rule disregards section 82A of the ITAA 1936 for the purpose of calculating an employee's hypothetical deduction to determine any reduction in the taxable value of the fringe benefit. 3.16 An employee cannot claim a deduction for work-related self-education expenses where their employer pays or reimburses the expense (i.e., provides an expense payment fringe benefit) (see section 51AH of the ITAA 1936). Background to the existing law 3.17 The $250 non-deductible threshold for self-education was introduced in 1975 alongside a concessional tax rebate for expenditure on self-education. As the concessional rebate was $250, the non-deductible threshold was set at $250 to ensure only education expenses above that amount could qualify for a deduction. This approach was designed to prevent individuals from claiming both the tax rebate and a tax deduction for the same expenses. 3.18 The concessional rebate was repealed in 1985 but the $250 non-deductible threshold was retained. As a result, the $250 threshold no longer serves its original purpose of preventing overlapping claims. 27

Removing the self-education expenses threshold Summary of new law 3.19 Schedule 3 to the Bill removes the $250 non-deductible threshold for work- related self-education expenses. Individuals must determine the deductibility of their self-education expenses by reference to section 8-1 of the ITAA 1997, as affected by other general deduction limitations and any relevant specific deductions. Detailed explanation of new law 3.20 Schedule 3 to the Bill removes the $250 non-deductible threshold for self-education expenses. The removal of this threshold reduces compliance costs for individuals calculating their work-related self-education expense deductions. [Schedule 3, item 26, section 82A of the ITAA 1936] Determining the deductibility of self-education expenses 3.21 Following the amendments, individuals continue to determine the deductibility of their self-education expenses by reference to section 8-1 of the ITAA 1997, as affected by other general deduction limitations and any relevant specific deductions. 3.22 Individuals can claim deductions for self-education expenses under section 8-1 of the ITAA 1997 if: • the expense is incurred in gaining or producing assessable income; • the expense is not private, domestic, or capital in nature; and • the deduction is not prevented by a provision of that Act. 3.23 The repeal of section 82A of the ITAA 1936 does not affect the types of self-education expenses that are deductible under section 8-1 or other provisions of the ITAA 1997. For example, the costs of textbooks, stationery, and professional journals (among other expenses) are still deductible, while certain student contributions and debt repayment amounts referred to in section 26-20 of the ITAA 1997 are still not deductible (see paragraph 3.11). This is because, prior to the repeal, the tax law limited the amount (not the type) of deductions that could be claimed for self-education expenses. 3.24 The amendments reduce compliance costs for individuals because they no longer need to reduce their self-education expenses by $250 before claiming a deduction under section 8-1 of the ITAA 1997. In practice, this means 28

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 individuals must continue to maintain records of their deductible self-education expenses. However, they no longer need to keep records of any non-deductible self-education expenses for tax purposes that, prior to the amendments, were first offset against the $250 non-deductible self-education threshold. Example 3.1 Deduction for self-education expenses Anna is a part-time social worker who is undertaking additional training related to her employment. Anna is eligible to deduct expenses associated with her training, including tuition fees and textbooks, which total $5,000 for the income year. Anna has also incurred $150 in non-deductible childcare expenses and $150 in non-deductible travel expenses while attending her training activities. With the repeal of the $250 non-deductible self-education threshold, Anna is able to claim a deduction of $5,000 but does not need to calculate or keep records of her non-deductible expenses to offset the $250 reduction to complete her income tax return. Prior to the repeal of the threshold, Anna was required to reduce the amount of her deduction by $250. As her non-deductible expenses fully offset the $250 reduction, Anna would still have been able to claim a deduction of $5,000 but would also have had to calculate and keep records of her non-deductible expenses for the required period after receiving her assessment. Consequential amendments Income Tax Assessment Acts 1936 and 1997 3.25 Schedule 3 to the Bill repeals references to section 82A and 'of this Act' in other provisions of the ITAA 1936. These references are redundant following the repeal of section 82A of the ITAA 1936. [Schedule 3, items 18 to 25 and 27, paragraphs 21A(3)(b), 26AJ(2)(b), 26AJ(2)(d) and 26AJ(3)(b) and subsection 109CA(5) of the ITAA 1936] 3.26 Schedule 3 to the Bill also repeals references to section 82A in the ITAA 1997 as they are no longer needed. [Schedule 3, items 28 to 32, section 12-5 of the ITAA 1997] Fringe Benefits Tax Assessment Act 1986 3.27 Schedule 3 to the Bill repeals references to section 82A in the FBTAA 1986 as they are no longer needed. [Schedule 3, items 1, 4, 6, 8 to 10, 12, 14, 16, 29

Removing the self-education expenses threshold paragraphs 19(1)(b), 24(1)(b), 24(1)(ba), 37(b), 37(c), 44(1)(b), 44(1)(ba), 52(1)(b) and 52(1)(ba) of the FBTAA 1986] 3.28 Consequently, Schedule 3 to the Bill reinserts a reference to the ITAA 1936 into sections 19, 24, 44 and 52 of the FBTAA 1986 to ensure they continue to refer to deductions otherwise allowable under the ITAA 1936 or 1997. [Schedule 3, items 2, 3, 5, 7, 11, 13, 15, 17, paragraphs 19(1)(b), 19(1)(ba), 24(1)(b), 24(1)(ba), 44(1)(b), 44(1)(ba), 52(1)(b) and 52(1)(ba) of the FBTAA 1986] 3.29 The repeal of the $250 non-deductible self-education expenses threshold does not affect the operation of the 'otherwise deductible' rule in sections 19, 24, 37, 44 and 52 of the FBTAA 1986. Prior to the repeal of section 82A of the ITAA 1936, employers would calculate the amount 'otherwise deductible' by reference to the amount of the deduction allowable to the employee but for that section (see paragraph 3.13). Accordingly, with the repeal of section 82A of the ITAA 1936, the references in the FBTAA 1986 to that section become redundant. Commencement, application, and transitional provisions Commencement 3.30 Schedule 3 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives the Royal Assent. [Clause 2, table item 4] Application 3.31 The amendments to the ITAA 1936 and ITAA 1997 in Schedule 3 to the Bill apply to assessments for the 2022-23 income year and later income years. [Schedule 3, subitem 33(1)] 3.32 The amendments to the FBTAA 1986 in Schedule 3 to the Bill apply to the FBT year starting on 1 April 2023 and to later FBT years. [Schedule 3, subitem 33(2)] 3.33 The amendments to the FBTAA 1986 remove redundant references to section 82A of the ITAA 1936 following the repeal of that section. These amendments apply from the start of the first full FBT year following the application of amendments to the ITAA 1936 and 1997 to prevent unintended practical impacts or compliance costs for employers. 30

Increased Tribunal powers for small business tax decisions Table of Contents: Outline of chapter ................................................................................ 31 Context of amendments ....................................................................... 31 Summary of new law............................................................................ 33 Preserving the integrity of the taxation system .............................. 34 Comparison of key features of new law and current law ...................... 35 Detailed explanation of new law .......................................................... 35 Definition of small business taxation assessment decision ........... 35 Enabling the AAT to make an order under section 41 of the AAT Act in relation to certain taxation decisions.......................................... 35 Modification of section 41 of the AAT Act ...................................... 36 Enabling an order under section 41 of the AAT Act to affect implementation of taxation decisions............................................. 39 Application, and transitional provisions ................................................ 39 Outline of chapter 4.1 Schedule 4 to the Bill amends the TAA 1953 to enable small business entities to apply to the Small Business Taxation Division of the AAT for an order staying, or otherwise affecting, the operation or implementation of certain specified decisions of the Commissioner that are being reviewed by the AAT. Context of amendments 4.2 Section 41 of the AAT Act empowers the AAT to make an order to stay, or otherwise affect, the operation or implementation of a decision under review on request from a party to the proceeding. However, current section 14ZZB of the TAA 1953 relevantly provides that section 41 of the AAT Act does not 31

