What can be made of the Federal Treasurer's first budget,
which has been delivered against the backdrop of an imminent
election and in the midst of, some would say, unparalleled global
With the Federal Government firmly in election campaign mode,
the following revenue measures captured our attention:
From 1 July 2016, a 27.5% company tax rate for
companies with turnovers under $10m (to be gradually reduced
further to 25% in 2026/7).
If anything, this will exacerbate the difference between the
corporate tax rate and the highest marginal tax rate, which is set
to be reduced due to the removal of the temporary budget deficit
repair levy. In turn, there will be more emphasis on
companies retaining profits rather than distributing them via
dividends and shareholders paying "top up tax".
A number of measures are designed to cap amounts able to be put
into super, and, ultimately, the amount available in a super fund
upon retirement. This is designed to ensure that
superannuation is not used as a form of tax effective vehicle in
excess of providing for funds in retirement. A new 15% tax on
balances in excess of $1.6m when in retirement phase, which
effectively applies retrospectively as well, may cause a flow of
money out of superannuation funds in order to avoid the
The question is – where should these funds be put? A
family trust or private company is looking likely, leading to more
of the same sorts of structures (and their complexities) currently
in use. A useful and logical measure to be introduced from 1
July 2017 is the ability to "catch up" on yearly
contributions if they haven't been made in past years (on
concessional contributions up to a lifetime balance of
The introduction of a diverted profits tax,
colloquially called a "Google tax", akin to that
introduced in the UK to target and curb the same
Although details are yet to be released, it appears that the tax
(applicable from 1 July 2017) is aimed to apply where the
multinational corporation's revenue is "diverted"
away from Australia and taxed at a discount of 20% or more to
Australia's tax rate, it is reasonable to conclude that the
arrangement is designed to achieve the avoidance of Australian tax,
and there is not sufficient economic substance to the
arrangement. In practice, there is generally sufficient
economic substance to the arrangements – great effort is
usually expended in ensuring this is so.
What may be much more difficult to show, however, is whether it is
reasonable to conclude that the arrangement is designed to achieve
the avoidance of tax. For example, where a substantial global
brand is used to derive revenue in Australia, it may be reasonable
to expect a large payment to be made by the Australian subsidiary
to the offshore holding company that owns that brand. The
other interesting point to note is that many non-tax haven
countries that are Australia's trading partners have corporate
tax rates at least 20% or more less than Australia's.
This includes the UK, for example, with a 20% tax rate.
Changes favourable to taxpayers will be made in
relation to Division 7A; the deemed dividends regime for loans,
payments and debt forgivenesses involving private
The exact details of those changes are yet to come, but they are
bound to be welcomed by tax practitioners and clients alike.
A suite of changes to the venture capital limited
partnership and start up tax incentives.
This is in line with the Federal Government's innovation
policy. Again, these will be welcome changes to those in that
sector and will drive investment.
GST on "low value" imports into
In other words, prepare to begin paying 10% more for online
shopping where goods are coming from offshore. The proposal
will require offshore vendors to become registered for Australian
GST and remit the 10% GST to the Australian Government. We
will continue to watch with interest the Australian
Government's progress in enforcing compliance with these
measures from afar.
A 55% increase in funding for the ATO to undertake
compliance reviews and audits.
This is a huge increase and will inevitably mean that more
taxpayers will be reviewed and/or audited. Now is the time to
undertake a tax risk review, before the ATO comes knocking.
The Western Australian Government's long-awaited response to review of the Construction Contracts Act 2004 was recently released amid further scrutiny on government-managed construction projects and contractor insolvencies.
Repealing section 18C will not stop racial harassment, but you still must be accurate, reasonable and act in good faith.
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