Following the political nightmare flowing from last year’s Budget, the Government promised us “no surprises” and a Budget that would be a tame and boring affair.
Whilst this may hold true politically, the Government has introduced a range of measures with a new determination, and draft legislation seldom previously developed in advance of the policy announcement.
These new measures will affect a broad range of businesses large and small, domestic and foreign.
In our insight into the Federal Budget, the Gadens tax team highlights below the key implications of the Budget measures for you and your business.
Cross Border Structuring
The multinationals with +$1billion revenue have been preparing for the new legislation which seeks to tax profits from Australian dealings which are parked in low substance tax havens.
Local businesses will need to be vigilant in their dealings with multinationals to ensure that the imposition of the new taxes are not contractually passed on to them.
More broadly, the Government has announced that, after some consultation, it will front end OECD reforms aimed at the use of tax treaties, “double dips”, gearing and similar strategies. In parallel with the Labor Opposition’s earlier announcements on this front, the curtain is rapidly falling on the strategies effectively used until now. Both inbound and outbound investors should be actively revisiting these structures.
Business Structure / Income Sheltering
Notwithstanding the substantive application of Division 7A by the Australian Tax Office, the use of trust and corporate beneficiary structures remains a valid and effective means of reducing income tax costs.
There is now an enhanced opportunity to ring fence income streams from a single source of less than $2m. The Budget concessions will allow small businesses to benefit from a reduced company tax rate of 28.5%, and access to write-offs of up to $20,000.
Moreover, relief will be provided so that changing structures to capture these benefits will not trigger a capital gain, and the costs of professional advice to enable you to do so may be immediately deductible.
GST – Closing the foreign loop hole with the "Netflix Tax"
The GST net is being extended under rushed draft legislation to intangible supplies provided by offshore suppliers to Australian consumers, wherever in the world they may be. Whilst on the current draft the Gadens tax team will see their Aspen lift passes go up 10%, local Australian businesses do not have a cause to worry.
The amendment brings the GST legislation up to speed with the digital economy and will remedy the competitive disadvantage suffered by local Australian suppliers who have had to charge GST where their foreign competitors did not.
Significant implementation issues arise with the collection of the tax, with the remittance liability currently proposed to rest primarily with the supplier. Offshore businesses with a significant supply into the Australian market will likely require Australian tax advice to structure and manage their GST remittance obligations.
The contentious availability of unlimited salary sacrificing towards the provision of meal entertainment benefits to employees of not-for-profit employers, which is currently FBT free, has been replaced by a single grossed-up cap of $5,000 per employee.
Not-for-profit employers will need to carefully consider their current fringe benefits policies and the terms of their standard employment contracts. Those operating in excess of the new cap will have their competitive advantage removed and may need to rethink their cost structure and business model.
Changes will also be made to employee deductions for motor vehicle deductions, which in some cases will substantially curtail the deductions currently available. Employers should consider assisting affected employees with more efficient salary packaging arrangements.
Pleasingly, the proposed employee share regime for start-ups is being further enhanced, including providing access to CGT discounts for options converted into shares and held for less than 12 months.