This year’s Federal Budget (Budget) is the Coalition Government’s third since coming to power in 2013. The key Budget numbers are:
- the 2016/17 underlying cash deficit is forecast to be in the order of $37.1 billion; and
- the underlying cash deficit is expected to fall to $6 billion in 2019-20.
In this special Gilbert + Tobin Tax publication, we explore the key tax measures which have emerged in the Budget focussing on business taxpayers and those measures which have been announced for the first time on Budget night. The key themes emerging from the Budget are:
- an increased focus (following on from last year’s Federal Budget) on targeting multinational enterprises (MNEs) with various measures, including the introduction of a diverted profits tax (DPT) and hybrid mismatch measures. These measures highlight the Government’s continued focus on ensuring that Australia takes a leading role in the evolution of international tax policy, particularly, base erosion;
- providing a pathway for reduced corporate tax rates for a broader range of corporate taxpayers but with a particular focus initially on small business – it would appear that the Government has a view that reductions in corporate tax rates will encourage investment decisions in a low inflation, low growth economic environment;
- a tightening of superannuation concessions; and
- continuing to encourage the use of Australia as an investment hub through the introduction of a collective investment vehicle (CIV) tax and regulatory regime.
It is also interesting to observe what the Budget has not disturbed. For example:
- there is no apparent intention to attack negative gearing or capital gains tax concessions;
- the Government has confirmed that the 2% temporary Budget deficit levy (applicable to incomes exceeding $180,000 per annum) would cease on 30 June 2017 (in accordance with the existing legislation); and
- there has been no reduction to the thin capitalisation safe harbour ratio from 60% to 50%, as was foreshadowed by some several days before the Budget.
With an unprecedented reduction in interest rates by the Reserve Bank to 1.75% and continuing global and domestic economic uncertainty, the Budget will be closely scrutinised by economists, opposition politicians and the public alike, as Australia moves towards “election mode”.