As expected the 2014-2015 Budget has introduced significant spending cuts, sought to increase revenue through a temporary budget repair levy and confined welfare payments. However, there have not been substantial changes to business taxation.
Instead, the Government has sought to support businesses by confirming the proposed 1.5% reduction in the corporate tax rate and flagging extensive infrastructure spending to stimulate jobs and economic growth. Over the next ten years the Government will reduce expected debt levels by nearly $300 billion from $667 billion to $389 billion with the Budget deficit falling from its current $49.9 billion to $29.8 billion next year.
Among the more significant reforms, the Government will:
introduce a temporary budget repair levy of 2% from 1 July 2014 until 30 June 2017, which will apply to individuals with taxable income in excess of $180,000 per annum.
(as previously announced) reduce the corporate tax rate to 28.5% from 1 July 2015 (for large business this will be offset by the 1.5% parental leave levy).
establish the Medical Research Future Fund to provide additional funding for medical research (which will receive an initial $1 billion investment, increasing to a target capital level of $20 billion in later years).
increase infrastructure spending which will take the Government’s infrastructure investment to $50 billion by 2019-20.
The following tables summarise the key measures announced. For further information about particular budgetary measure, please select a measure below or continue scrolling.
- Capital Gains Tax ("CGT")
- Tax Compliance
- Personal Tax
- Goods and Services Tax ("GST")
- Other measures
Click here to view the tables
No changes to MEC group rules
The Government will not proceed with changes proposed by the previous Government to remove inconsistencies in the tax treatment between MEC groups and ordinary consolidated groups. These changes were aimed at ensuring that MEC groups could not access tax benefits that are not available to domestic consolidated groups. The decision follows a tripartite review involving the Treasury, the Australian Taxation Office and the private sector, which concluded that it was not feasible to review inconsistencies without a reconsideration of broader international tax policy issues.
Treasury will shortly start consultation on an amendment to extend a modified form of the unrealised loss rules to MEC groups as well as other measures identified by the review.
Refine integrity measures relating to consolidated groups
The Government proposes to refine the integrity measures that were announced in the 2013-14 Federal Budget in relation to Australian income tax consolidated groups.
As part of the 2013-14 Federal Budget, the Government proposed to amend the law to ensure that:
- non-residents were not able to ‘churn’ (that is, buy and sell) assets between consolidated groups to allow the same ultimate owner to claim “double deductions”;
- certain deductible liabilities were not taken into account twice; and
- consolidated groups could not access double deductions by shifting the value of assets between entities.
The Government proposes that these measures will apply to “arrangements” that commence on or after 14 May 2013, rather than in respect of a subsidiary that enters or exits a consolidated group after 14 May 2013.
In addition, the measure in relation to deductible liabilities will not apply to retirement villages’ residential loan liabilities.
The Government will also add a new measure that will clarify that accounting liabilities relating to securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves a consolidated group and/or joins a consolidated group. This measure will apply to “arrangements” that commence on or after 7.30pm on 13 May 2014, with transitional rules applying to arrangements that commence before this time.
FBT rate to increase from 47% to 49%
The FBT rate is to increase from 47% to 49% from 1 April 2015 until 31 March 2017. This is to prevent high income earners from utilising fringe benefits to avoid the 2% temporary budget repair levy.
R&D tax offsets to be reduced
The Government will reduce the refundable and non-refundable tax offsets available for R&D activities by 1.5% with effect from 1 July 2014.
The refundable tax offset, which is available to R&D entities which have an aggregated turnover of less than $20m (and which are not controlled by a tax exempt entity), will be reduced to 43.5%. The non-refundable tax offset, which is available to R&D entities that do not qualify for the refundable offset, will be reduced to 38.5%.
The Government has indicated that the reductions are designed to preserve the relative value of the R&D tax offsets against the company tax rate, which is to be cut by 1.5% from 1 July 2015. However, the reductions to the R&D tax offset take effect a year earlier and, for large companies, the cut to the company tax rate will be negated by the cost of the 1.5% paid parental leave levy.
Wage subsidy for employees aged 50 years or over
The Government will establish the Restart Programme to provide an increased wage subsidy for mature age job seekers aged 50 years or over. The subsidy may be worth up to $10,000 per employee.
The subsidy is available if:
- an employer hires a person aged 50 years or over who has been receiving income support for at least six months (including a person on the Disability Support Pension); and
- the person is employed for six months or more.
The subsidy will be paid in four instalments of $3,000 (after six months of employment), $3,000 (after 12 months of employment), $2,000 (after 18 months of employment) and $2,000 (after 24 months of employment).
Offshore Banking Units ("OBUs")
As previously announced, the start date of reforms to the OBU regime has been deferred to 1 July 2015.
