Contributed by Tom Seymour, Partner; Adam Davis, Partner; Warren Dick, Partner; Murray Evans, Partner; Alistair Hutson, Partner and David Ireland, Partner; PWC Australia
Work can now progress on implementing the policies announced in the 2016/17 Federal Budget, since the federal election is over and the Coalition has been returned to government.
The new federal parliament is currently scheduled to commence sitting on 30 August 2016.
Below is a summary of some of the key tax and superannuation measures that the Coalition has announced but are yet to be implemented.
- Reduce the company tax rate to 27.5% from 1 July 2016 for small business companies (those with annual aggregated turnover of less than $10m) followed by a progressive reduction to 25% over 10 years for all companies.
- Introduce a diverted profits tax, a 40% tax on profits that are artificially diverted from Australia, for income years commencing on or after 1 July 2017.
- Amend the transfer pricing rules to give effect to Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) recommendations. Implement the OECD BEPS recommendations to eliminate hybrid mismatch arrangements, applicable from the later of 1 January 2018 or six months following the date of Royal Assent of enabling legislation.
- Increase penalties for “significant global entities” (broadly, those with global revenue of at least $1b) that fail to disclose information to the ATO, applicable from 1 July 2017.
- It is understood that the Coalition intends to pursue its previously announced proposal to decrease the research and development tax offset amounts by 1.5 percentage points. The opposition has recently indicated it will accept this measure.
- Increase access to company losses by replacing the same business test with a more flexible “predominantly similar business test” (for losses incurred from 1 July 2015).
- Introduce amendments to the tax consolidation rules, including the “deductible liabilities measure”, removing deferred tax liabilities from the tax cost setting entry and exit calculations, and implementing an “anti-churn” rule.
- Improve the operation and administration of the deemed dividend rules applicable to private companies from 1 July 2018.
- Increase the small business entity aggregated turnover threshold (currently $2m) to $10m from 1 July 2016, resulting in increased access to the lower corporate tax rate and the current accelerated depreciation concessions. The current $2m turnover threshold will be retained to access the small business capital gains tax concessions.
- Increase the unincorporated small business tax discount from 5% to 8% on 1 July 2016 and progressively increase it to 16% over 10 years. Access to the discount will be extended to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5m.
- Simplify GST reporting requirements for small business.
- Increase the threshold at which the 37% marginal tax rate cuts in from $80,001 to $87,001.
The government has its 2016/17 Federal Budget package of superannuation measures to implement, in addition to legislating the objective of superannuation as being “to provide income in retirement to substitute or supplement the Age Pension”. The government has indicated that it expects to begin consultation on exposure draft legislation in relation to its superannuation reforms shortly. The 2016/17 Federal Budget package includes:
- Reduce the threshold for the additional 15% contribution tax (on their concessional contributions) for high-income earners from $300,000 to $250,000.
- Introduce a $1.6m cap on balances that can be transferred into pension phase.
- Reduce the annual concessional contributions caps to $25,000.
- Allow all individuals up to age 75, regardless of their work circumstances, to make concessional contributions subject to the annual cap, or to make “catch-up” contributions where they have not reached the cap in previous years.
- Introduce a $500,000 lifetime non-concessional contributions cap. Increase the income threshold for low income spouse contributions.
- Introduce a low income superannuation tax offset. Reduce the tax concessional nature of transition to retirement income streams.
- Remove ability for certain income stream payments to be taxed as lump sums.
- Abolish the anti-detriment payment rule for super funds.
- Address the “double taxation” of digital currencies under the GST.
- Subject to the unanimous agreement of the states, apply the GST to low value imported goods imported from 1 July 2017.
- Allow the effective life of acquired intangible assets to be self-assessed for depreciation purposes from 1 July 2016.
- Introduce a new tax and regulatory framework for two new types of collective investment vehicles (CIVs) — a corporate CIV (for income years starting on or after 1 July 2017) and a limited partnership CIV (for income years starting on or after 1 July 2018).
- Simplify the taxation of financial arrangements (TOFA) regime.
- Four annual 12.5% increases in tobacco excise commencing on 1 September 2017.
- Reintroduce into parliament the legislation to give effect to the statutory remedial power for the Commissioner (this was previously included in a Bill that lapsed on proroguing of the last parliament).
- Implement the new double tax agreement between Australia and Germany.
Having regard to the composition of the Senate, further work and prolonged negotiations are likely to be needed in order for the government to successfully legislate all of its proposals. It will be essential for all taxpayers to monitor the progress and consider the impact of the above measures on their current or proposed business or investment activity.