Australia: Summary of the 2013 Federal Budget - Special Client Update

Taxation Alert: 17 May 2013
Last Updated: 19 May 2013
Article by Justin Byrne and Rosalie Cattermole

Now that the dust has settled on the initial flurry of Budget round-ups, special counsel Justin Byrne and senior associate Rosalie Cattermole highlight below the salient points of the Federal Budget which was handed down on Tuesday.

Charities and not-for-profits

The Government has confirmed the delay of the start date for a previously announced Budget measure to tighten the tax concessions available to not-for-profit organisations. The effect of the reforms is that tax concessions provided to not-for-profit organisations must be targeted only at furthering an organisation's purpose, being the purpose that is the basis for the organisation's income tax-exempt status.

Furthermore, the unrelated commercial activity test that underpins the reforms, will not apply to small scale activities of $250,000.00 or less recounting income revenue.

For unrelated commercial activities commencing after 7.30pm (AEST) on 10 May 2011 (the initial budget announcement), the measure will apply to activities from 1 July 2014 onwards.

For unrelated commercial activities commencing prior to 10 May 2011, the transitional arrangements will cease on 1 July 2015, meaning the measures will apply to activities from 1 July 2015 onwards.

Importantly, not-for-profit and charitable entities will now have further time in which to restructure their affairs in order to comply with the new measures. Furthermore, smaller not-for-profits and charities having commercial activities under the $250,000.00 threshold will not be affected by the changes.

The Government has also pushed back the starting date of the new definition of "charity" from 1 July 2013 to 1 July 2014. Again, this will allow further industry consultation with the Government to occur in relation to the definition.

Native title

Further to measures that are currently before Parliament aimed at avoiding the uncertainty regarding the income tax treatment of native title rights and benefits, the Government has confirmed the clarification of the law in relation to the capital gains tax treatment of native title rights. The Government has stated that the law will clarify that there are no CGT implications resulting from the transfer of native title rights (or a right to a native title benefit to an indigenous person), or from a creation of a trust that is an indigenous entity over such rights.

The measures are retrospective and will apply to CGT events happening on or after 1 July 2008.

The proposed changes will be welcomed by indigenous groups and will provide clarity in relation to their tax position. Where indigenous groups have taken the position that CGT was payable in relation to native title rights or benefits, an amendment to income tax returns may be required. Note that generally, however, the taxpayer only has four years in which to amend such returns. As a result, time will be of the essence if an amendment to a 2008 tax return is required.

Monthly PAYG instalments

The Government has announced that it will extend the monthly PAYG income tax instalment system to include all large entities in the PAYG system, including now not only companies but also trusts, super funds and individuals.

The larger the turnover of the entity, the sooner the monthly PAYG instalment system will apply. For example, all entities in the PAYG instalment system with turnover of $1 billion or more will move to monthly PAYG instalments from 1 January 2016.

Otherwise, entities with a turnover of $20 million or more will move to monthly PAYG instalments from 1 January 2017.

Entities that have a turnover of less than $100 million and report GST on a quarterly or annual basis will not be required to pay PAYG instalments monthly.

Increase in the Medicare levy rate

In order to fund the Government's DisabilityCare Australia regime, the Government is increasing the Medicare levy from 1.5 percent to 2 percent. The change in Medicare rate also affects a number of other taxes, most notably the fringe benefits tax rate, which will now move from 46.5 percent to 47 percent on and from 1 July 2014. A number of other withholding payments will also require withholding at the new 47 percent rate, for example trustees assessed to tax on undistributed income, withholding where no ABN has been quoted by the payee, and employment termination payments.

Changes affecting individual taxpayers

The tax deductions for net medical expenses incurred by an individual that exceeds $2,000.00 for the income year, will be phased out. Those who claimed the deduction in the FY 13 year will be able to claim in the FY 14 income year. Those who claimed the deduction in the FY 14 year will also continue to be eligible to claim in the FY 15 year.

Self-education expenses and expenses related to conferences will now be limited to a deduction of $2,000.00 in total in an income year. However, this only applies where the individual taxpayer has incurred the expense, rather than the employer of the employee. There does not appear to be a limit on the amount of training that an employer can provide by way of conferences and self education expenses where the expenses are incurred by the employer. Furthermore, the rule cannot be circumvented by the employee salary sacrificing the conference expenses.

There has been vehement objection to this proposed measure and industry representative bodies, many of whom see this as a step in the wrong direction for skills training, will be lobbying the Government hard to stop this measure being introduced.