Increased Tribunal powers for small business tax decisions apply to reviewable objection decisions (within the meaning of section 14ZY of the TAA 1953). 4.3 The current section 14ZZM of the TAA 1953 provides that a pending review of a taxation decision does not affect the decision and any tax may be recovered as if no review were pending. 4.4 The effect of these provisions is that the Commissioner can commence debt recovery action even if the taxpayer is seeking a review of the liability for, or quantum of, the tax debt. Small businesses seeking a review of a relevant decision are not presently able to request the AAT make orders relating to the operation or implementation of the decisions while they are under review (such as making an order preventing the Commissioner from using one or more of the Commissioner's powers to collect the disputed debt). 4.5 While the taxpayer can seek a court order to stay the operation or implementation of the decision, judicial review proceedings are expensive and the consequences for affected taxpayers may be severe, including business wind-up. 4.6 The Commissioner's approach to debt recovery, including factors that are considered in determining what debt recovery actions are taken and when, is outlined in a series of Law Administration Practice Statements that are published by the Commissioner on the ATO's website. 4.7 The Commissioner's published policy (i.e. the Law Administration Practice Statements) with respect to the collection and recovery of disputed debts outlines the various administrative options available to the Commissioner in relation to disputed debts and the factors that are considered when choosing between them. In particular, guidance on high-risk cases states that action may be taken to recover disputed amounts (without limiting other circumstances) where there are reasonable grounds to believe revenue is at risk (for example, funds or assets are being dissipated), or where the objection is considered to be frivolous or without merit. In practice, there are very few cases in which the Commissioner pursues recovery action in relation to a disputed debt.1 4.8 These amendments are not seeking to displace the existing principles underlying the Commissioner's published practice statements, but instead give taxpayers a means by which they can seek merits review of the Commissioner's decisions (including where there is an unreasonable departure from published guidance or there is a disagreement as to the facts). It is for this reason that the provisions restore section 41 in a modified form, with the AAT needing to consider further matters before making an order. This protects the Commonwealth's interests in high-risk cases and prevents the new power being misused as a mechanism to avoid the due payment of genuine tax debts. 1 In the 2018-19 financial year there were under 30 instances where the Commissioner pursued debt recovery action while the debt was under dispute. 32

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Summary of new law 4.9 These amendments will enable the Small Business Taxation Division of the AAT to make an order (including varying or revoking an order that is already in force) under section 41 of the AAT Act in relation to a reviewable objection decision that relates to a small business taxation assessment decision. 4.10 A reviewable objection decision may relate to an aspect, or aspects of a small business taxation decision. The applicant will need to specify the part or parts of the decision in relation to which they seek the order, which must be confined to that part of the decision that falls within scope of a review being undertaken by the AAT. 4.11 If made, such orders could limit or modify actions of the Commissioner, under the Commissioner's discretionary powers, to recover a tax debt, in whole or in part, while the orders are in force. The amendments are not intended to permit orders that will permanently alter the rights and obligations as between the Commissioner and the taxpayer (e.g., orders should not require the Commissioner to defer the time at which a tax debt is or becomes due and payable or to remit general interest charge). The amendments do not affect or alter the powers of the courts in any way. The amendments also do not affect any action the Commissioner is required to take under an Australian law (including a taxation law) or in response to an order by the AAT or a court. 4.12 The amendments also do not affect a taxpayer's existing rights to appeal to the courts and obtain a court order if they are successful. The powers of the courts in restraining the Commissioner's ability to recover an outstanding debt are not affected by these amendments. 4.13 The purpose of the amendments is to provide small business entities with a cheaper, faster and simpler way to pause the effects of a decision to recover a tax debt during merits review of the decision as compared to applying to a court. However, this is balanced by the need to ensure that the tax law applies fairly to all and that taxpayers who do not have a genuine disagreement with their tax debts cannot simply lodge a request for review in order to seek interim relief and avoid the prompt payment of those debts as and when they fall due. Such an approach will unfairly prejudice those small businesses who try to do the right thing and pay their taxes on time. 4.14 In making orders under section 41 of the AAT Act, the AAT will consider the circumstances and progress of the application for review to which the orders will relate. In doing so the circumstances and competing objectives of facilitating the Commissioner's impartial administration of the tax system, and ensuring that undue hardships are not imposed on small businesses until decisions relating to them are final, will likely need to be balanced. 4.15 Importantly, these amendments enable the AAT to prevent the Commissioner from exercising powers to give effect to the decision, such as debt recovery and revenue protection powers, only until the AAT concludes its review of 33

Increased Tribunal powers for small business tax decisions (and amends or remakes if necessary) the reviewable objection decision that relates to a small business taxation assessment decision. They do not affect the AAT's ability to review or remake the reviewable objection decision. 4.16 The AAT's approach to remaking any of the Commissioner's decisions in the case of genuine disputes remains unchanged. The AAT will be able to consider the same risk factors and circumstances as the Commissioner and can consider the principles underlying the Law Administration Practice Statements. The amendments do not affect the AAT's powers or scope of possible orders in relation to the Commissioner's decisions it reviews. They only enable the AAT to make orders staying or otherwise affecting the operation or implementation of the decision under review. 4.17 This means that while the reviewable objection decision that relates to a small business taxation assessment decision is under review the AAT will be able to make orders requiring the Commissioner to exercise his or her discretion in relation to debt recovery and revenue protection powers (including for example, directing the Commissioner not to pursue debt recovery of a disputed liability if the taxpayer agrees to pay a specified portion of the liability immediately or agreeing to payment by instalments) in a particular way if the necessary criteria are met. Preserving the integrity of the taxation system 4.18 The amendments provide factors for the AAT to consider before making such orders unless the orders are sought by the Commissioner. These considerations are additional to the considerations already required by section 41 of the AAT Act (such as the interests of any entities who may be affected by the review and whether the Tribunal considers it appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review). 4.19 These additional considerations are intended to maintain the integrity of the tax system by mitigating the risk of applicants using an application for a stay order to frustrate the prompt recovery of genuine tax debts. These considerations are explicitly set out in the legislation to ensure that applicants requesting a stay order understand the additional requirements that must be met before the AAT can make such an order. 4.20 The AAT must consider these matters in the context of both the particular circumstances of the taxpayer whose decision is under review and on the overall taxation system. 4.21 The applicant will need to satisfy the AAT that these additional considerations are satisfied. This requirement is consistent with the general approach of placing burden of proof in taxation matters on applicants seeking relief and placing of the burden on applicants seeking interim relief on the applicant in matters before the AAT. The evidence that the applicant will be expected to 34

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 produce is information within their knowledge or possession, for example, information about the basis of their dispute with the Commissioner, the history of their business, their compliance history, their creditworthiness, as well as their financial position and the impacts of debt recovery on that financial position, such as being deprived of meaningful review rights if the decision goes into effect. The applicant will be given time to prepare the required information. Comparison of key features of new law and current law Table 4.1 Comparison of new law and current law New law Current law Schedule 4 to the Bill amends the TAA The AAT cannot make an order staying or 1953 to enable small business entities to otherwise affecting the operation or apply to the AAT for an order staying, or implementation of a reviewable objection otherwise affecting, the operation or decision. implementation of a decision of the Commissioner that is being reviewed by the AAT. Detailed explanation of new law Definition of small business taxation assessment decision 4.22 Item 1 of Schedule 4 to the Bill inserts 'small business taxation assessment decision' as a new definition in section 14ZQ of the TAA 1953. This new term is used in the amendments in Schedule 4 to the Bill to describe the decisions in relation to which the AAT can make orders under section 41 of the AAT Act. [Schedule 4, item 1, section 14ZQ of TAA 1953] Enabling the AAT to make an order under section 41 of the AAT Act in relation to certain taxation decisions 4.23 Currently, section 14ZZB of the TAA 1953 provides that section 41 of the AAT Act does not apply in relation to any reviewable objection decisions. 35

