New Government's Tax Reform Agenda
The new Federal Government has made three major tax statements since the September election. Significant tax reforms proposed, abandoned or amended include:
The new government has given priority to repealing the Carbon Tax.
As the Carbon Tax only applies to companies emitting more than 25,000 tonnes of carbon dioxide annually (about 185 entities, predominantly large electricity generators and larger industrial plants) its repeal would have limited direct impact. However, as the Carbon Tax impacts the price of a number of goods and services, its repeal would have a larger indirect impact.
There is considerable political uncertainty concerning this measure.
As a related measure the proposed increase in the tax free threshold from $18,200 to $19,400 from 1 July 2015 will not proceed. This requires a legislative amendment.
The Government has released exposure draft legislation for the repeal of the Mining Tax (Minerals Resource Rent Tax or MRRT) and certain related spending measures.
The MRRT is estimated to impact about 320 companies in the iron ore and coal mining industries.
MRRT revenues fell far short of expectations and never came close to covering the cost of the spending measures introduced at the same time. For that reason, the following spending measures are proposed to be removed:
- Low income superannuation contribution – this will impact superannuation contributions on behalf of individuals whose adjusted taxable income is less than $37,000 (this takes into account taxable income, reportable employer and deductible personal superannuation contributions, adjusted fringe benefits, certain tax free pensions, net investment and property losses and child support payments). The measure will apply to income years commencing on or after 1 July 2013. These taxpayers currently qualify for an additional government contribution of up to $500.
- Income support bonus
- School kids bonus
This proposal would also remove the following recent business tax incentives:
Cost limit for immediate asset write off amounts for small business learn more...
Company loss carry back rules learn more...
Repeal of geothermal energy exploration deduction
Further increases in the superannuation guarantee charge from 9.25% to 12% will be deferred by two years learn more...
The FBT statutory formula defines the annual FBT taxable value of an employer provided “company car” as 20% of the cost of the car (reduced by one third after four years).
As many salary packaging companies will attest, this produces a tax benefit where the actual cost of running a car (including finance, insurance, depreciation, maintenance and fuel etc) is more than 20% of the cost of the car. Typically this can occur for cars costing less than the $57,466 depreciation cost limit. Such cars can be provided under a novated lease arrangement which reduces the employer’s financial risk from salary packaging cars.
In July this year the previous Labor Government proposed to remove the statutory formula option. This meant that FBT would have been calculated by reference to the private usage proportion of the motor vehicle expenses. This would have rendered many salary packaging techniques unviable. As this proposal did not become law it does not need to be repealed.
Please contact us if you require assistance with motor vehicle salary packaging calculations.
In April this year the then Treasurer proposed a 15% tax on pension income streams over $100,000 per year per individual which was to have applied from 1 July 2014. This measure will now not proceed.
Currently investment income from assets set aside in a superannuation fund to pay pensions is tax free.
The timetable for increasing compulsory employer superannuation guarantee (SGC) contributions will be delayed as follows:
Year starting on
SG charge percentage
|1 July 2012||9||9|
|1 July 2013||9.25||9.25|
|1 July 2014||9.25||9.5|
|1 July 2015||9.25||10|
|1 July 2016||9.5||10.5|
|1 July 2017||10||11|
|1 July 2018||10.5||11.5|
|1 July 2019||11||12|
|1 July 2020||11.5||12|
|Years starting on or after 1 July 2021||12||12|
In April this year the then Treasurer proposed a $2,000 tax deduction cap on self education expenses. This would have extended to conferences and seminars for self employed professionals.
The Government will not proceed with this announcement which means that education expenses will continue to be deductible according to the normal rules.
Following proposed amendments in the May 2013 Federal Budget, the net medical expense offset is currently only available where:
There was a net medical expense tax offset claim in the year ended 30 June 2013; and
Net medical expenses in the year ending 30 June 2014 exceed the relevant estimated thresholds:
Where adjusted taxable income (see below) is less than $88,000 (singles) or $176,000 married couples (both amounts plus $1,500 for every dependent child after the first) – the offset is 20% of the excess of qualifying medical expenses over $2,162
Where adjusted taxable income exceeds these levels – the offset is 10% of the excess of qualifying medical expenses over $5,100
The general net medical expense offset will only be available in the year commencing 1 July 2014 where the indexed thresholds are exceeded next year and the offset was claimed in both the year ended 30 June 2013 and the year ending 30 June 2014.
From 1 July 2015 until 1 July 2019 the offset will only be available for medical expenses relating to disability aids, attendant care or aged care expenses.
Taxpayers who no longer qualify for the offset will not need to keep records of their qualifying medical expenses.
