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Setting Australia's direction
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The new Federal Government has handed down its first Budget, and in keeping with its promise to be fiscally responsible, the Budget shows a strong cash surplus of $21.7 billion for the 2008-09 financial year. A key feature of the Budget is a package of tax measures targeted at assisting families with expenses such as education and child care while at the same time also ‘means testing’ various Government payments such as the Baby Bonus and Family Tax Benefit Part B. The Budget also offers assistance to first home buyers through targeted savings accounts.
Many of the tax measures have been previously announced by the Government in the lead up to the Budget including a comprehensive review of the Australian taxation system which will incorporate Federal (other than GST), State and Local Government taxes. The Budget also confirms certain integrity measures. In a sign that it is serious about providing certainty to taxpayers, the Government has also reviewed almost 60 previously announced but unenacted tax measures and provided guidance in relation to which of these measures will be proceeded with.
Importantly, the projected surplus will be invested in the following future funds:
• The Building Australia Fund;
• The Education & Investment Fund; and
• The Health & Hospital Fund.
These funds will be channelled to the State Governments for the use in transport and communication, health and hospitals, and education.
Taxation features of the Budget
There are no major tax surprises in the Budget with most taxation measures having previously being announced by the Government. Some of the key measures include:
• Confirmation of the pre-election personal income tax cuts;
• Integrity measures dealing with the employee share scheme provisions and the family trust provisions;
• Business tax measures including progressing Taxation of Financial Arrangements (TOFA) stages 3 & 4 and various modifications to the tax consolidation regime;
• Integrity measures relating to the fringe benefits tax regime;
• Reducing withholding tax on managed investment trust payments to foreign investors;
• Tightening of the Scrip for Scrip Rollover provisions; and
• Expansion of the small business CGT concessions for small business entities.
The Government has also announced an aspirational goal to achieve by 2013-14 three levels of personal income tax rates, being 15%, 30% and 40%.
Broader Government initiatives
The Budget introduces a wide range of spending commitments which reflects the Government’s stated focus on the needs of Australians and the environment. The Government has particularly focussed on the education needs of Australians. The Budget introduces a number of measures to assist families with their education needs and costs. In addition, the Government has announced the establishment of an Education and Investment Fund and significant investment over a five year period for such measures as digital education revolution, establishment of trade training centres in schools, assistance to universities and reduction of costs of students in studying maths and science at university.
As to be expected, the Government has announced a range of spending measures to address the impact of climate change. There are Budget measures of $2.3 billion over a five year period to reduce greenhouse gas emissions, assistance to adapt to unavoidable climate change and to allow Australia to play a global leadership role. One such practical measure is a Budget allocation to assist households to change their use of energy.
Other commitments that target particular issues include:
• Housing affordability such as first home saver accounts and investment subsidies for new dwellings providing rentals to low income tenants;
• Additional support for older Australians and carers;
• Reducing indigenous Australians’ disadvantage by further supporting programs aimed at reducing infant mortality and increasing reading, writing and numeracy skills;
• Securing Australia’s water supplies by refocussing natural resource management on national priorities to deliver improved environmental outcomes;
• Improvement to medical service delivery by the establishment of the Health and Hospitals Fund, expenditure on a National Health and Hospitals Reform Plan and targeted programs aimed at preventable diseases (for example, binge drinking);
• A range of infrastructure programs including importantly the Building Australia Fund (BAF). A significant portion of the BAF will be committed to a National Broadband Network;
• Innovation for Australian industry such as the establishment of Enterprise Connect Innovation Centres which aim to connect businesses with new ideas and technology. There will also be the establishment of a green car innovation fund; and
• Regional development and assistance to the agricultural sector to adapt and respond to climate change.
