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Morrison Delivers Tax-Heavy Australian Budget

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

04 May 2016


In his first Budget as Australian Treasurer, Scott Morrison announced an overhaul of the company tax system, reforms to superannuation tax concessions, and a raft of new anti-avoidance measures.

Morrison delivered the Turnbull Government's inaugural Budget on May 3. Its centerpiece was what Morrison described as a "ten-year enterprise tax plan to boost new investment, create and support jobs, and increase real wages, starting with tax cuts and incentives for small- and medium-sized enterprises (SMEs)."

As part of this plan, the small business company tax rate will be cut from 28.5 percent to 27.5 percent from July 1, 2016, and the turnover threshold for access to the rate will be increased from AUD2m (USD1.5m) to AUD10m. The unincorporated tax discount will be increased from five percent to eight percent from July 1, 2016. The discount will then be progressively increased to reach a rate of 16 percent on July 1, 2026. The discount will be limited to small businesses with turnover of less than AUD5m, and will remain capped at AUD1,000 per individual per year.

Explaining how "Phase One" of the Government's enterprise plan will work, Morrison told Parliament: "Each year we will continue to step up the turnover threshold for the access to the lower company tax rate of 27.5 percent for more businesses, from AUD10m to AUD25m in 2017-18, to AUD50m in 2018-19, and AUD100m in 2019-20. This will mean [that] by 2020 more than half of all employees in companies in Australia will be in companies paying a lower tax rate of 27.5 percent. That's around 4.9 million employees, whose jobs will be supported by a lower tax rate in just four years."

Morrison added that in "Phase Two," the Government "will extend the lower tax rate of 27.5 percent to all businesses, by continuing to step up the threshold each year until 2023-24, before reducing the 27.5 percent rate for all businesses [from 30 percent] to 25 percent at the end of 10 years in 2026-27."

As part of its goal to improve the business tax system, the Government will also:

  • Simplify the depreciation rules, and allow businesses to claim an immediate deduction for each and every asset purchased costing less than AUD20,000 until June 30, 2017;
  • Give businesses the option to account for goods and services tax (GST) on a cash basis, and pay GST instalments as calculated by the Australian Taxation Office (ATO);
  • Simplify BAS reporting requirements for small businesses with turnovers of less than AUD10m from July 1, 2017;
  • Provide access to a simplified method of paying PAYG instalments, calculated by the ATO;
  • Give businesses the option to avoid an end-of-year stocktake if the value of their stock has changed by less than AUD5,000; and
  • Undertake an implementation study into the costs and benefits of adopting electronic invoicing.

On the personal tax front, Morrison announced that from July 1, 2016, the Government will increase the upper limit for the middle-income tax bracket from AUD80,000 to AUD87,000. He noted: "Those earning average wages – full-time or otherwise – should stay in the middle-income tax bracket. This will stop around 500,000 taxpayers from facing the 37 percent second top marginal tax rate in each and every year."

This measure is expected to reduce revenue by AUD3.95bn over the next four years. However, the Government anticipates that it will be offset by the other revenue and integrity measures contained in the Budget.

Strikingly, the Budget included wide-ranging reforms to the superannuation system. Morrison said: "While protecting the overall architecture of our superannuation system, including retaining the tax-free status of retirement accounts, from July 1, 2017, we will be reducing access to the generous tax concessions for the most wealthy."

The Government will extend the 30 percent tax on concessional contributions to those earning more than AUD250,000, and reduce the annual cap on concessional superannuation contributions to AUD25,000. It will introduce a transfer balance cap of AUD1.6m on accounts moving into the tax-free retirement phase, "with balances able to transfer above this cap, on account of tax-free earnings, once transferred." A Low Income Superannuation Tax Offset for those earning less than AUD37,000 will replace the Low Income Superannuation Contribution when it expires on June 30, 2017.

In an effort to make the superannuation system more flexible, the Government will:

  • Allow more employees and a wider range of self-employed people to claim a tax deduction for personal superannuation contributions;
  • Encourage partners to make contributions to their low-income spouses' superannuation by extending the eligibility for individuals to claim a tax offset for these contributions;
  • Remove regulations that restrict those aged between 65 and 75 from making contributions to their superannuation; and
  • Allow people to roll over unused concessional caps to ensure that those with interrupted work arrangements are not prevented from making catch-up contributions to their super if they are later in a position to do so.

According to Morrison, "96 percent of Australians with super will be unaffected by or be better off as a result of our superannuation changes." He anticipates a net gain of AUD2.9bn over the next four years as a result of these changes.

The other tax-related measures announced in the Budget were focused overwhelmingly on tax avoidance and evasion. The Government will:

  • Introduce a Diverted Profits Tax (DPT), which will impose a penalty rate of tax on large multinational companies that attempt to shift their Australian profits offshore to avoid paying tax;
  • Introduce new anti-hybrid rules to prevent multinationals from exploiting differences in the tax laws of two or more jurisdictions to defer or avoid paying tax;
  • Update the transfer pricing rules, to ensure they are in line with international best practice;
  • Introduce a tax transparency code to encourage greater transparency within the corporate sector;
  • Introduce protections for "whistleblowers" who disclose information about tax misconduct to the ATO;
  • Develop new rules to require better disclosure to the ATO about potentially aggressive tax planning schemes;
  • Increase penalties for breaches of tax reporting obligations for companies with global incomes of AUD1bn or more, and increase the maximum penalty for failure to lodge tax returns and similar documents from AUD4,500 to AUD450,000; and
  • Launch a Tax Avoidance Taskforce at the ATO, with a focus on multinationals, private companies, and high-net worth individuals.

The Budget was welcomed by Jennifer Westacott, the Chief Executive of the Business Council of Australia. Commenting on the tax measures, she said: "The Budget has started the process of reconfiguring the tax system to support higher growth and jobs. The Government has rightly recognized that durable budget repair will not be achieved by increasing the overall tax burden."

"The Government's 10-year enterprise tax plan is the signal that Australia's businesses need to drive greater investment, and create more jobs, better jobs, and higher-paid jobs. It's an immediate reduction for the small and medium business that need relief now. For big business, which operates on longer investment cycles, it's an important signal that their investment will be more competitive down the track."

TAGS: individuals | compliance | tax | investment | small business | business | tax compliance | tax avoidance | law | employees | retirement | budget | corporation tax | Australia | tax thresholds | ministry of finance | offshore | multinationals | tax planning | transfer pricing | tax rates | tax reform | regulation | penalties | trade association | trade | individual income tax | Tax | Tax Evasion

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