Increased Tribunal powers for small business tax decisions 4.24 The Bill amends section 14ZZB of the TAA 1953 to apply section 41 of the AAT Act but only in relation to those reviewable objection decisions that relate to small business taxation assessment decisions. However, this application is subject to the modifications to section 41 of the AAT Act. [Schedule 4, item 2, section 14ZZB of TAA 1953] Modification of section 41 of the AAT Act 4.25 Item 3 of Schedule 4 to the Bill modifies the application of section 41 of the AAT Act in relation to reviewable objection decisions that relate to small business taxation assessment decisions. The amendments require the AAT to only make an order under section 41 of the AAT Act if: • the proceeding is in the Small Business Taxation Division of the AAT; and • where the party seeking the order is not the Commissioner, the AAT is satisfied that, when considered in the context of both the particular circumstances of the decision under review and the overall taxation system, the application for review and the request for making the order is not frivolous, vexatious, misconceived, lacking in substance or otherwise intended to unduly impede, prejudice or restrict the proper administration or operation of a taxation law. [Schedule 4, item 3, section 14ZZH of TAA 1953] 4.26 When deciding whether to make an order under section 41 of the AAT Act, the conventional considerations set out in Scott and Australian Securities and Investment Commission [2009] AATA 798 (13 October 2009) will continue to apply. They include: • the prospects of success of the underlying application for review; • the consequence for the applicant of the refusal of a stay (which includes, most obviously, the financial consequences and the impact on business, employees, family, customers, etc); • the public interest; • the consequences for the Respondent in carrying out its functions depending upon whether a stay is granted or not; • whether the application for review will be rendered nugatory if a stay were not granted; and • other matters the AAT considers relevant. 4.27 The public interest consideration encapsulates the interests of creditors as well as the systemic concerns about the orderly operation of government. In cases where the stay has revenue implications - for example, where the AAT is asked to stay a decision to cease paying a benefit - the AAT will consider the 36

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 prospects of recovery in the event the applicant is unsuccessful at the final review; e.g., Re Repatriation Commission and Delkou (1985) 8 ALD 454. 4.28 The additional considerations set out in the TAA 1953 are intended to mitigate the real risks that aggressive taxpayers, such as phoenixing operators, promoters of tax avoidance and evasion schemes, and others without a genuine dispute about an assessed quantum of tax, could use applications to the AAT to frustrate the prompt recovery of genuine tax debts, make such debts practically irrecoverable by delaying recovery action, make the Commissioner a source of relatively cheap financing giving them an unfair advantage over their competitors, or continue trading while insolvent adversely affecting the Commonwealth and other creditors by accruing further debts. The additional considerations balance the objective of allowing small businesses to seek a review of the Commissioner's decisions before being subject to debt recovery actions with potentially severe impacts against the broader objective of ensuring that objections and applications for review are not misused to delay or avoid the payment of taxes as and when they fall due. 4.29 Using the powers given to it by these amendments, the AAT will be able to make orders staying, or otherwise affecting, the operation or implementation of the reviewable objection decisions (or parts of those decisions) that relate to small business taxation assessment decisions for the purpose of securing the effectiveness of the hearings and determination of the application for review. [Section 41 of the AAT Act] 4.30 The notes under section 14ZZH provide examples of the kind of orders that can, and cannot, be made by the AAT. The kind of orders that can be made by the AAT include an order directing the Commissioner to offer payment instalment arrangements, an order directing the Commissioner not to sue in a court to recover a specified amount relating to the reviewable objection decision, and an order directing the Commissioner not to issue one or more written notices to specified third parties who owe or may later owe money to the applicant as a means of recovering liability relating to the reviewable objection decision. 4.31 An order which will materially and permanently alter the underlying decision for review will not be an order staying or otherwise affecting the operation or implementation of such a decision for the purpose of securing the effectiveness of the hearing and determination of the application for review, as required under section 41 of the AAT Act. This is because a material or permanent alteration of the decision for review could materially affect the application for review or render it futile. The amendments are not intended to allow the AAT to require the Commissioner to take an action which will permanently or materially change the decision for review, such as to directing the Commissioner to remit general interest charge on unpaid liabilities or to defer the time at which a tax liability is or becomes due and payable. [Schedule 4, item 3, notes 1 and 2 under subsection 14ZZH(3A)] 37

Increased Tribunal powers for small business tax decisions 4.32 The AAT will not be able to affect the automatic operation of Commonwealth laws, such as the accrual of the general interest charge, or affect the operation of any judicial remedies obtained by the Commissioner (such as warrants or freezing orders). However, the AAT will be able to prevent the Commissioner from taking discretionary actions (both curial and non-curial) such as commencing winding up proceedings, or the issuing of garnishee notices. 4.33 The AAT will not be able to make orders requiring the Commissioner to take actions that are not relevant to securing the effectiveness of the hearing and determination of the application for review (for example requiring the Commissioner to pause the issuing of automatically generated statements of accounts or the usual administrative communications with the taxpayer about general interest charge that is accruing in relation to the disputed debt while it remains unpaid). [Subsection 41(2) of the AAT Act] 4.34 The AAT will not be able to make an order requiring the Commissioner to alter the calculation mechanism or the accrual of general interest charge on debts that are payable (because such actions by the Commissioner will be inconsistent with the law). However, the AAT can direct the Commissioner not to pursue specified debt recovery actions if the taxpayer agrees to pay a specified portion of the liabilities immediately or agrees to provide appropriate security for the payment of those debts. 4.35 Permanently altering the rights and obligations as between the taxpayer and the Commissioner may also have the effect of pre-judging the outcome of the AAT's review of the reviewable objection decision. Requiring the Commissioner to remit general interest charge or to defer a debt's due date will be inconsistent with the intention of both preserving the Commissioner's debt recovery options and averting the business risk to the taxpayer (because if the Commissioner collects the debt, in cases where ultimately the amount is found to not be payable, the taxpayer is effectively unwillingly lending the Commonwealth the disputed amount). 4.36 The amendments do not affect the powers and operation of the courts themselves or access to them. They only allow the AAT to make orders limiting the Commissioner's discretionary actions to seek orders from them in some circumstances. 4.37 In making orders enabled by these amendments, the AAT is expected to specify the particular provisions of the taxation law that enable the Commissioner to exercise discretion in the manner ordered by the AAT. 4.38 The AAT is also expected to refrain from making orders under section 41 where a taxation law provides an alternate remedy in relation to the review of a decision of the Commissioner, such as in relation to the issue of departure prohibition order. The tax law establishes standalone mechanisms for review of those decisions, and it is intended those mechanisms remain the means by which dissatisfied taxpayers seek review of those decisions. 38

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Enabling an order under section 41 of the AAT Act to affect implementation of taxation decisions 4.39 Currently, section 14ZZM provides that a pending review in relation to a taxation decision does not affect the implementation of the decision and any tax may be recovered as if no review were pending. 4.40 Item 5 of Schedule 4 to the Bill provides that in relation to reviewable objection decisions that relate to small business taxation assessment decisions, the operation of section 14ZZM will be subject to orders made under section 41 of the AAT Act (as modified by section 14ZZH of the TAA 1953) in relation to that decision if any such orders are made. This amendment ensures that amendments to section 14ZZB and 14ZZH of the TAA 1953 made by other items operate as intended. [Schedule 4, items 4 and 5, section 14ZZM of TAA 1953] Application, and transitional provisions 4.41 The amendments made by Schedule 4 will apply in relation to applications for review made on or after the commencement of the Schedule. [Schedule 4, item 6] 39

Expanding eligibility for downsizer contributions Table of Contents: Outline of chapter ................................................................................ 41 Context of amendments ....................................................................... 41 Summary of new law............................................................................ 42 Comparison of key features of new law and current law ...................... 42 Detailed explanation of new law .......................................................... 43 Commencement, application, and transitional provisions .................... 43 Outline of chapter 5.1 Schedule 5 to the Bill amends the ITAA 1997 to allow individuals aged 55 and above to make downsizer contributions to their superannuation from the proceeds of selling their main residence. 5.2 All legislative references in this chapter are to the ITAA 1997 unless otherwise indicated. Context of amendments 5.3 The amendments in Schedule 5 to the Bill was announced by the Government during the 2022 Election. The amendments improve the flexibility for more Australians to contribute to their superannuation. 5.4 Downsizer contributions allow individuals who may otherwise be prevented from making contributions into their superannuation, for example, due to their age or contribution cap restrictions, to sell their main residence and make a superannuation contribution based on the proceeds of the sale. 5.5 Prior to the amendments, paragraph 292-102(1)(a) provided that a downsizer contribution can only be made by individuals aged 60 years and above. 5.6 This measure reduces the eligibility age for downsizer contributions from 60 to 55 years of age. This provides greater flexibility for older Australians to 41

