Reduction in the corporate tax rates dropped

In a major development, the previously announced cut to the company tax rate will not go ahead. This was widely speculated in the days leading up to the budget, following opposition from the Coalition and Greens. The budget papers note that "it became clear the Government is not able to progress a cut in the company tax rate through Parliament" and hence decided not to proceed with the measure.

Company loss carry-back

In the lead up to the budget the Government announced it would introduce a loss carry back measure for companies, as recommended by its Business Tax Working Group. The budget papers confirm that the measure will apply from the 2012- 13 income year in relation to taxes paid in 2011-12. It will be extended in 2013-14 and later years so that companies can apply losses to obtain a refund of tax paid in the two preceding years.

The carry-back will be available to companies, and entities which are taxed like companies, including public trading trusts and limited partnerships. If these entities make a loss in 2012-13, they may carry this loss back, and obtain a refund for any tax paid in the preceding year. They will only be able to carry back $1 million of losses per year, meaning that the maximum benefit will be $300,000 (i.e. 30% of $1 million). Further any refund will be limited to the company's franking account balance.

You will hear more about this measure from us in the coming weeks.

Thin capitalisation and research and development concessions - no changes!

Despite the introduction of the company loss carry-back, the Government has not implemented two of the key saving measures mentioned by its Business Tax Working Group. Many had expected change to the thin capitalisation 'safe-harbour ratios' or delays to the research and development tax concessions. Broadly the thincapitalisation regime applies to limit interest deductions for certain in-bound and out-bound investors. The continuation of current rules will come as a pleasant surprise to international investors, and businesses undertaking research and development activities.

Bad debt deductions

Changes will be made to limit deductions for bad debts in certain circumstances. Consolidated groups will no longer be able to claim a deduction on bad debts written off, if the debtor is a related party, but not a member of the group. This is a relatively minor measure which we believe will have limited impact for most taxpayers.

Capital gains tax relief for merging superannuation funds

As previously announced, the Government will allow optional rollover and loss relief for superannuation funds undertaking mergers. This is intended to allow consolidation in the super industry as part of the MySuper and Stronger Super reforms. Consequently the relief is limited to transfers of member's assets to a MySuper product in another complying superannuation fund.

Technical amendments to capital gains tax provisions

A number of technical amendments to the capital gains tax provisions have been included in the budget, a number of which were previously announced.

  • The definition of 'beneficial interest' will be amended so that a consistent definition applies for the script-for-script rollover provisions and small business capital gains tax rules.
  • Scrip for scrip rollover relief will be extended to investors who hold assets as trading stock or on revenue account.
  • The scrip for scrip rollover integrity provisions will be strengthened so that investors cannot defer a taxing point by holding interests to acquire ownership rights rather than the rights themselves.

Tax administration

A number of small measures have been announced, including:

  • Funding of $97.7 million for an enhancement of the Australian Business Register; and
  • An additional $76.8 million for Project Wickenby, the joint taskforce responsible for the Government's fight against tax evasion.

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