The Government previously advised that this delay was to allow for certain integrity provisions and other reforms to be considered and implemented as one package. There have been a series of consultations on these reforms with interested parties.
The OBU regime provides entities registered as OBUs with a 10% rate of taxation on certain eligible transactions.
Third party reporting and Data Matching
The commencement date for measures which are to be designed to improve tax compliance through third party reporting and data matching are to be deferred until 1 July 2016.
These measures are aimed at improving taxpayer compliance by enhancing the information reported to the Australian Taxation Office by a range of third parties through the introduction of new reporting regimes. This includes reporting regimes in relation to taxable government grants, sale of real property, shares (including options and warrants), units in managed funds as well as sales through merchant debit and credit services.
A number of issues were raised in relation to the original proposals and the deferral is intended to allow for a more thorough review of these stakeholder concerns.
Seafarer tax offset
The seafarer tax offset will be abolished from 1 July 2015.
The offset was introduced by the previous Government and provided companies employing Australian seafarers with a refundable tax offset in respect of tax withholding payments paid to Australian seafarers for certain voyages.
Mining interest realignment
To address uncertainty in relation to the treatment of the realignment of interests in the minerals and petroleum industry, the Government will provide clarification to changes of ownership within a common project between joint venture partners (for example, the combination of neighbouring fields into one project or the sharing of expenditure in areas such as planning, research and construction of infrastructure). Such measures will apply from 14 May 2013.
A series of minor amendments will be made to the tax laws and superannuation laws to correct technical defects, remove anomalies and address unintended outcomes. These amendments include technical corrections to the uniform penalty rules that prevent certain penalties that are levied under the law from being collected and a number of amendments to address issues in relation to the consolidation regime.
The Infrastructure Growth Package will take the Government’s infrastructure investment to $50 billion by 2019-20. As a result, total infrastructure investment from Commonwealth, State and local Government as well as the private sector will build an additional $125 billion by 2019-20.
Asset Recycling Initiative
The Government has committed $5 billion to provide financial incentives over five years to the States and Territories to sell assets and reinvest the sale proceeds into additional productive infrastructure. This historic National Partnership Agreement with the States and Territories has the potential to catalyse close to $40 billion of new infrastructure.
The program is aimed to encourage private sector investment and create opportunities for investors, including superannuation funds to invest in quality infrastructure.
This Budget allocates $3.7 billion to new investments. A substantial amount of these funds will go to major roads and highways, including:
- Stage 2 of the East West Link in Melbourne;
- North-South Road Corridor in Adelaide;
- Toowoomba Second Range Crossing in Queensland;
- Perth Freight Link; and
- Northern Territory road upgrades.
The Government is also providing:
- $229 million for a new National Highway Upgrade Programme;
- an additional $200 million to the Black Spot Programme; and
- a further $350 million to the Roads to Recovery Programme.
Western Sydney Infrastructure Plan
The Government is investing $2.9 billion over 10 years to support future growth in this region, including major road infrastructure and the new airport at Badgerys Creek.
The Badgerys Creek airport development is expected to create 35,000 jobs by 2035, increasing to 60,000 jobs. The Government expects that, by 2060, the new airport has the potential to drive an increase in Australia’s economic output to almost $24 billion.
To accelerate the WestConnex project, which upgrades the major roads connecting Western Sydney to the CBD, the Government is providing a loan of up to $2 billion for stage two of the project, in addition to its existing $1.5 billion grant for WestConnex.
Foreign resident CGT regime
The Government had previously announced that it would refine the principal asset test in the non-resident CGT exemption rules.
One of the previous proposed amendments involved excluding inter-company dealings between entities in the same tax consolidated group in applying the ‘principal asset test’. This measure was designed to ensure that assets were not counted multiple times in applying that test. The Government has proposed an extension of this amendment to also apply to unconsolidated groups from the time the Exposure Draft legislation is released. The application of the amendment to consolidated groups is to continue to apply from 14 May 2013 (the date of the original announcement).
Managed investment trusts (“MITs”) – deferral of new tax system until 1 July 2015
The Government will defer the start date of the previously announced new tax system for MITs from 1 July 2014 to 1 July 2015.
Amongst other things, the new MIT regime is intended to provide for a new “attribution” system of taxation on trust income for MITs.
The Government has indicated that the deferral will allow industry and the ATO additional time to make the necessary systems changes to implement the new tax system for MITs. It will also provide the Government with more time to consult with industry about the implementation of the reforms.