Expanding eligibility for downsizer contributions contribute to their superannuation and may encourage individuals to downsize sooner to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families. Summary of new law 5.7 The amendments in Schedule 5 to the Bill reduce the age limit below 60 years of age to allow an individual aged 55 or over to make downsizer contributions to a complying superannuation plan from the proceeds of selling their main residence. Related changes to the contribution acceptance rules 5.8 In conjunction with amendments contained in Schedule 5 to the Bill, changes to the contribution acceptance rules in the Superannuation Industry (Supervision) Regulations 1994 and Retirement Savings Account Regulations 1997 are required. These changes will ensure that downsizer contributions can be accepted by regulated superannuation funds and Retirement Savings Account Institutions for individuals aged 55 and over. 5.9 However, as the changes to the contribution acceptance rules require amendments to regulations, they are being progressed separately to the amendments in Schedule 5 to the Bill. 5.10 The details of the related changes to the contribution acceptance rules will be covered by the explanatory statement that accompanies the amending regulations. Comparison of key features of new law and current law Table 5.1 Comparison of new law and current law New law Current law Individuals aged 55 years or over may Individuals aged 60 years or over may make make downsizer contributions from the downsizer contributions from the proceeds proceeds of the sale of their main residence. of the sale of their main residence. 42

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Detailed explanation of new law 5.11 Prior to the amendments in Schedule 5 to the Bill, paragraph 292-102(1)(a) provides that only an individual aged 60 years or over may be eligible to make a downsizer contribution. 5.12 Schedule 5 to the Bill reduces the eligibility age for making downsizer contributions from 60 to 55 years. [Schedule 5, item 1, paragraph 292-102(1)(a) of the ITAA 1997] 5.13 This means that individuals aged 55 to 59 years who were not previously eligible to make downsizer contributions due to their age are now eligible to make downsizer contributions. 5.14 Contributions should otherwise meet all other criteria that currently apply to downsizer contributions. Commencement, application, and transitional provisions 5.15 The amendments provided by Schedule 5 to the Bill commence on the first day of the first quarter after the day the Bill receives Royal Assent [Clause 2]. 5.16 The amendments apply to downsizer contributions made on or after the commencement of Schedule 5 to the Bill. [Schedule 5, item 2] 5.17 This means that individuals aged 55 to 59 years who were not previously eligible to make downsizer contributions due to their age may now qualify to have sale proceeds from the sale of their main residence applied as downsizer contributions if made on or after the commencement of Schedule 5 to the Bill. Accordingly, the concessional treatment is available on and after the commencement of Schedule 5 to the Bill, if an individual is 55 years of age or older at the time a downsizer contribution is made and the other existing conditions are met. 43

Statement of Compatibility with Human Rights Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Table of Contents: Schedule 1 - Assisting businesses to meet their record-keeping obligations............................................................................................ 46 Overview ....................................................................................... 46 Human rights implications ............................................................. 46 Conclusion .................................................................................... 46 Schedule 2 - Sharing economy reporting regime ................................. 46 Overview ....................................................................................... 46 Human rights implications ............................................................. 47 Conclusion .................................................................................... 47 Schedule 3 - Removing the self-education expenses threshold.......... 48 Overview ....................................................................................... 48 Human rights implications ............................................................. 48 Conclusion .................................................................................... 48 Schedule 4 - Increased Tribunal powers for small business tax decisions ............................................................................................................. 48 Overview ....................................................................................... 48 Human rights implications ............................................................. 49 Conclusion .................................................................................... 49 Schedule 5 - Expanding eligibility for downsizer contributions ............. 49 Overview ....................................................................................... 49 Human rights implications ............................................................. 50 Conclusion .................................................................................... 50 45

Statement of Compatibility with Human Rights Schedule 1 - Assisting businesses to meet their record-keeping obligations Overview 6.1 Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 6.2 Schedule 1 to the Bill amends Schedule 1 to the TAA 1953 to empower the Commissioner to direct an entity to complete an approved record-keeping course where the Commissioner reasonably believes the entity has failed to comply with its tax-related record keeping obligations as an alternative to existing financial penalties. Human rights implications 6.3 Schedule 1 to the Bill does not engage any of the applicable rights or freedoms. Conclusion 6.4 Schedule 1 to the Bill is compatible with human rights as it does not raise any human rights issues. Schedule 2 - Sharing economy reporting regime 6.5 Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Overview 6.6 Schedule 2 to the Bill amends Schedule 1 to the TAA 1953 to require electronic platform operators to provide information on transactions facilitated through the platform to the ATO. This measure implements a recommendation of the report of the Taskforce. 46

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Human rights implications 6.7 The amendments made by Schedule 2 to the Bill engage the prohibition on arbitrary or unlawful interference with privacy contained in Article 17 of the International Covenant on Civil and Political Rights (ICCPR), as operators of electronic platforms will need to provide a range of personal information to the Commissioner about individuals that they collect in the course of their business. 6.8 The obligation for operators to report this information is compatible with the prohibition as it is neither arbitrary nor unlawful. The objective of the requirement to report this information is to ensure that sellers on these electronic platforms are paying the correct amount of tax by gathering information about potential tax liabilities. 6.9 Further, reporting regimes such as this provide more certainty and consistency of treatment for entities than the alternative, where the Commissioner collects information under his or her general information gathering powers on an ad-hoc basis. The information reported by operators would typically be limited to information that they already hold having collected it in the ordinary course of their business. Taxpayer information held by the ATO is subject to strict confidentiality rules that prohibit tax officials from making records or disclosing this information unless a specific legislative exemption rule applies. 6.10 The Commissioner may only require platforms to report information that relates to the identification, collection or recovery of a possible tax related liability as well as the identity of the taxpayer to which the tax related liability may arise. 6.11 The Commissioner retains flexibility to exempt certain entities from the reporting regime, for example to avoid double reporting or where reporting would be impractical. The Commissioner can also vary timeframes for reporting to ensure the compliance burden on operators of platforms is minimal. Conclusion 6.12 The Bill is consistent with Article 17 of the ICCPR on the basis that its engagement of the right to privacy will neither be unlawful nor arbitrary. To this extent, the Bill complies with the provisions, aims and objectives of the ICCPR. 47

Statement of Compatibility with Human Rights Schedule 3 - Removing the self-education expenses threshold 6.13 Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Overview 6.14 Schedule 3 to the Bill reduces the compliance costs for individuals claiming work related self-education expenses by repealing the $250 non-deductible threshold for work-related self-education expenses in section 82A of the ITAA 1936. 6.15 Individuals must determine the deductibility of their self-education expenses by reference to section 8-1 of the ITAA 1997, as affected by other general deduction limitations and any relevant specific deductions. Human rights implications 6.16 Schedule 3 to the Bill does not engage any of the applicable rights or freedoms. Conclusion 6.17 Schedule 3 to the Bill is compatible with human rights as it does not raise any human rights issues. Schedule 4 - Increased Tribunal powers for small business tax decisions Overview 6.18 Schedule 4 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 6.19 Schedule 4 to the Bill amends the TAA 1953 to enable small business entities to apply to the Small Business Taxation Division of the AAT for an order staying, or otherwise affecting, the operation or implementation of decisions of the Commissioner that are being reviewed by the AAT. This will enable the 48

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 AAT to restrain the Commissioner from taking certain discretionary actions to collect disputed debts from small businesses while the relevant reviewable objection decisions in relation to small business taxation assessment decisions are under review. Human rights implications 6.20 Schedule 4 to the Bill does not engage any of the applicable rights or freedoms, including the right to a fair trial and fair hearing rights. 6.21 The amendments enable the AAT to stay, or otherwise affect, the operation or implementation of a small business taxation decision under review if certain criteria are met. They do not affect the rights of small businesses to seek merits or judicial review of a reviewable objection decision, or any of their existing rights under law. 6.22 In addition, the review applicants will be business entities and not individuals because the amendments affect small business taxation assessment decisions only. As human rights do not apply to business entities, this amendment has no human rights implications. Conclusion 6.23 Schedule 4 to the Bill is compatible with human rights as it does not raise any human rights issues. Schedule 5 - Expanding eligibility for downsizer contributions Overview 6.24 Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 6.25 Schedule 5 to the Bill amends the ITAA 1997 to extend access for individuals to make downsizer contributions to their superannuation plan from the proceeds of selling their main residence by reducing the eligibility age from 60 to 55 years. 49

