Article:

Possible inclusions for the 2016 Federal Budget

18 April 2016

Mark Molesworth , Partner, Tax |

With the Federal Budget fast approaching and with few details to have emerged to date, I have attempted to sift through the clues contained in numerous budget whispers to anticipate what may be announced on 3 May.

The forthcoming election casts a very big shadow over this budget, so I’m expecting we will see a lot of rhetoric but not much in the way of real reform on 3 May. However, there are a few key areas where we may see some new measures introduced.

Superannuation

Today’s budget leak has all but confirmed the budget will contain changes to contribution amounts and concessions for superannuation. This has looked to be on the cards for some time, but the devil will be in the detail. The Government will be very wary of alienating voters so close to the election so I expect any moves to be justified on conditions of ‘fairness’.

Corporate tax

The Government has put a lot of effort into preparing the ground for a corporate tax cut, however there does seem to be some resistance from large sections of the voting public. I think it is still on their agenda, but they may choose to bring in the first cut in a future year and reduce the rate progressively over time.

Infrastructure

There has been a lot of speculation that the Government may issue 30 year bonds for the first time to fund infrastructure projects, a cause BDO has long been championing for. If this were to occur, it’s not clear if it would come with a tax benefit for investors or not.

Personal income tax

It seems unlikely there will be any changes to personal income tax rates or deductions, other than possibly decreasing the income level where the additional 15% tax on superannuation concessions kicks in. There is also a good chance the concessional contributions cap for superannuation will be decreased.

“Sin” taxes

As occurs fairly regularly, there is a strong chance the Government will increase excise on cigarettes. The Government has consistently stated that tax would always be lower under the Coalition, so we can expect the increase to be less than the four rounds of 12.5% increases proposed by Labor last year. There is also a strong possibility the Government may look at the alcohol excise.

Multinational tax

After little discussion of multinational tax in recent times, today’s leak has revealed it is still very much on the agenda. Toughening some provisions might help counter some of the negative sentiment that may come from reducing the corporate tax rate. One possibility is potentially reducing or removing the safe harbour debt to assets ratio applied for thin capitalisation purposes. Another is increasing the tax on foreign executives in Australia by changing the temporary resident rules.

R&D Tax Incentive

Given its cost to government, it’s possible we will see a reduction in the R&D Tax Incentive program. If this proves to be true, it would be unfortunate as the program has done an outstanding job supporting research and development that would likely not have occurred otherwise. This will be a difficult message to sell for the ‘innovation and science’ government, and one BDO doesn’t support as innovation is what keeps an enormous number of Australian businesses sustainable.

For further insights from me on possible budget inclusions please view the videos below./p>

Superannuation

 

Multinational tax

 

R&D tax incentive