The tax law will also be amended to allow MITs and other trusts treated as MITs to continue to disregard the trust streaming provisions for the 2014-15 income year. The trust streaming provisions were enacted to confirm that a trust could stream capital gains and franked distributions in certain circumstances. However, it is also expected that MITs will be able to choose to apply the trust streaming provisions should they wish to do so until the new tax system for MITs becomes effective on 1 July 2015.
This choice will be important for those MITs that continue to rely on the trust streaming provisions in respect of franked dividends and capital gains (such as qualifying ETFs). This should provide managers and investors in those trusts with greater certainty while the details of the new tax system for MITs are still being finalised.
The Government has already consulted closely on the design and legislation for the new tax system for MITs. Exposure Draft legislation is expected to be available for public comment in June.
Option of withdrawing excess non-concessional contributions
The Government will allow individuals to withdraw superannuation contributions in excess of the non-concessional contributions cap from 1 July 2013, and associated earnings. The withdrawn excess contributions escape the punitive 46.5% (47% from 1 July 2014) excess non-concessional contributions tax that would otherwise apply. The associated earnings are taxed at individuals’ marginal rates.
This harmonises the non-concessional and concessional contributions regimes, as the latter already allows taxpayers to release 85% of excess concessional contributions. Final details of this change will be worked out in consultation with stakeholders.
Superannuation Guarantee Rate increased to 9.5% from 1 July 2014
As is currently legislated, the Government will increase the superannuation guarantee rate to 9.5% from 1 July 2014 and raise it incrementally by 0.5% each year (starting 30 June 2018) until it reaches 12% in 2022-23.
The measures to pause the superannuation guarantee rate at 9.25% until 2015-16 were blocked by the Senate’s refusal to pass the Mineral Resources Rent Tax Repeal and Other Measures Bill 2013(Cth).
Miscellaneous Superannuation Measures
The Government has introduced a range of additional superannuation measures, including:
- a fully funded superannuation scheme for the Australian Defence Force (to apply from 1 July 2016);
- a merger of ComSuper with the Commonwealth Superannuation Corporation;
- a proposed 12 month “freeze” to the current salaries, allowances and pensions received by MPs and all other public office holders; and
- the resumption of Government payments under the Higher Education Superannuation Programme to eligible New South Wales Universities in order to align with arrangements in other participating States.
The Government has also announced that it will include untaxed superannuation income in the determination of eligibility for the Commonwealth Seniors Health Card (CSHC) from 1 January 2015.
Transfer of tax complaints handling
Tax complaints handling is currently a function of the Commonwealth Ombudsman. Over the next 4 years, the Government will allocate funding to transfer the function of taxation complaints case handling to the Inspector-General of Taxation.
Common tax complaints received by the Commonwealth Ombudsman relate to lodgment and processing issues, debt collection and non-payment of Super Guarantee Contributions.
Currently, the Inspector-General of Taxation’s sole focus is on the conduct of the ATO and administrative matters (e.g. processes for assessing and collecting tax). It does not deal with individual taxpayers.
2% Temporary budget repair levy
Individuals with taxable income in excess of $180,000 per annum will be subject to a 2% levy from 1 July 2014 until 30 June 2017.
A number of welfare measures which were foreshadowed by the Government were introduced in the Budget. Expenditure on welfare has grown over recent years reflecting an ageing population and has now become a major expenditure item of Government. In order to rein in costs the Government will make a number of changes some of which include:
- Pensions - from September 2017, increases in pensions will be linked twice a year to inflation. Asset and associated income test thresholds will be indexed between now and 2017, but then remain at fixed levels for three years. They will also gradually increase the age of eligibility to 70 by 2035 (an increase of 6 months every 2 years).
- Eligibility of Commonwealth Seniors Card & Seniors Supplement – the assessment for a Seniors card will now include untaxed superannuation income and the Seniors Supplement will end.
- Indexing pension and Pension Equivalent Payments to CPI (rather than broader measures).
- The Family Tax Benefit Part B income threshold will be reduced to $100,000.
- Income support for persons under 30 and Newstart and Sickness Allowances will be confined.
- Employer support - a payment of up to $10,000 to a business that employs an Australian over the age of 50 who has been on unemployment benefits or the Disability Support Pension for six months.
The Government has also decided to reduce the growth in Australia’s foreign aid budget to save $7.9 billion over five years.
There were no significant GST measures announced in the Budget.
Establishment of the Medical Research Future Fund
Subject to the passage of legislation in Parliament, the Government plans to establish the Medical Research Future Fund (“MRFF”) from 1 January 2015 with payments to be made starting from 2015-2016. The MRFF will be invested and managed by the Future Fund Board of Guardians.
