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This special edition of Acumen discusses the key taxation reforms for business announced on the evening of 9 May 2017 by Treasurer Scott Morrison in the 2017 Australian Federal Budget. Highlights from the tax announcements in the Budget are:
The Treasurer positioned tonight’s Budget as one “based on the principles of fairness, security and opportunity”, one that is “about making the right choices to secure the better days ahead”.
Despite announcing the reversal of savings from the 2014/15 and 2015/16 Budgets at a cost of $13 billion, the Treasurer announced that the Budget is projected to return to balance in 2020/21 and remain in surplus over the medium term.
From the Government’s perspective, the Budget:
The Government’s crackdown on MNEs not paying their “fair share” of tax continues although, in this regard, the Treasurer’s speech was longer on rhetoric than on additional substantive measures.
The Treasurer announced that the Australian Taxation Office (ATO) has raised $2.9 billion in tax liabilities from seven large MNEs in the current financial year and anticipates raising more than $4 billion in total this financial year from large public companies and MNEs. Interestingly, the Government will provide $8.1 million over the next two years to communicate its key tax integrity measures to the Australian business community and the general public. Apparently this is designed to demonstrate Australia’s international leadership in addressing multinational tax avoidance.
The Treasurer announced that the Multinational Anti-Avoidance Law will be strengthened to deal with structures involving foreign partnerships and trusts.
In addition, the Government will introduce measures to prevent banks and financial institutions taking advantage of hybrid mismatches that occur in cross-border transactions relating to regulatory capital referred to as Additional Tier 1 Capital:
It should be noted that rules are currently being developed for Action Item 2 of the OECD Base Erosion and Profit Shifting Action Plan, which recommends neutralising the effects of hybrid mismatch arrangements that occur due to the different treatment of an entity or instrument, under the laws of two or more tax jurisdictions. These measures were announced in last year’s Budget and are expected to apply to payments made on or after the later of 1 January 2018 or six months following the date of Royal Assent for the legislation introducing these anti-hybrid measures.
The Government has announced that, from 1 July 2019, the Medicare levy will be increased from 2.0% to 2.5% of taxable income. This increase will not only impact personal income tax, but also other tax rates which are tied to the top marginal rate, such as the fringe benefits tax rate.
The revenue raised from this measure will be used to fund the National Disability Insurance Scheme and the Medicare Guarantee Fund which was also announced in the Budget.
The changes in the Budget to reduce pressure on housing affordability focussed on foreign property investors are:
For Australian resident property investors, the measures are less severe as follows:
Lastly, there are a number of housing affordability measures, as follows:
The Government will introduce a MBL for Authorised Deposit-taking Institutions (ADIs) with licensed entity liabilities of at least $100 billion from 1 July 2017. The $100 billion threshold will be indexed to grow in line with nominal GDP.
The MBL will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities at each Australian Prudential Regulatory Authority mandated quarterly reporting date (i.e. an annual rate of 0.06%). The liabilities that are subject to the MBL will include items such as corporate bonds, commercial paper, certificates of deposit and Tier 2 capital instruments. The MBL will not apply to Additional Tier 1 capital and deposits of individuals and businesses and other entities protected by the Financial Claims Schemes.
The Australian Consumer and Competition Commission (ACCC) will undertake a residential mortgage inquiry until 30 June 2018 to facilitate the introduction of the MBL. As part of the inquiry, the ACCC will require ADIs to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges and interest rates.
Small business taxation measures announced in the Budget include:
On the GST front, the Government announced the following integrity measures:
Whilst not a taxation measure, from March 2018, businesses that employ foreign workers on temporary skill shortage visas (TSSV) or support workers for a permanent employer nomination scheme or regional sponsored migration scheme visa (Permanent Visa) will be required to pay a Skilling Australians Fund Levy, which will be used to support the training and development of Australian workers. Businesses with an annual turnover of less than $10 million per year will be required to make an upfront payment of $1,200 per year ($1,800 per year for businesses with a turnover of more than $10 million) for each employee on a TSSV and a one off payment of $3,000 ($5,000 for businesses with a turnover of more than $10 million) for each employee sponsored for a Permanent Visa.
In the corporate tax space, there are a number of measures under active consultation that have not found their way into this year’s budget, including:
It can be expected that there will be further announcements in relation to these matters over the course of the next financial year. Despite some speculation, there were no measures to change the thin capitalisation regime in this budget.
On housing affordability, the Government has shied away from the more controversial measures that have been floated by various commentators, such as abolishing negative gearing or reducing or eliminating the CGT discount. It remains to be seen whether the announced measures will have any appreciable effect on housing affordability. If not, then the calls for more drastic action may need to be addressed.
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