Petroleum Resource Rent Tax

Some technical changes will be made to the Petroleum Resource Rent Tax as a result of the decision in Esso Australia Resources Pty Ltd v Commissioner of Taxation. These changes relate to the ability of a taxpayer to proportion expenditure across a number of different projects while also allowing a taxpayer to claim a deduction for services purchased from third parties.

Thin capitalisation

The Government has announced a number of changes to the thin capitalisation regime, which seeks to limit debt deductions for entities that are broadly funded by way of debt rather than equity, and are either owned by a foreign company or control foreign companies. Currently $3 of debt can be used for every $1 of equity. The proposal is that only $1.50 of debt for every $1 of equity can be used. This may require larger businesses to restructure their debt/equity mix in order to comply with the new rules.

The Government has also announced an increase in the threshold from $250,000.00 to $2 million of debt reductions whereby if the debt deductions are less than this amount then the thin capitalisation rules will not generally apply. This is a welcome change which will alleviate small and medium businesses from these provisions.

It is also noted that the Government will be denying a tax deduction for interest expenses incurred in relation to the derivation of certain exempt foreign income. Therefore, taxpayers that currently derive foreign income should consider whether or not they will be affected by these changes and whether a restructuring of their financing is required.

Capital gains tax (CGT) withholdings for non-residents

These amendments will apply to CGT events occurring after 7.30pm on 14 May 2013, with a new withholding tax system to apply from 1 July 2016. The measures will ensure that indirect Australian real property interests are taxable if they are disposed of by a foreign tax resident. In particular, mining, quarrying and prospecting information and goodwill will be incorporated into the value of mining rights to which they relate. In other words, a CGT exemption can no longer be obtained by separately identifying and valuing such assets.

Further, a 10 percent non-final withholding tax will apply to each disposal by foreign residents of certain taxable Australian property. However, residential property under $2.5 million in value and disposals by Australian tax residents, will be excluded from the proposal. This "carve out" is welcomed, as the extra administration required to ensure compliance with such transactions would be burdensome.

Mining companies

The Government is amending the immediate deduction that is available for the purchase of assets first used for exploration by excluding mining rights and information from that deduction. Instead, the expenditure on mining rights and information will now be depreciated over 15 years or if shorter, the effective life of those assets. The effective life will be determined by the life of the mine that relates to

Importantly, the measure will not apply to:

  • mining rights or information from a relevant Government issuing authority; or
  • the costs incurred by a taxpayer itself in generating new information or improving the existing information; or
  • mining rights acquired by a farmee under a recognised farm in arrangement.

It remains to be seen the exact scope of the above exclusions however junior miners will welcome the fact that rights acquired under a farm in arrangement do not appear to be denied immediate deductibility.

The measures will apply to taxpayers who start to hold mining rights or information after 7.30pm on 14 May 2013, unless the taxpayer has committed to the acquisition of the right or information before that time.


The Government announced a number of changes to the superannuation system including:

  • Excess concessional contributions will now be taxed at an individual's marginal tax rate plus an interest charge. Furthermore, individuals can withdraw their excess concessional contributions from the fund.
  • The $25,000.00 concessional cap for annual contributions to super will be increased to $35,000.00 for people aged 50 and over (from 1 July 2013) and for those aged 50 and over (from 1 July 2014). All individuals should be able to access the $35,000.00 cap from 1 July 2018 (on the basis that through the indexation mechanism in the legislation, the $25,000.00 is indexed through changes in the CPI to $35,000.00 on or before 1 July 2018.
  • Earnings on assets within super will be tax free up to $100,000.00 from 1 July 2014 and earnings above that amount will be taxed at 15 percent. For assets that were purchased by the superannuation fund prior to 5 April 2013, the measure will only apply to capital gains on those assets that accrue after 1 July 2024. Further, any other capital gains that are subject to the tax will receive a 33 percent discount, meaning that they will effectively be taxed at the rate of 10 percent.

Although the $100,000.00 income limit appears to be quite high, if capital assets are sold by the superannuation fund, the $100,000.00 cap will invariably be easily reached, meaning that tax will be payable by the super fund (provided the fund is in pension phase). In other words, it is not just non-capital gains tax income that will be the subject of the $100,000.00 cap.


The ATO is being provided with further funding by which to target the exploitation of trusts that conceal income, mischaracterise transactions, artificially reduce trust income amounts and under pay tax. It is envisaged that this will eventuate into an increase in "reviews" being conducted in relation to taxpayer's use of trusts in general.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Justin Byrne
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions