By Moore Stephens Tax Team
Major Tax Reforms
At the moment there seems to be a consensus building among tax professionals that this budget will not announce any major tax reforms. With a tax forum due to be held in October of this year, the Government is likely to delay any such fundamental reform. Instead, we are likely to see peripheral tinkering aimed at supporting the Government's objective of returning the budget to surplus.
Company tax rate reduction
The budget is expected to restate the Government's intention to reduce the company tax rate, starting from 1 July 2012. The company tax rate will be reduced from 30% to 28% - small companies will benefit from 1 July 2012, while other companies will access the 28% rate gradually (29% from 1 July 2013 and 28% from 1 July 2014).
The proposal was originally announced in the Government's response to the Henry Tax Review. It has since been attacked by Greens leader, Senator Bob Brown, who has repeatedly stated that the Greens would oppose the proposed tax cuts for large companies. He has said the Greens would be moving to scrap the tax cut for large companies, while supporting the cut planned for small companies.
The Australian Industry Group Chief Executive Heather Ridout has responded to the Greens threat, stating that the proposed reduction in the company tax rate, though small, is an integral part of the mining tax package and should not be used as a bargaining chip by the Greens. Rather, the aim should be to "achieve genuine tax reform by reducing the company tax rate to 25% over the years ahead, consistent with the Henry Review". She said it was "very disappointing that the Greens, who have in the past expressed clear support for the Mineral Resource Rent Tax, are now effectively going back on that commitment through their opposition to the proposed reduction in the company tax rate".
Millions of dollars a year in tax breaks for family trusts are likely to be targeted by the 2011-12 federal budget. The low income tax offset that applies to children's trust income is seemingly at risk of being eliminated or reduced.
The Government's thinking surfaced when the Assistant
Treasurer, Bill Shorten, confirmed in late April that the
Government had no intention to revive proposals to have trusts
taxed as companies. Mr Shorten went on to say "We're
not going to tax trusts as companies. We accept that trusts are
legitimate business vehicles for farmers and the like. But does
that mean we have to accept written in stone, like the 10
commandments, that a particular children's income test
should remain at one level?...Not at all". The Treasurer,
Wayne Swan, later also refused to rule out changes to the low
income tax offset in respect of children receiving trust
The low income tax offset that applies to trust beneficiaries can cost the Government up to $1,500 in forgone taxes per child. The Australian reported on 28 April that currently, almost 200,000 children pay no tax on non-work earnings distributed via trusts. The availability of the low income tax offset makes it attractive for parents on higher marginal tax rates to redistribute income to children who pay no tax on income up to $3,333 a year.
Fringe Benefits Tax (FBT)
Recent media reports indicate that the Government will announce significant changes to the FBT concession on employer-provided cars. It is understood that the changes will remove the tiered statutory fraction system that applies under the statutory formula method. A single statutory fraction of 20% or 0.20 will take its place, purportedly generating $950 million of additional revenue for the Federal Government over four years. The change comes amid pressure from the Greens Party, which views current concessions on employer related cars as being overly generous and a contributor to greenhouse gas emissions in Australia.
Taxation of Individuals
Media reports have suggested that the 50% childcare rebate for families with combined income of between $150,000 and $200,000 may be means tested for the first time. The rebate can pay families up to $7,941 per child and has come to be a valued income supplement for growing families.
2011-2012 Victorian State Budget Update – Land Rich Duty Provisions
The 2011-12 Victorian state budget was released on 4 May 2011. Of particular note was the Government's announcement that it will reform Victoria's land rich duty provisions by adopting a landholder duty model from 1 July 2012. The landholder duty model will replace the current land rich duty provisions.
Details of the proposed changes have been sparse. The Government has suggested that the proposed model will improve consistency in the treatment of direct and indirect acquisitions of land and reduce complexity for taxpayers. Further updates will be provided by your Moore Stephens Relationship Partner as details come to hand.
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