Statement of Compatibility with Human Rights Human rights implications 6.26 Schedule 5 to the Bill positively engages the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights. 6.27 The right to social security requires Australia to, within its maximum available resources, ensure access to a social security scheme that provides a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care, basic shelter and housing, water and sanitation, foodstuffs, and the most basic forms of education. 6.28 Schedule 5 to the Bill improves the right to social security in Australia by expanding access to downsizer contributions to Australians between the ages of 55 and 59, who did not previously have access to the downsizer scheme. Expanding eligibility to make downsizer contributions constitutes a positive interaction with the right to social security because it allows more people to make additional contributions to their superannuation funds. Conclusion 6.29 Schedule 5 to the Bill is compatible with human rights because it positively engages the right to social security. 50

Attachment 1: Extracts from the Final Report of the Taskforce Table of Contents: Executive Summary ............................................................................. 51 What we have learned................................................................... 53 Our strategy .................................................................................. 54 High priority recommendations ...................................................... 56 Institutional legacy ......................................................................... 57 Chapter 6: A reporting architecture for a new economy ....................... 59 Our reporting systems need to be better ....................................... 59 What should a new reporting system look like? ............................ 62 Recommendation 6.2: A sharing economy reporting regime ......... 63 Objective ....................................................................................... 65 Discussion ..................................................................................... 65 Other options considered .............................................................. 67 Stakeholder views ......................................................................... 67 International experience ................................................................ 68 Implementation considerations ...................................................... 68 Executive Summary Following an initial investigation by the Board of Taxation, supported by Treasury and the ATO, the Government (in December 2016) established this Taskforce to develop an innovative, forward-looking and genuinely whole-of-government strategy to combat the black economy. The black economy is a significant, complex and growing economic and social problem. In our opinion, it could have increased in size by up to 50 per cent since 2012. 51

Extracts from the Final Report of the Taskforce The costs it entails are not only financial in nature (lower tax revenues and higher welfare costs), but also societal. The black economy is manifestly unfair, allowing some to play by their own rules and penalising businesses, employees and consumers who do the right thing. Under cover of the black economy, vulnerable workers are exploited, criminal groups flourish and social capital and trust are undermined. The black economy is not standing still, but rapidly shifting and evolving in step with wider economic, technological and social changes. It is a growing problem which, if not dealt with, can develop a dangerous momentum of its own: a 'race-to-the-bottom' which we are already seeing in particular areas. In 2012, the Australian Bureau of Statistics estimated that the black economy equated to 1.5 per cent of GDP, with the illicit drug industry adding a further 0.4 per cent of GDP. This estimate is now outdated. We consider that the black economy could be as large as 3 per cent of GDP (roughly $50 billion) today, given the trends we identify in this Report. A sense of urgency is needed from policymakers, leaving behind business-as-usual approaches from the past. A new strategy and commitment is required: one which addresses underlying causes, not symptoms, while keeping regulatory burdens low; one which goes beyond tax; and one which breaks down agency silos and embraces joint action and the intelligent use of data and analytics. This Taskforce was a genuinely whole-of-government undertaking, bringing together 20 Commonwealth agencies. This agenda has a clear purpose and objective: to make our society both fairer and more equitable by creating a level playing field. To the extent that this yields a revenue dividend, the Government's capacity to fund needed services (or provide tax relief or lower deficits) will be greater. Combatting the black economy is not just a matter for governments. We all need to be part of the solution. We need a new social contract: a renewed commitment from the business community and wider public to fight the black economy. Our hope is that our work, including our public hearings and consultations, has helped start an overdue national conversation. In the time since the Interim Report in March, the Government announced the adoption of two of our key recommendations in the 2017-18 Budget. In late May and throughout June, we conducted a national roadshow, holding public hearings and industry roundtables in every state capital city and the regional centres of Bathurst, Mildura and the Gold Coast. We have received 149 submissions from businesses, unions, community organisations, state and territory governments and members of the public. The Taskforce Chairman has held over 140 bilateral meetings with stakeholder representatives. In August, we released a detailed consultation paper containing over 50 ideas. Perhaps as a result of this review, we have been told by tax and law enforcement authorities that public reporting and enforcement of black economy offences has increased. 52

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 What we have learned Our engagement with the public has deepened our understanding of the black economy, the factors that drive it and, critically, the wider societal damage it causes. We have benefitted enormously from the insights and expertise of our private sector Reference Group and Inter-Departmental Committee of Commonwealth officials. In particular, we have learned the following: • The black economy is more diverse, more complex and influenced by a wider range of factors than we first realised. While the black economy has always been with us, it is constantly changing form and focus as the commercial, economic, technological and social landscape shifts. A decade ago, the sharing economy was in its infancy, phoenixing was not as prominent as it is today, supply chains were under less pressure, Australian Business Number fraud and identity fraud were less of a concern and the criminal face of the black economy was very different. There has been a noticeable increase in white collar crime. • The black economy is an endemic cultural problem. It is supported by values and assumptions that participation in the black economy is a 'victimless crime', that 'everyone does it'. We are seeing it become more entrenched with such views spreading through families and communities including through social media. • The adoption, up-take and spread of new business models in the economy, while a positive development, facilitates black economy activities when our policy and regulatory frameworks fail to keep pace. The shift of contracting into new sectors (including human services), the sharing or gig economy, the expansion of domestic services, the fragmentation and growing complexity of supply chains, the growing sophistication and cross-border nature of criminal activity and financial innovations (including the use of cryptocurrencies) are all cases in point. • That the traditional view which placed the 'cash' and 'black' (or criminal) parts of the problem in different categories, leaving the former to tax authorities and the latter to law enforcement, is outmoded. Modern criminal networks are more sophisticated and business-savvy than ever, pursuing opportunities wherever they arise, including the legal economy. Indeed, this is a factor behind the growth of the black economy in recent years. Criminal activities do not respect the silos of government organisation so any government response needs to be flexible and coordinated. • More regulation is not the answer. Business after business has told us that regulations tie legitimate operators up in complexity and red-tape, while being completely evaded by hardened black economy operators. Our responses must be more intelligent and targeted than this, including employing the smart technologies we are seeing in the private sector. It is not beyond us to reduce red-tape for 'low-risk' businesses while focussing our enforcement efforts on the minority doing the wrong thing. In our consultations, the value of visible enforcement has been a consistent message. 53

Extracts from the Final Report of the Taskforce • The exploitation of vulnerable employees is widespread and may be growing. This manifests itself in the underpayment of labour, the denial of basic conditions and in some cases modern slavery. • There is anger in the community about the unfairness of the black economy. Honest small businesses are sick of being undercut by competitors who have an unfair advantage, whether it is paying cash wages to employees, using illegal migrant workers or engaging in sham contracting. Honest employees suffer as well. While community frustration toward multinational firms has been acknowledged by the policy community, in part because it has a natural focus, the black economy's injustices and unfairnesses, while no less real, lack the same profile. • It is wrong to tar the entire small business community with the black economy brush. The majority of small businesses and tradespeople do the right thing. Equally, we should avoid the temptation to paint consumers and employees as innocent victims in all cases. Some employees, including high-end hospitality staff, will not work for anything other than cash wages. Some consumers demand discounts from tradespeople. This is not to deny, of course, the situation of vulnerable employees in particular, who are, in many cases, subject to mistreatment. Our strategy In this Report, we outline a clear strategy for dealing with the black economy. We recognise that this must: • Address the drivers rather than the symptoms of the black economy. We must focus on incentives, deterrents and measures which will limit opportunities for participation in the black economy across the board. Strengthening identity regimes (for individuals and businesses), transparency (for contractors and sharing economy operators), moving to a near non-cash world, visible enforcement, education and 'hardwiring' government all have a role to play. • Be practical and implementable, while avoiding increasing regulatory burdens, and tailored and targeted. We need to recognise different degrees of culpability: there are many who innocently participate in the black economy (for example, occasionally paying cash for childcare); others deliberately flout the law; and still others find themselves trapped (for example, exploited employees). • Include short-term, urgent measures, addressing the most pressing concerns, but also early actions which provide a foundation for later interventions. We set out an indicative timetable for implementation of our key recommendations. • Our efforts need to be sustained. We need to leave a lasting institutional legacy, to ensure this problem receives the attention it deserves in future years. This will require changes to the machinery of government, but also new patterns of cooperation with the states and territories and other countries. 54