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Future tax system review
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The Government has announced that it will provide $10 million over two years so that a comprehensive review of Australia’s tax system can be conducted. The review is to recommend a tax structure that positions Australia to deal with the demographic, social, economic and environmental challenges of the 21st century and enhance Australia’s economic and social outcomes. Read more |
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Capital Gains Tax: Scrip for Scrip Rollovers
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‘Scrip for scrip’ rollovers allow a company to acquire shares in another company by issuing shares in itself without triggering Capital Gains Tax for the shareholders in the target company. Read more |
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Taxation of Financial Arrangements
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Reintroduction of TOFA Stages 3 and 4
The Government plans to proceed with Taxation of Financial Arrangements (TOFA) Stages 3 and 4 which represent the final stages of the TOFA reforms. The Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007 (2007 TOFA Bill), which was introduced into Parliament last year, contained the TOFA Stages 3 and 4 measures. The Bill lapsed when the 2007 Federal election was called. Read more |
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Current election of taxation treatment
Under the current law, a taxpayer may elect to be assessed on any discount received on employee shares or rights in the income tax year in which the shares or rights are acquired. Read more | | | |
Managed Investment Trusts: Final withholding tax
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Distributions of income from Managed Investment Trusts (MITs) to non-residents (apart from interest, dividends and royalties) are currently subject to a non-final withholding tax of 30%. New rules will ultimately replace this with a final Withholding Tax of 7.5% on these distributions, and the rules will cover distributions made directly from MITs to foreign residents as well as distributions made through other intermediaries (including custodians). Read more |
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Managed funds: Changes to the eligible investment rules
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As part of the Government’s policies to attract international investment in Australian managed funds and to maintain the competitive neutrality between businesses conducted by companies and trusts, the 2009 Budget announces measures to clarify the application of the ‘public trading trust’ rules contained in Division 6C of the Income Tax Assessment Act 1936. Read more |
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Depreciation of computer software
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The Government will increase the period over which capital expenditure on in-house computer software is depreciated. Read more |
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Family Trusts: Reversing the concessions
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The Budget announcement followed up on the current Government’s election promise to wind back the increased flexibility of family trusts enacted by the former Government. Family trusts that have appointed inappropriate Read more |
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Capital Gains Tax: Small Business Concessions
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The Government has announced that it will extend small business capital gains tax (CGT) concessions to partners in a partnership and entities owning CGT assets used by a related entity where the partnership or related entity passes the small business entity test. Read more |
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Superannuation: Easing the administrative burden
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Superannuation Clearing House Facility
The Government will provide $16.1 million to the Australian Taxation Office to fund a Superannuation Clearing House Facility from 2009-10, to assist managing employers’ obligations to provide superannuation choice to employees. A Superannuation Clearing House allows an employer to pay their contributions to a single location. The clearing house will then distribute the contributions to the superannuation funds chosen by each employee. Read more |
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Fringe Benefits Tax
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The Budget measures on Fringe Benefits Tax (FBT) are by and large ‘integrity measures’ to combat what the Government perceives as an erosion of the fairness of the FBT system through tax planning arrangements and changes in technology. Read more |
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GST: Key issue
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Increased integrity measures surrounding the sale of real property, the GST-free status of international telecommunications and abandoning the previously announced package of GST relief for charities are the key GST issues arising from the 2008/09 Federal Budget. In addition, the GST refund provisions will be amended to clarify their operation and to restore the intended four year time limit on refunds. Read more |
Expansion of the Export Market Development Scheme
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The Treasurer announced an expansion of the popular Export Market Development Scheme, committing an extra $50 million in 2009/2010. The increased funding is in addition to the broadening of the eligibility criteria which takes effect from 1 July 2008. This measure is likely to have the effect of opening up the scheme to many previously ineligible companies. Read more |
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Customs duty & excise changes
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The Government has indicated that a number of changes will occur in respect of the customs duty and excise regime. Read more | | | |
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Luxury Car Tax changes
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As was widely tipped, the Government has indicated that the Luxury Car Tax (LCT) rate will increase effective 1 July 2008. Read more |
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Personal Income Tax
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In recognition of the increased financial pressures and rising living costs for families, the Government will deliver in full the previously announced:
• Personal income tax cuts;
• Increase in the low income tax offset;
• Increase in thresholds for the Senior Australians Tax Offset; and
• Increase in Medicare Levy Surcharge thresholds. Read more |
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Means-testing for Government support
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The Government will expand the definition of ‘income’ used to determine eligibility for Government support programs. According to the Government the changes are designed to make income tests for assistance programs fairer and better targeted to those in need. Read more |
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First Home Saver Account
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Assisting Australians save larger deposits for first homes
The Government announced changes to the proposed First Home Saver Accounts (FHSA) regime following the consultation process around the discussion paper released on 8 February 2008 and the issues identified as a result. Read more |
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Capital protected borrowings
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As part of the Budget, the Government has announced changes to the benchmark interest rate used to determine the capital component of capital protected borrowing arrangements. Read more |
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Removal of differential treatment of same sex couples and their children
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The Government has announced that it plans to remove differential treatment of same-sex couples and their children from Commonwealth laws in many areas including taxation. In relation to taxation, all legislative changes are expected to take effect on 1 July 2009 with the exception of Fringe Benefits Tax (where the amending legislation will apply from 1 April 2009). Read more |
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Increased funding for the ATO
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The Government has announced that it will provide additional funding of $257 million over four years from 2008-09 to the Australian Taxation Office (ATO). The purpose of the additional resources is to enable the ATO to improve compliance activities, particularly for large businesses and high wealth individuals. The additional cost of the compliance activities is expected to increase revenue by $2 billion over four years. Read more | | | |
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Budget gives Australia green light
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Labor’s first budget has provided Australian businesses and households with a range of grants, subsidies and incentives aimed at tackling the issue of climate change. Read more |
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Holding pattern for innovation
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There were no surprises in the Federal Budget with respect to the Government’s innovation programs. Read more | | | |
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