• Tax alert: Backlog of tax measures – increased certainty for taxpayers in 2014

Over the weekend the Assistant Treasurer announced the Government’s final decision on the status of the remaining 64 announced but unlegislated tax measures.

Following little more than a month of consultation with key stakeholders, the Government has decided to proceed with 16 measures and scrap the remaining 48.

Vince Tropiano, Tax Partner at Grant Thornton said, “going into 2014 with greater certainty around the significant backlog of unenacted tax measures can only be welcomed by business. There are some casualties here though, such as not proceeding with quarterly credits for Research and Development (R&D) which could have encouraged more innovation, and the reform of the controlled foreign company rules.  Businesses are looking for the tax reform that will make Australia internationally competitive and make this an easy place to do business - and there is still some way to go on both fronts.”

The tax measures important to Australian taxpayers The Government expects 16 unlegislated measures to be passed by Parliament in 2014. The more significant measures include:

  • GST:  Reverse charge for going concerns GST free concessions in relation to the supply of going concerns and farm land supplied for farming will be replaced with a reverse charge mechanism. This means the purchaser of either a going concern or farm land will charge itself GST and claim it back, presumably with no net cash flow implications. This was a 2009/10 Budget announcement which Grant Thornton Indirect Tax Partner Tony Windle believes will be very interesting to administer in practice, given that the States have previously resisted the request not to levy additional stamp duty on the GST component of such a supply.
  • Capital gains tax treatment of earn out arrangements
    The Government will proceed with this measure which treats earn out payments as part of the value of the business asset for determining the capital gains tax implications. The purpose of this measure, as announced by the Rudd government in 2010 is to support Australian businesses by making it easier to buy and sell businesses.

The Government has committed to providing legislative protection for any taxpayer who has self-assessed with any of the announced changes that will not proceed. The 48 measures that will not proceed will impact a wide cross section of industries. These include: 

  • R&D tax incentive According to Grant Thornton R&D Partner, Sukvinder Heyer, “the quarterly credits initiative would have assisted companies with a turnover of less than $20 million fund their R&D in real time. This incentive was a 2013/14 Budget announcement designed to allow the R&D refundable tax offset to be provided in quarterly instalments.
    “In addition, the initiative would have enhanced the governance of the R&D system through improved company identification and tracking – a positive outcome for companies and investors alike.”
    However, of greater concern is the lack of consistent Government policy in this area. This is illustrated by the recently announced $20 billion R&D assessable income threshold which targets our largest companies, whilst the quarterly credits incentive was to be a boost for small companies.
    In 2014, the Government must introduce R&D policies that will aid the competitiveness of Australian business. In the meantime it will be a case of “wait and see” on what the approach will be and where the support will be focused.
  • Controlled Foreign Company (CFC) reforms The proposed modernisation of the CFC regime has been a hot spot since first announced in the 2009/10 Federal Budget. The opportunity to modernise the CFC rules appears to have been lost for the time being.
  • Better targeting of Not for Profit tax concessions The Government will not proceed with the measure to “better target” Not for Profit tax concessions. Essentially, this measure was to ensure that tax concessions were only available for those activities which furthered the entity’s “altruistic purposes”.
    This announcement will come as a great relief to the Not for Profit sector. Grant Thornton Tax Partner, Elizabeth Lucas who works closely with the Not for Profit sector believes that the benefit will come through avoiding the additional administrative burden and implementing otherwise unnecessary structuring to comply with the tax rules. However, the Government has noted that it will explore simpler alternatives to address the risks to revenue.