Australia: Federal Budget 2014: corporate tax snapshot

Last Updated: 15 May 2014
Article by Morris Maroon and Tim Pepper

The Federal Treasurer handed down the 2014-2015 Federal Budget last night. The budget contained few corporate tax measures. Here's a snapshot of the corporate tax measures set to have an effect on Australian businesses in the coming years.

There will be a tightening of the CGT treatment of indirect Australian real property interests. Specifically, the proposed changes will treat mining, quarrying and prospecting information and goodwill, together with mining rights, as real property for the purposes of the "principal asset test."

The Government will not proceed with the previous Government's proposal to repeal section 25-90 of the Income Tax Assessment Act 1997, which deals with deductions relating to foreign source income. The Government will instead consult on a targeted integrity rule.

The Government will also not proceed with the previous Government's announcement in the 2013-2014 Budget to remove inconsistencies in the income tax treatment of multiple entry consolidated groups. This decision was the result of a review that concluded that it was not feasible to review inconsistencies without "a reconsideration of broader international tax policy issues."

The tax consolidation integrity package announced in the 2013-2014 Budget will be modified. Specifically:

  • Clarification that accounting liabilities relating to securitised assets held by a subsidiary will be disregarded in certain situations where the subsidiary leaves a consolidated group and/or joins a consolidated group. This change will apply to arrangements that commence on or after 13 May 2014. Transitional rules will apply to arrangements that commence before this time.
  • The double deductions measure, the churning measure and the deductible liabilities measure will be amended so that they apply to arrangements that commence on or after 14 May 2014.
  • The deductible liabilities measure will also be amended so that retirement villages' residential loan liabilities are excluded.

The start date for the new system for managed investment trusts (MITs) will be deferred to 1 July 2015.

Revenue measures announced

  • The rates for the refundable and non-refundable offsets for the R&D Tax Incentive will be reduced by 1.5%.
  • The superannuation guarantee rate is to go to 9.5% on 1 July 2014.
  • The Government has committed to cutting the company tax rate by 1.5% to 28.5% from 1 July 2015.
  • The Paid Parental Leave scheme will proceed from 1 July 2015.
  • FBT rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017. This is to prevent high income earners from using fringe benefits to avoid the 2% budget deficit levy.
  • Fuel excise indexation is to recommence.

Tax and Superannuation Laws Amendment Bill 2014

The Treasurer has released exposure draft legislation dealing with changes to the thin capitalisation rules and the exemption for foreign dividends received by Australian companies.

The changes to the thin capitalisation rules which apply from 1 July 2014 include:

  • Increase the de minimis threshold from $250,000 to $2 million.
  • Reduce the safe harbour debt limit from 3:1 to 1.5:1 on a debt to equity basis.
  • Reduce the safe harbour debt limit for non-bank financial entities from 20:1 to 15:1 on a debt to equity basis.
  • Increase the safe harbour minimum capital for banks from 4% to 6% of the risk weighted assets of their Australian operations.
  • Reduce the worldwide gearing ratio from 120% to 100% and make it available to qualifying inbound investors.

In respect of the foreign dividends exemption the exemption will:

  • not be available for dividends paid on legal form shares that are classified as debt by virtue of the debt/equity rules, and
  • be available non-share equity and dividends received indirectly via trusts and partnerships.

These changes are wide-reaching and may have significant effects on your or your clients' business. Rockwell Olivier's corporate tax team is well placed to assist in reviewing your company tax position and providing advice on how to achieve the best result from the 2014-2015 Federal Budget.

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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