Business has been left relatively unscathed in the Treasurer's first Budget. In fact, the Government has reaffirmed its commitment to a 1.5% cut to the company tax rate from 1 July 2015.
However, business should remain cautious. Many of the unenacted measures announced by the previous Government (and supported by
the current Government) remain outstanding. Further, the Government
has also flagged the release of a White Paper on the Reform of
Australia’s Tax System to “provide a longer-term considered approach
to tax reform that is consistent with the Government’s core principles of
fairness and simplicity”. It therefore seems likely that the Government
will be seeking a mandate for further tax reform in the near future.
The key issues are discussed below.
1. Company tax rate cut to 28.5%
The Government announced that it remains committed to cutting the
company tax rate to 28.5% from 1 July 2015. This was previously
announced in 2013 and is not a new Budget measure. However, there
was some uncertainty as to whether the rate cut would proceed and
business is likely to respond positively to the Government's comments.
For large companies, the reduction in the tax rate will effectively be
wiped out by the cost of the Government's paid parental leave levy.
2. Measures affecting multinationals
MEC groups - In the 2013-14 Federal Budget, the then
Government announced that it would address inconsistencies
in the tax treatment of multiple entry consolidated (MEC)
groups (used by multinationals) and ordinary consolidated
groups. Those inconsistencies included the tax treatment of a
MEC group or a consolidated group that "flattens" their
structure to allow a non-taxable disposal of shares by a nonresident. Following a tripartite review by the Treasury, private
sector and the Australian Taxation Office, it was recommended
that it was not feasible to review the inconsistencies without "a
reconsideration of broader international tax policy issues". As a
result, the current Government has announced that it will not
proceed with the previously announced measures. 2266962-v4\SYDDMS
Foreign resident CGT regime - Non-residents will generally
only be subject to Australian CGT on a disposal of shares
where the company passes the "principal asset test" (i.e. it is
land rich). In the 2013-14 Federal Budget, it was proposed that
legislation would be introduced to remove the ability to use
transactions between members of the same consolidated group
to create non-taxable Australian property assets and duplicate
assets in order to prevent the principal asset test from applying.
This measure will now be expanded to apply to interests held
by foreign residents in unconsolidated groups as well as in
3. Personal income tax - extra 2% tax on those earning over
Individual taxpayers will be hit with a number of tax measures, including
the "temporary budget repair levy" that will apply at a rate of 2% on an
individual's taxable income in excess of $180,000 per annum, for a
period of three years. The levy will apply both to resident and nonresident Australian taxpayers. Changes will also be made to the FBT
regime to keep the FBT rate in line with the announced levy.
There are also some changes to superannuation. Previously, the
superannuation guarantee charge was to be increased to 9.5% from 1
July 2014 and progressively increased by 0.5% annually to a maximum
12% from 1 July 2019. This schedule has now been changed such that
the superannuation guarantee charge will remain at 9.5% until 30 June
2018 and then increased by 0.5% each year until it reaches 12%.
Further, individuals may withdraw superannuation contributions in
excess of the non-concessional contributions cap, with the earnings to
be taxed at the individual's marginal tax rate.
4. Other announcements
R&D - In line with the proposed company tax rate, R&D offsets
will also be reduced by 1.5% (from 1 July 2014).
Integrity measures for consolidated groups - The
Government has announced that it will seek to refine various
measures originally announced in the 2013-14 Federal Budget
to deal with issues relating to consolidated groups identified by
the Board of Taxation, including access to double deductions
by shifting the value of assets between entities and double
recognition of deductible liabilities.
Increase in Product Stewardship levy - The Product
Stewardship levy will be increased to 8.5 cents per litre of oil or
kilogram of grease from 1 July 2014.
Fuel excise indexation reintroduced - From 1 August 2014,
the Government will reintroduce the biannual indexation by the
consumer price index (CPI) of excise and excise-equivalent
customs duty for all fuels (except aviation fuels).
Mining interest realignments - The Government will clarify
the treatment of the realignment of interests between joint
venture partners in the minerals and petroleum industry. The
measures are intended to apply to changes of ownership within
a common project.
MITs and OBUs - The Government has announced that it will 2266962-v4\SYDDMS
defer the start date for previously announced changes to the
managed investment trust rules and the OBU rules to 1 July