Adjusted Taxable Income
Adjusted taxable income is calculated by adding account taxable income, reportable employer and deductible personal superannuation contributions, reportable fringe benefits, certain tax free pensions, net investment and property losses and child support payments.
On 1 July 2012 the instant asset write off ceiling for qualifying small business expenditure on plant and equipment increased from $1,000 to $6,500. Also on that date small businesses purchasing a motor vehicle for more than $6,500 became eligible for an immediate deduction of the business usage portion of the first $5,000 of the cost and 15% of the excess.
It is now proposed to return the capital allowance ceiling to $1,000 from 1 January 2014 and to repeal the special rates for motor vehicles.
Subject to normal commercial considerations, there may be an advantage in bringing forward qualifying small business capital expenditure to November or December 2013. Conversely, the benefit of possible reduced prices in January 2014 sales might exceed the cash flow advantages of a tax timing difference.
The recently introduced company loss carry back rules are to be repealed with effect from the start of the 1 July 2013 income year.
Practically this means that only company losses incurred during the year ended 30 June 2013 can be carried back to recoup income tax paid in relation to the 2011/2012 income year (subject to the balance in the company’s dividend imputation franking account).
The key international tax reform measures are:
Thin Capitalisation and Section 25-90
The Government has stated that it will proceed with the May 2013 Budget proposals to tighten and improve the thin capitalisation rules. These measures included:
- Reducing the safe harbour debt ratio from 75% (ie 3 to 1 debt to equity) to 60% (ie 1.5 to 1) for general entities and higher for financial entities
- Increasing the de minimis threshold from $250,000 to $2 million of annual debt deductions
- Confine the foreign dividend exemption to “equity” interests and extend it to certain interests held through trusts or partnerships
Foreign Residents with Capital Gains on Taxable Australian Property
The Government will proceed with the following measures:
- Impose a refundable 10% withholding tax where a purchaser buys certain taxable Australian property (basically Australian real estate and non-portfolio interests in “land rich” companies and trusts) from a foreign resident. This tax, which is to apply from 1 July 2016, will not impact purchases of residential real estate under $2.5 million.
- Clarify the application of Australia’s CGT rules to indirect interests in Australian real estate held through companies or trusts in relation to mining information and intra-group assets.
Please note that the 50% CGT discount on the sale of assets held by individuals for more than 12 months does not apply to non-residents, or temporary residents, on gains accruing after 8 May 2012. Asset valuations at 8 May 2012 will be required to access the discount on gains accrued before this date.
Implementation of Managed Investment Trust Regime
This will extend tax exemptions for certain portfolio investments by non-residents and apply capital gains tax exemptions to gains on offshore non-portfolio investments held by certain foreign managed funds.
Offshore Banking Unit Amendments
The Government will not proceed with the May 2013 Budget proposals concerning related party dealings by offshore banking units. The Government will develop targeted rules to address integrity concerns.
Controlled Foreign Company (CFC) Rules
Further consultation is required on the ongoing project to rewrite Australia’s “notoriously complex” CFC rules.
Some May 2013 Federal Budget proposals which will go ahead include measures to:
- prevent double deductions under the consolidations regime
- deny double franking benefits associated with “dividend washing” arrangements
- deny R&D tax concessions to companies with incomes over $20 billion
The main measures include:
- A $5.24 billion revenue increase from implementing previously announced plans for a series of four 12.5% increases in the tobacco excise
- Index tobacco excise increases to movements in Average Weekly Ordinary Time Earnings rather than the Consumer Price Index
The full list of 92 measures was released on 6 November.
28 of these measures are discussed in the Treasurer’s 6th November 2013 Press Release - Restoring integrity in the Australian tax system.
Measures which will proceed and which are not dealt with elsewhere in this newsletter comprise:
- An increase in the off farm income exclusion to $100,000 from 1 July 2014 to allow increased access to farm management deposits.
- Improved tax compliance through third party reporting and data matching
- Increasing the threshold below which lost superannuation accounts are transferred to the Australian Taxation Office from $2,000 to $4,000 and then $6,000
- Amendments to the list of tax deductible gift recipients
- Minor international tax amendments
64 measures with a "Disposition not to proceed" -
The Treasurer noted there was “a disposition not to proceed with the remaining 64 measures” many of which were stated as having a nil or nominal net financial impact. We note the following selected items which may be of particular interest:
Related Party Bad Debt Deductions –
The current wording states “if a lender claims a deduction for writing off a debt, then the borrower would recognise a similar amount of income”. This is a change in wording to the May 2012 Budget Proposal that would have denied a deduction to the lender for related party bad debts.
Capital gains tax –
Capital gains tax –
Loss recoupment rules –
For more information or specific enquiries, please contact us today.