Measures To Streamline Business Tax Announced In Australian Budget

by Mary Swire, Tax-News.com, Hong Kong

11 May 2006

Australian Treasurer Peter Costello has announced a number of measures as part of the 2006/7 Budget designed to improve the tax system by streamlining definitions, providing greater flexibility and reducing complexity and compliance costs.

The measures are intended to benefit a wide range of taxpayers, including businesses, individuals, trusts, employees and employers.

The key changes include a package of measures to assist small businesses by improving the alignment of eligibility thresholds for small business concessions and increasing access to the simplified tax system (STS) and small business capital gains tax (CGT) concessions.

Other changes include:

• More flexible arrangements for employees and employers, including an increase in the in-house fringe benefit threshold from $500 to $1000; extending employee share scheme concessions to stapled securities; and removal of the requirement to apportion the tax-free threshold for students entering the work force for the first time.
• A range of simplified tax arrangements, including for family trust elections, ultimate beneficiary reporting and distributions to non-residents by trusts and managed funds.

In addition, Costello has announced further modifications to assist small businesses as part of the Government’s response to the Board of Taxation’s report on the post-implementation review of the small business CGT concessions.

These modifications seek to improve the operation of the small business CGT concessions by making changes to the maximum net asset value test, the active asset test, the 15-year exemption, the retirement exemption, the small business roll-over, and how the concessions apply to partnerships.

The comprehensive report has 39 recommendations. Of these, 26 recommendations seek legislative amendments and 13 relate to administrative matters. The Government has accepted all but one of the legislative amendment recommendations, 3 with minor amendments favouring the taxpayer. The Australian Taxation Office (ATO) has accepted all recommendations relating to administrative matters.

In addition, to improve access to the concessions, the Government will replace the current controlling individual 50 per cent test with the new significant individual 20 per cent test that can be satisfied either directly or indirectly through one or more interposed entities.

Currently there is a limit of two controlling individuals or one controlling individual and their spouse who has an interest in the business. The controlling individual test applies where the concessions extend to an entity that did not make the relevant capital gain (that is, the 15-year exemption and the retirement exemption).

The new significant individual test would enable up to eight taxpayers to benefit from the full range of concessions instead of the current limit of two controlling individuals.

The small business CGT concessions are intended for active participants in a small business. The basis for the proposed significant individual test is to identify those who have a substantial interest in a small business, for they tend to have an active interest in running the business.

All amendments will apply to CGT events that happen from the 2006-07 income year.

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