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Our strategy, at the highest level, is to: Move people and businesses out of cash and into the banking system, which makes economic activity more visible, auditable and efficient (Chapter 3 in this Report). Strengthen the identity underpinnings of the banking system by introducing a more reliable, safe and modern individual identity credential (initially for interactions with the Commonwealth Government) and reforming the Australian Business Number system (Chapter 4). Improve agencies' ability to enforce existing laws by promoting better sharing of data and more modern data analytics (Chapter 5). At the same time, closing data gaps by extending our tax reporting systems and promoting more data sharing with state governments (Chapters 6 and 15). Improving Commonwealth agencies' effectiveness by working more closely with other governments (state, local and international) and business organisations, community groups and unions (Chapters 11 and 15). Tackling behaviours directly by strengthening incentives for consumers and small businesses including an amnesty and benefits for small businesses which adopt non-cash business models (Chapters 3 and 7). Supporting this with a dedicated social norms agenda, including education, public awareness and new-business strategies (Chapter 11). Making enforcement more visible, better tailored to the offence and more effective (graduated penalties, greater use of civil law and multi-agency action). Targeting particular problem areas, including phoenixing, sham contracting, visa abuses and vulnerable workers. In the criminal area, adopting a more strategic approach on illegal tobacco and gambling (Chapters 8, 10, 12, 13 and 14) and disrupting the proceeds of crime. Pursuing a new responsible supply chain agenda, which is an emerging integrity issue, in both the public and private sectors (Chapter 9). Disrupt crime and illegality, the sharp end of the black economy, including illegal tobacco and unregulated gambling (Chapters 12, 13 and 14). Institutional changes to strengthen, modernise and better marshal our future efforts on the black economy (Chapter 16). In our Interim Report, we pointed out that, in many areas, relevant work is being done by other reviews. These are looking at the treatment of migrant workers, phoenixing, individual identity, modernisation of business registers, under-payment of superannuation, money laundering and beneficial ownership. We have worked closely with these reviews, contributing ideas to them and seeking their views on matters we have examined. 55

Extracts from the Final Report of the Taskforce Any effective response to the black economy must be genuinely whole-of-government in nature. In addition to tax, it must involve workplace relations, human services, immigration (and home affairs, when that department is established), education, our financial regulatory community and our law enforcement and intelligence communities. We also recognise the transformation the ATO is undergoing and its willingness to embrace new technologies, processes and methods of operation which can better deliver efficient outcomes. This is necessary, as its traditional enforcement and audit approaches are unable to deal, in all cases, with the trends we identify in this Report. We also note that the ATO is significantly bound by resource constraints. High priority recommendations We recommend that consideration be given to the following. 1. A time-limited amnesty with a bias for people in the cash economy rather than those engaged in criminal conduct. This should be followed by an enforcement blitz. 2. Australian Business Number (ABN) integrity reforms. The Government should adopt a number of measures to strengthen the ABN system, including: banning people on certain visas and apprentices from getting ABNs; requiring periodic renewal of ABNs (which would be conditional on meeting tax obligations); and providing for real-time verification of ABNs. 3. Individual identity. To counter the risk of identity fraud, we recommend that the Government introduce a plan that allows individuals to use a digital credential, biometrically secured to an individual's own smartphone or connected device, for people to use in all their interactions with public agencies. Individuals would 'own' this credential, which should not be used to create government databases or to collect individual biometric data. 4. Taxable Payment Reporting System extension. Apply the Taxable Payments Reporting System to additional high-risk sectors, including security contractors, road freight transport, IT contractors, owner-builders and home improvements from 1 July 2018 (reporting to start 1 July 2019). 5. Sharing Economy. A reporting system for sharing or gig economy operators should be put in place. 6. Tougher and more visible enforcement. New and strengthened penalties for phoenixing, ABN fraud, sham contracting and illegal tobacco, making more use of civil law provisions. There should be more high-profile prosecutions, more visible and efficient prosecutions and fewer confidential settlements. 7. Small business incentive. In addition to the current instant asset write-off, small businesses that adopt (or have already adopted) entirely non-cash business models should receive tax instalment timing relief, benefitting their cash-flows. 56

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Further, small businesses that fulfil a set of core compliance activities should benefit from a regulatory safe-harbour, which means they will be treated as low-risk. We also recommend that further downward pressure be put on card interchange fees, which will benefit both small businesses and consumers. 8. Moving to a near cash free economy. A $10,000 economy-wide cash limit should be introduced. 9. Payment of wages into bank accounts to increase transparency. 10. Non-deductibility of undocumented contractor payments and cash wages. 11. Hardwiring government. Better sharing of data across agencies and the application of leading-edge analytics to more effectively enforce existing laws. Further funding for the National Criminal Database. 12. Changing social norms and education. An initial, focussed public awareness campaign designed to raise consumer awareness of the costs and risks associated with the black economy, including the reminder that this is not a victimless crime. Education must also play a role. 13. Commonwealth Procurement. We recommend that the Government limit procurement opportunities to firms with a good tax record. Bidders for contracts over a certain size would obtain a certificate of tax compliance from the ATO and issue a tax transparency report. 14. Tackling illegal tobacco. An enforcement blitz following the passage of the Tobacco Control Act which consolidates offence provisions. Co-locating enforcement officers from a number of Commonwealth agencies and giving them new powers to provide a one-stop shop and single point of accountability with a stronger focus on the retail and distribution parts of the problem. 15. Illegal gambling. Better use of existing enforcement tools and information exchange to disrupt illegal gambling and other actions including blocking offshore websites offering services to Australians and prosecuting providers and participants. 16. Phoenixing. Tougher and better targeted promoter penalties, better early detection and asset clawbacks. Institutional legacy Our Review has highlighted the scope to strengthen, streamline and better focus our institutional arrangements for countering the black economy. At present, we do not have a single policy and strategic home for the black economy within government; no central body examines emerging trends and vulnerabilities from a whole-of-economy perspective. On the operational front, we need to develop our 57

Extracts from the Final Report of the Taskforce capacity to tackle high-value, complex and cross-cutting black economy abuses, including criminal involvement in labour exploitation. Third, there is no obvious focal point for public complaints, concerns and allegations about the black economy. In light of this, we recommend that the Government consider the following: 1. A central agency-led advisory board, including both public and private sector representatives, to monitor trends and risks in the black economy and prepare a five yearly report on these. The board would meet twice a year. It would consider evidence on the overall size of the problem and the factors which may be contributing to its growth (or reduction). The reports would be made public as part of the Intergenerational Report. 2. Establishment of a standing Taskforce (modelled on the Serious Financial Crime Taskforce) to identify, respond to and prosecute serious, complex black economy fraud. The taskforce model, which has proven successful in Australia, brings agencies together for a specific, mutually-agreed purpose, allowing them to 'pool' data, staff, powers and operational capabilities. After consulting with the law enforcement community, we have opted against recommending a new agency (like the United Kingdom's Serious Fraud Office), which could further silo and fragment our efforts. 3. A dedicated program of cooperation with the states and territories. This would focus, in the first instance, on better data sharing, small business red-tape reduction and joint enforcement efforts. While cooperation takes place in some areas, we are a long way short of fully exploiting the variety of tools and resources (licencing, tax information and enforcement) governments, separately, possess. 4. Establishment of a Black Economy Ombudsman's Office and hotline. The Ombudsman would be the public face for this issue and play a proactive role both within government and in the community. The black economy hotline should replace the plethora of existing agency hotlines with the exception of the National Security Hotline. It would triage incoming calls, referring them to the right agency and, where possible, publicly report on follow-up actions taken. 58

