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Hockey Delivers Australia's 2015 Budget

by Mary Swire,, Hong Kong

13 May 2015

Australian Treasurer Joe Hockey's 2015 Budget includes a company tax cut for small business, plans to tackle profit shifting, and proposals to expand the goods and services tax base.

Hockey's first Budget as Treasurer, delivered in May 2014, included a 1.5 percent company tax cut for all businesses. However, in February, the Government revealed that it would not proceed with this measure, and would instead deliver a "small business tax cut." Hockey on May 12 confirmed that the company tax rate for incorporated businesses with annual turnover of less than AUD2m (USD1.6m) will be reduced by 1.5 percent, to 28.5 percent. The new rate will apply from July 1, 2015. Up to 780,000 firms are expected to benefit.

Hockey also announced that from July 1, 2015, unincorporated businesses with an annual turnover of less than AUD2m will be able to claim a five percent "tax discount" on the tax payable on business income. The discount will be capped at AUD1,000 per individual in an income year, and will be delivered as a tax credit. This measure will be worth AUD1.8bn to eligible companies over the next four years.

Small businesses will receive an immediate tax deduction for any individual assets they buy costing less than AUD20,000. The current threshold is AUD1,000. The AUD20,000 limit will apply to each individual item, and businesses will be able to apply this AUD20,000 rule to as many items as they wish. Any assets over AUD20,000 will be pooled, and depreciated at the same rate (15 percent in the first income year, and 30 percent per year thereafter). These arrangements are effective from Budget night, and will continue until the end of June 2017.

The Government will reduce red tape within the Fringe Benefits Tax (FBT) system, by expanding the FBT exemption for work-related portable electronic devices. However, FBT exemptions for "meal entertainment" will face a new cap of AUD5,000 for people who work in the not-for-profit and public health sectors. Fly-in-fly-out workers will no longer be able to claim the Zone Tax Offset.

Small businesses will benefit from capital gains tax (CGT) rollover relief when changing their legal structures but retaining the same owners. Start-ups will be allowed to immediately deduct professional expenses incurred in setting up a business, rather than writing them off over five years. A single online registration site will be developed for business registration, and expanded tax concessions for Employee Share Schemes will enter into force on July 1, 2015.

The Budget is also designed to crack down on tax avoidance and evasion. It includes plans for a Multinational Anti-Avoidance Law, which will enter into force on January 1, 2016. It will ensure that when Australian customers deal with an Australian subsidiary or local entity that is integral to the customer's decision to enter into the contract, those Australian sales will be recognized as Australian income. The maximum penalty for breaking this law will be equal to the tax owed, plus interest. The Government said it suspects that around 30 large multinationals are diverting profits using artificial structures to avoid a taxable presence in Australia.

The Government will consult on the development of a voluntary code of conduct on the disclosure of additional tax information by large companies. It has also asked the Board of Taxation to lead the development of the code, and will monitor progress and consider further changes to the law if necessary. It will implement the Organisation for Economic Cooperation and Development's (OECD's) country-by-country reporting proposals from January 1, 2016. It will also incorporate the OECD's recommendations for tackling the abuse of tax treaties into its treaty practice. It has asked the Board of Taxation to consult on the implementation of new anti-hybrid rules.

The Government will provide AUD87.6m to the ATO over the next three years to continue its International Structuring and Profit Shifting program. To date, this initiative has raised over AUD250m in tax and is estimated to raise AUD1.1bn in total.

The foreign investment rules will be strengthened, and the ATO will take over regulation of foreign investment in real estate. Application fees for all foreign investment applications will be introduced from December 1, 2015. They will begin at AUD5,000 for a house worth less than AUD1m, and increase in line with the value of the investment.

The final major tax-related measure included in the Budget was also pre-announced. Hockey confirmed that consumers buying digital goods and services from overseas will have to pay GST on their purchases. This includes e-books, games, films, music, consultancy, and legal services, among other services.

Meanwhile, the GST compliance program will be extended for three years, to support the ATO in identifying fraudulent GST refunds, the underreporting of GST liabilities, taxable persons failing to lodge GST returns, and outstanding GST debts.

Hockey said: "Australia's budget position is getting stronger each and every year. From a AUD48bn deficit we inherited, to AUD35bn next year, down to a AUD7bn deficit in another three years' time. And over the same period, we are reducing the size of government as a share of the economy. Of course there is more work to be done on Budget repair. Every nation must live within its means, and Australia is no different."

"But we cannot tax our way to prosperity. And we must continue to look for sensible savings. When we invest taxpayer money, we must do so with great care."

TAGS: capital gains tax (CGT) | compliance | tax | investment | small business | business | tax compliance | tax avoidance | tax incentives | interest | legal services | law | budget | corporation tax | goods and services tax (GST) | Australia | fees | tax credits | tax authority | multinationals | tax planning | tax rates | tax reform | regulation | services

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