According to the Treasurer’s Media Release of 13 May (MC 45/14), the Medical Research Future Fund will be funded by each dollar of “savings in health expenditure announced in the 2014-15 Budget” up to $20 billion and “$1 billion of uncommitted funds within the existing Health and Hospital Fund” (HHF). Any net earnings of the fund in a particular year will also be able to be used to fund activities in the following year (“including through payments to the National Health and Medical Research Council”).
The HHF will cease operation on 31 December 2014. After this time, existing commitments to be paid out of HHF will continue as administered by the Department of Health.
National Rental Affordability Scheme
The fifth round of the National Rental Affordability Scheme (“NRAS”) allocations will not proceed. Under the NRAS a refundable tax offset or, for some organisations in the not-for-profit sector, cash payment is available annually for up to ten years to eligible entities which invest in affordable housing. For the current financial year the tax offset/payment is up to approximately $7,700 per year. This measure is expected to save $235.2 million over the forward estimates period.
For allocations already made, the Government will continue to make the refundable tax offset or cash payment available until the 10 year period for the allocation runs out, assuming that investors continue to meet the relevant eligibility criteria.
Previously announced ATO staff reductions brought forward
The Government has announced that it will bring forward previously announced staff reductions to the Australian Taxation Office ("ATO"). The move is said to achieve savings of $142.8 million over three years from 2015-16.
The ATO was to be reduced by 4,700 people between 2013 and 2018 including reductions of 900 people in 2013-14, 500 in 2014-15 and 1,600 in 2015-16. Following the announcement tonight, the Government will bring forward the reduction that was due to occur in 2015-16.
While these reductions had been factored into the forward estimates, resulting in no net increase to the total staff reductions, the acceleration of the staff reduction timeline for the 2014-15 financial year is likely to place increased pressure on the ATO.
The reductions were originally planned in response to the efficiency dividends and decisions of the former Government. The staffing reductions do not include the impact of the additional 0.25 per cent efficiency dividend announcement by the Government in the 2013 Federal Election.
Reduction to ASIC funding
Savings of $120.1 million over five years will be achieved by reducing the funding the Australian Securities and Investment Commission ("ASIC").
The Government will continue its scoping study into the ownership of ASIC Registry function with no timeline on that study announced.
Amalgamation of Commonwealth Tribunals
From 1 July 2015 all of the Commonwealth external merits review tribunals will be amalgamated into a single review body with the exception of the Veterans Review Board.
The consolidated body will take on the functions of the following bodies:
- the Administrative Appeals Tribunal ("AAT");
- the Social Security Appeals Tribunal;
- the Refugee Review Tribunal;
- the Migration Review Tribunal; and
- the Classification Review Board.
The body will also be responsible for the merits review of Freedom of Information requests currently handled by the Office of the Australian Information Commissioner (“OAIC”). This role is to be transferred from the OAIC to the AAT from 1 January 2015.
Details of the consolidation are to be developed in consultation with stakeholders.
Privacy and Freedom of Information functions
The privacy and freedom of information ("FOI") changes will effectively make the Office of the Australian Information Commissioner ("OAIC") obsolete by splitting the roles performed by the OAIC. It is proposed that the privacy functions will be undertaken by Privacy Commissioner as an independent statutory position within the Australian Human Rights Commission.
FOI complaints function will be combined with the complaint handling function of the Commonwealth Ombudsman. Reference only to external review by the Administrative Appeals Tribunal potentially indicate that internal FOI reviews will no longer be available. The Attorney General’s Department will take up the residual roles of releasing guidelines, collecting data and providing explanatory material.
The current frozen excise duty on all fuels (except aviation fuels) has been abolished, with the Government re-introducing biannual indexation following the consumer price index of excise and excise equivalent customs duty from 1 August 2014. The expected $2.2 billion in net revenue will be applied to additional road infrastructure projects. The diesel fuel rebate is unaffected by these changes and will continue to apply.
Other Expenditure items
- The Corporations and Markets Advisory Committee, which advises Government on corporations and financial markets law, will cease operating.
- The Government will provide $2.55 billion to establish the Emissions Reduction Fund on 1 July 2014, in order to purchase carbon abatement via a “reverse auction” system (see our previousalert). The Government will abolish the Australian Renewable Energy Agency and reduce funding to some existing carbon abatement programs.
- The Government will commission scoping studies into future ownership options for Australian Hearing, Defence Housing Australia Ltd, the Royal Australian Mint and the registry function of ASIC.
- The Government will establish the Entrepreneurs’ Infrastructure Programme with $484.2 million of funding to support commercialisation and entrepreneurship.
- The Government will cease ethanol production grants on 30 June 2015.
- The Government will establish the Industry Skills Fund to support training in the following sectors: health and biomedical products; mining, oil and gas equipment technology and services; and advanced manufacturing, including defence and aerospace.