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Chapter 6: A reporting architecture for a new economy Our reporting systems need to be better Key Points The bed-rock of any tax system must be reporting arrangements which capture, efficiently and seamlessly, all taxable economic activities. Reporting should not stifle activity and entrepreneurism; just relate the payments that have been made. The STP initiative, which will take effect in 2018, will streamline and improve the transparency of PAYG reporting. In the new economy, labour, goods and services are being delivered in new ways often outside the PAYG reporting net. The sharing economy is one such area. Innovation in business models should be supported, but regulation needs to adapt. Home-based services (such as nannies and dog walking services) and independent contractors are other examples of this. This transparency gap allows the black economy to proliferate, creating an uneven playing field for those (including traditional employees) who are subject to current reporting requirements. A modern, comprehensive and low compliance reporting architecture is a better approach than options like withholding, which introduce greater compliance burdens and substantially affect cash-flows. Withholding should not be ruled out as a last resort for particularly problematic sectors. Observation: Building a hot-house Master Builders Australia informed us that the building and construction industry: • is the second largest in the country, after the financial sector, with revenues of over $300 billion in 2016-17; • accounts for approximately 9.4 per cent of total economic growth (Gross Value Added) on average per year since 1996; • employs more than 1.1 million people; and • includes more business entities than any other industry (approximately 360,000 as at June 2016). They also told us, 'The size and nature of the building and construction industry, as well as the nature of how construction projects are delivered, creates an inherent expansion of circumstances in which opportunities to display avoidance are present. 59

Extracts from the Final Report of the Taskforce This is a risk to the sector, the economy, and Master Builders' members. It is a circumstance where those who do the right thing are undermined and disadvantaged.' The Construction, Forestry, Mining and Energy Union (CFMEU) told us that black economy behaviours like the below have long been a part of the building and construction industry, noting that 'On one view, the construction industry is less a microcosm of, and more a hot-house for, the 'black economy': • Cash-in-hand payments • Non or under-reporting of income • Poor or false records • Phoenixing • Sham contracting • Underpayment and exploitation of workers • ABN fraud and abuse • Using interposed entities to avoid tax CFMEU also noted that 'One of the few measures that appears to have had some impact on cash-in-hand payments and other black economy practices in the construction industry is the introduction of the taxable payments reporting system ... '. The economy is changing ... The face of the Australian economy has fundamentally changed in recent decades. We have seen a shift away from traditional employment towards contracting, self-employment and use of labour hire firms. We have become a more services-based economy, parts of which are dominated by contractors. And in recent years, the so-called sharing economy has risen to prominence and alongside a rise in freelancing. These changes are set to continue. Independent contracting and the sharing economy are attractive to many. They offer flexibility, independence and the prospect of rewards which traditional employment may lack. Contracting is spreading to new parts of the economy, including a range of personal and domestic services.2 Sharing economy platforms have established a foothold. As governments remove or scale back regulatory barriers which limit them, they will continue to grow. Technology, including the rise of labour market matching sites, is giving these changes greater impetus. Observation: Sharing Economy Participants People participate in the sharing economy for a range of reasons. For some, the sharing economy can be a pathway to transition from unemployment and underemployment 2 There are roughly one million independent contractors in Australia: Australian Bureau of Statistics, 6333.0 -- Characteristics of Employment, Australia, August 2016. 60

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 into the full-time workforce. For others, it is a stepping stone from receiving welfare payments to regaining financial independence. Splend provides people with a rental car so they can earn a flexible income with sharing economy platforms such as Uber. Additionally, Splend provides members with ongoing coaching, training and mentoring to ensure they become a successful small business owner. Splend's platform has been supporting people involved in the Government's New Enterprise Incentive Scheme (NEIS) and Job Active Pathways. The flexible working hours of the sharing economy are attractive to a wide range of individuals, including the increasing number of over 40-year-old job seekers who are finding it hard to re-enter the workforce. ... but our tax reporting arrangements are not. Our tax reporting systems are based on the old economy. The PAYG reporting and withholding regime was designed for traditional wage labour and bricks and mortar businesses. While it continues to capture a large proportion of the workforce, its coverage has been falling. In the contracting economy, by contrast, services are delivered outside this reporting net. This transparency gap is not desirable for a number of reasons. It denies the tax authorities basic information which they can use when checking tax returns. Their ability to focus their audit and compliance efforts is limited. When transparency is lacking, some taxpayers will be tempted not to declare or fully disclose their earnings. Indeed, in a self-assessment tax system like ours, the absence of a comprehensive reporting framework poses serious risks. 'Third-party reporting has proven to be an effective measure of ensuring taxpayer compliance with their taxpayer obligations.' The Tax Institute Sham contracting, which we discuss in Chapter 10, becomes more attractive in these circumstances. When employers fail to report wage and salary payments, they are in clear breach of their obligations. At present, few such obligations apply to payments to contractors. Tax reporting arrangements can obviate the need for more stringent responses to tax evasion, including tax withholding. Tax withholding is a reliable way to improve compliance, but imposes compliance costs and adversely affects the payee's cash flows. If applied across the tax paying population, regardless of compliance risk, withholding would be seen by many as excessive. Any tax reporting arrangements must be easy and inexpensive for businesses to comply with. The information asked for must be clear and limited to key data. Where possible, systems should be automated and able to be integrated into business software products. 61

Extracts from the Final Report of the Taskforce What should a new reporting system look like? Australia already has a contractor payment reporting system in place (the TPRS), but it only covers a small number of high-risk sectors. It initially applied only to the building and construction industry, where it has had promising results. In the 2017-18 Budget, the Government announced it would be extended to contractors in the couriers and cleaning industries. Other reporting schemes include third-party reporting for major government entities and reporting of business transactions through payment systems. We think the TPRS should be extended to other high-risk sectors of the economy. Security providers, road freight transport, and IT contractors should be covered, as well as owner-builders and home improvements. Reporting exemptions provided to some public sector agencies should also be removed. Observation: Success of TPRS in the construction industry When TPRS was introduced in the building and construction industry it raised an additional $2.3 billion in tax liabilities in its first year alone (the 2012-13 year).3 • $265 million from outstanding returns being lodged -- 249,000 contractors were found to have outstanding returns • $506 million GST -- a 6.1 per cent increase in net GST from the industry in a single year • $1,128 million PAYGW -- demonstrates significant under-reporting of wages and concomitant underpayment of personal income tax • $357 million pay as you go (PAYG) instalments -- an additional 50,306 taxpayers were identified as payees This will not be the total increase as at the time the ATO report these results there were 76,000 contractors who had not lodged returns for that year, 53,000 who had lodged but TPRS reports indicated they had underreported, and 84,000 contractors without an active GST registration that TPRS reports indicated had received payments likely subject to GST. The ATO notes that while increases cannot be attributed solely to the impact of the TPRS, it is likely that the majority of the increase flows from the introduction of the system, the communication and education program together with acceptance of the system by reporting businesses. As at the time of writing, the ATO was analysing the data in preparation for publishing figures for the 2013-2014 and 2014-2015 years. The additional liabilities for future years are expected to reduce because the first year of operation has an element of 'catching-up' with past years, not least from bringing some people into the system. 3 Australian Taxation Office, Taxable payments reporting -- Effectiveness measurement, May 2015. 62

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 The success of TPRS could be magnified by using the data it generates to identify those contractors who receive all or vast majority of income from a single source, which is an indicator of sham contracting. In our consultations we have been told that TPRS reporting, although only required annually, can be time consuming. Many businesses lodge paper-based forms. The modernisation of the TPRS should emulate the STP initiative, which while still in its early stages, promises benefits for taxpayers (simpler compliance) and the ATO (real-time and more accurate information). We also recommend the adoption of a reporting regime for sharing or gig economy platforms. This could be linked to the TPRS or undertaken on a stand-alone basis or possibly aligned with STP. Any changes to reporting arrangements, including the introduction of new ones, should avoid imposing overlapping burdens on taxpayers. If a firm is already reporting under the TPRS, it should not have to duplicate this under a sharing economy or other reporting initiative. Consideration will need to be given to how duplication can be avoided. We are not recommending the introduction of tax withholding for contractors. However, Governments should not rule out withholding in cases of serious and persistent non-compliance. We also note that overseas experience indicates that withholding systems are more effective than reporting regimes in improving compliance in cash industries.' BDO Observation: Potential high-risk industries Stakeholders told us that non-compliance is a significant problem in other industries including traffic management, nail salons, scaffolding, removalists, car repair, milk bars and car washes. We encourage the ATO to review these industries and if they are found to be high-risk, advise government of options to tackle the problem, including potentially extending reporting to these industries. Recommendation 6.2: A sharing economy reporting regime Operators of designated sharing ('gig') economy websites should be required to report payments made to their users to the ATO, DSS and other government agencies as appropriate. The Government should also continue to raise users' awareness about the potential tax obligations from participation in sharing economy activities. 63

