Tonight Treasurer Joe Hockey delivered his keenly
anticipated first budget. As expected, Mr Hockey announced various
revenue and welfare savings measures likely to be unpopular with
the electorate but designed to restore the Budget to surplus in the
medium term. The Government has forecast an underlying cash deficit
of $29.8 billion in 2014/15, falling to $2.8 billion by 2017/18 and
building to surpluses of well over 1% of GDP by
Topping the list of revenue measures is the temporary Budget
deficit tax known as the "Temporary Budget Repair Levy".
This tax is expected to generate additional revenue of $3.1 billion
over the forward estimates period. In addition, the Government has
reintroduced the indexation of fuel excise previously removed by
the Howard Government.
As anticipated, the Budget does not attempt to address in any
meaningful way genuine tax reform. For that we await the
Government's Tax Reform White Paper due for release prior to
the next Federal election.
So what are the most significant measures in this year's
Budget that will impact on the business bottom line?
COMPANY TAX RATE CUT AND THE NEW PAID PARENTAL LEAVE
A ray of sunshine for business is the Government's
confirmation of its commitment to cutting the company tax rate by
1.5% to 28.5% by 1 July 2015. This change satisfies an election
commitment of the Abbott Government. However, as has been widely
discussed, the Government will push ahead with its 1.5% tax from 1
July 2015 on large companies to fund its Paid Parental Leave
scheme. The scheme will have an income cap of $100,000 including
superannuation and will provide up to 26 weeks wage replacement at
no less than the minimum wage.
TEMPORARY BUDGET REPAIR LEVY AND OTHER RELATED MEASURES
The highly anticipated Temporary Budget Repair Levy will consist
of a 2% charge on taxable income in excess of $180,000 for three
years commencing on 1 July 2014. To prevent high income earners
from utilising non-cash benefits to avoid the levy, the fringe
benefits tax rate will be increased by 2% from 47% to 49% from 1
April 2015 until 31 March 2017.
CHANGES TO TAX ADMINISTRATION
The Government has confirmed that it will bring forward staff
cuts at the ATO which were planned under the previous Government.
4,700 ATO jobs will go over the forward estimates period, saving an
expected $142.8 million.
The cuts may put further pressure on the ATO to resolve disputes
with taxpayers quickly and efficiently. Taxpayers could find the
ATO more willing to explore alternative dispute resolution in order
to settle tax disputes.
Additionally, the Commonwealth Ombudsman's tax complaints
handling function will be transferred to the Inspector-General of
Taxation (IGOT). The IGOT's role is to review systemic tax
administration issues and report these back to Government. The
complaints handling function will sit neatly within this role.
CHANGES TO MINING TAXES
The Government will clarify the treatment of realignments of
interests between joint venture partners in the minerals and
petroleum industry for changes to ownership within a common
project. This measure is intended to address uncertainty for
realignments, which are potentially affected by the decision to
limit the immediate deduction for mining rights first used for
In addition, the Government will introduce an Exploration
Development Incentive (EDI) to allow small exploration companies
with no taxable income to provide exploration credits, paid as a
refundable tax offset, to their Australian shareholders for
greenfields mineral exploration.
ANNOUNCED BUT UNENACTED MEASURES – FURTHER DECISIONS
The Budget sheds further light on some previously announced but
unenacted changes to taxation and superannuation measures. In
particular, the Government has decided to:
not proceed with a proposal to remove inconsistencies in the
tax treatment of multiple entry consolidated groups that was
originally announced by the previous Government in the 2013-14
further refine measures that amend the principal asset test
under the foreign resident capital gains tax regime;
refine the consolidation integrity package announced by the
previous Government in the 2013-14 Budget;
defer the start date of the new managed investment trusts
regime (previously announced by the Government in November 2013) to
1 July 2015. Exposure draft legislation is expected to be released
for comment in June 2014;
reform the offshore banking unit regime as previously
defer the start date for measures to improve tax compliance
through third party reporting and data matching from 1 July 2014 to
1 July 2016.
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.
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