Extracts from the Final Report of the Taskforce Description Reporting income information Operators of sharing economy platforms should be required to submit at least annual data on income received by their users based in Australia to the ATO.4 The information should be comprehensive enough to allow the ATO to match the information to individual taxpayers, that is, it should contain at a minimum the full name of users, address and date of birth. Extending the requirement to ABNs should also be explored (for those who have, or should have ABNs), but the detailed set standard for reporting can be agreed on implementation. The ATO should use this data to pre-fill tax returns. The data should also be available to other agencies such as DSS. We are aware that some platforms already provide information to the ATO, or they withhold and remit PAYG. Additionally, many of these platforms already provide a summary of this data to their participants and the platforms have sophisticated and intelligent data and modelling capabilities that can provide meaningful data to regulators. The options for more regular reporting of such data should be explored; more regular reporting would allow more real-time analysis and use. Whether the sharing economy reporting regime can be incorporated to comply with TPRS obligations, immediately or later, should also be explored. Consideration will need to be given to determine which platforms the scheme should extend to given the variety of business models in use. As a guide, reporting should apply to payments to users who offer their labour as services (rather than goods) and are not classified as employees (in which case other reporting obligations already apply). Difficulties may exist where platforms are a mere matching service without the payment going through the platform itself. Relevant overseas located platforms should be included in the scheme. Where platforms are not participating voluntarily, options may need to be developed to ensure they comply. For example, reporting obligations could be included as a condition for operating in Australia, such as being a condition of obtaining a licence (where applicable), and the Government should work with States and Territories to consider such options. The Government should also work in close cooperation with other countries to find ways to cover global sharing platforms in domestic tax and regulatory frameworks. Internet Service Provider (ISP) level blocking may need to be considered as a final resort for non-compliant platforms. Working with banks to prevent payments to or through non-compliant platforms could also be considered as a final resort for non-compliant platforms. 4 For the purpose of this discussion, sharing economy websites are online services which operate as platforms for the sale or hire of goods/services or operate as a labour market intermediary and, in providing such services, capture the payments or require payments of fees or wages to an individual or entity to pass through an entity controlled by the online service. 64

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Education Users of sharing economy platforms need to be made aware that income earned from participation in the sharing economy is likely taxable income. Their activities could also give rise to capital gains tax obligations, and could impact welfare and other payments. The ATO already provides guidance. However, it is important that sharing economy participants receive information even if they do not look for it, as many may not be aware that even small or intermittent income could be taxable. Operators of sharing economy websites should also be encouraged to highlight the need to consider tax obligations to their users, and refer them to ATO information. Objective • For the ATO and other agencies to receive information on income received by sharing economy users to enhance voluntary compliance and provide data for income information matching, including for social security purposes. • Ensure that sharing economy users are aware of their tax obligations, further driving voluntary compliance. Observation: Labour hire and the sharing or gig economy Some newer models of what could be considered labour hire use the sharing or gig economy model. The labour hire firm operates as an online platform, workers and businesses seeking workers are matched through the platform. The labour hire platform may just match staff to jobs, with the business paying users directly, or may provide users with the business paying the platform. The same platform may operate both models, with it varying between what the business chooses, either generally, or for particular workers. Discussion Problem this recommendation seeks to address The sharing economy has grown strongly over the past few years and platforms have evolved from a place where people could share their existing assets on a casual basis and do some work on the side to a more substantial form of income generating work. '...most existing policy and legislative instruments would have been designed for a world that predominantly traded on physical goods or in-person services relying heavily on paper-based business process ... ' COSBOA 65

Extracts from the Final Report of the Taskforce The number of users is growing strongly, and is supporting a rise in freelancing. Users selling their services through sharing economy platforms may be employees or may be contractors, depending on the particular arrangements for that platform. If they are independent contractors no tax is withheld from the income they generate on the platform, and platforms do not have to report information on payments made to users to the ATO, unless asked to do so under the ATO's information gathering powers, or through voluntary participation by the platform. There is a risk that people selling their services through sharing platforms are not paying the right amount of tax as there is no reporting and withholding and many users may not be aware of or understand their obligations. Lack of knowledge about tax, the novelty of this type of income generating work and platform-user relationship, as well as poor record keeping all contribute to the problem. While there is no reliable data available yet, it may also be the case that some of the non-compliance is deliberate. While payments are electronic, without a reporting regime in place it is difficult for the ATO to gain information on compliance of sharing economy users unless targeted audits are used. Observation: Day in the life of a 'gigger' Spend the morning dog sitting through 'madpaws' app. Spend the afternoon putting furniture together from Airtasker apps. Deliver food in the evening with 2 or 3 food delivery apps (Uber eats, Menulog, Foodora, Deliveroo). Drive for Uber on Friday night when demand is high. Rationale Streamlined reporting and pre-fill of tax returns will reduce individuals' compliance costs and make it easier for sharing economy participants to meet their obligations. It would help individuals by providing them with information on their sharing economy income through the tax return pre-fill service, and allow the ATO (and other agencies through data sharing) to undertake compliance activities. Formalising the reporting requirements would also send a clear signal that income from sharing economy platforms is in most cases taxable income. It would level the playing field between traditional operators and new economy operators. 'As digital technology is adopted across the economy, segmenting the digital economy is increasingly difficult. In other words, because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy.' COSBOA 66

Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Other options considered Sharing economy platforms to withhold tax This option would require sharing economy platforms to deduct income tax from payments made to users and remit this money to the ATO. This would either be topped up or refunded as part of the tax return process. The withholding tax could be at various rates, for example a flat 20 per cent or based on an individuals' prior year income. Applying withholding would substantially reduce non-compliance by sharing economy participants and may raise additional revenue through increased compliance. However, such an approach is relatively onerous and may be criticised as discriminating against transactions which occur on sharing economy platforms. As discussed above, there are various reasons for treating independent contractors differently to employees, and this extends to those sharing economy suppliers who are independent contractors (and not all necessarily are). As discussed above, withholding should be considered as an option if non-compliance remains a problem despite a reporting obligation. Bright-line test for business-hobby distinction In connection with the sharing economy, we also examined whether the hobby-business distinction remains suitable. It was put to us that current test creates a lot of uncertainty and is difficult to apply. After consultations and considering various alternative options for a bright-line test, we came to the view that the current distinction remains appropriate. Overwhelmingly the activity on sharing economy platforms is likely to be business related, with users generally using the platform to generate income, provide services to strangers and undertake regular rather than once-off activities. A bright-line test could also be seen to interfere with the current tax free threshold and rather than simplify compliance, introduce further complexities. A bright line test just for sharing economy activity would also create a distorting disparity between different business operating models. While there may be instances where it could be considered a hobby, there should be a general presumption that sharing economy users are conducting a business, and the current test and guidance are sufficiently clear. A reporting regime, including pre-filling of tax returns, as well as education of sharing economy users will further provide clarity. Stakeholder views Feedback from consultations has overwhelmingly backed applying a reporting regime to sharing economy platforms. A well-known Australian sharing economy platform has told us that they would support a formalised reporting regime and that the suggested data (name, address, DOB) could easily be provided. They, and other similar 67

Extracts from the Final Report of the Taskforce platforms, already collect this information about their users. ABNs could also be supplied. International experience Many other jurisdictions (India, France, Spain, and the USA) require sharing economy websites such as Airbnb to withhold tax, mostly local hotel/accommodation taxes. Uber withholds tax for drivers in Estonia. Working with global sharing economy platforms to bring them into domestic tax and regulatory frameworks has been identified as an important matter for international cooperation. Implementation considerations Overseas platforms will not easily be covered by Australian legislative change. Consideration will have to be given to how they can be compelled to participate if voluntary cooperation is not sufficient. Consideration will also need to be given to determine at what point sharing economy platforms come under this scheme. While this is an issue that applies more broadly if TPRS is implemented across the economy, it may be particularly difficult for businesses in the 'new economy' and the need to avoid imposing large compliance costs on start-ups, and the potential for very rapid change. The recommendation should also be considered in conjunction with our views on contracting, outlined in Chapter 10. These organisations are sophisticated and have significant data holdings which can assist with valuations, intelligence and industry trends. For example, a particular sharing economy operator told us that the ATO income benchmark for taxi drivers in capital cities was 40 per cent below what drivers were actually earning. 68

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