• More certainty for business: Coalition Government’s tax and superannuation verdict

This week the Treasurer and Assistant Treasurer announced the Government’s process to clear the bottleneck of announced but unlegislated tax and superannuation measures.

Essentially, the Treasurer announced that of the 92 unlegislated and unresolved tax and superannuation changes, the Government will proceed with 18 initiatives, amend three and abolish seven. Importantly, there will be legislated protection for any taxpayer who has self-assessed with any of the announced changes that will not proceed.

Commenting on the announcements, Mark Azzopardi  Head of National Tax at Grant Thornton, remarked that “this looks like a good start in creating more solid ground for businesses to make investment decisions and cutting red tape.  Internationally, Australia needs to be more competitive – our headline tax rates are comparatively high - we need to see more reform on this front including broadening the tax base, before businesses will be putting out the flags.”

International investment – Australia open for business?

Lifting the cloud of uncertainty, the Government has announced its policy intent with respect to the thin capitalisation regime. 
The Coalition will amend the thin capitalisation proposal outlined as part of the 2013/14 Federal Budget as follows:

  • Allow Australian companies to continue to claim deductions on certain foreign investments 
  • Proceed with the previously announced increase to the de minimis threshold from $250,000 to $2 million of debt deductions 
  • Proceed with the reduction in the debt:equity ratio from 3:1 to 1.5:1

As expected, other measures to protect the corporate tax base from erosion and profit shifting will proceed. However, Grant Thornton Transfer Pricing Partner, Jason Casas, believes that “what is important is the enforcement of those policies. The Government has recently put in place many of the legislative tools that it requires to combat multinational companies inappropriately shifting profits offshore, in particular relating to transfer pricing. The question is the Government’s willingness to use these existing tools.”

The limitation placed on Research and Development (R&D) claims to groups with turnovers of less than $20 billion will save close to $1 billion over forward estimate periods. This will target the major banks and large miners who have often claimed large projects as eligible R&D activities.

The Coalition Government has also committed to introducing a new tax regime for managed investment trusts (MITs) and will proceed with the third tranche of the investment manager regime. Other MIT reform has been approved with pension funds to be allowed to access the MIT withholding tax regime, providing certainty for foreign pension funds.

Impact on small and medium enterprises (SMEs)

The Assistant Treasurer signalled that trust tax reform has been put on the backburner. The Board of Taxation has been tasked with presenting its views on trust tax reform before any policy developments.

A consultation period is to be held over the next couple of weeks, with the Government maintaining a disposition not to proceed with the outstanding 64 measures, including the R&D quarterly credits incentive.

According to Grant Thornton R&D Partner, Sukvinder Heyer, the lack of Government interest in this incentive “is not welcome news for many small companies innovating for the jobs of tomorrow but for whom cash is tight.”

However, the good news for SMEs is that the Coalition Government will not proceed with the increase to car fringe benefits, a much publicised proposal of the former Labor Government.

Australian individual taxpayers and the ageing population

From an individual perspective, the Government will proceed with the phasing out of the net medical expenses tax offset. The negative sentiment around the removal of this tax concession will be somewhat offset by the rejection of the proposed $2,000 cap on self education expenses. The Treasurer labelled this proposal as “flawed policy with no motivation other than a single headline.”

Following the re-phasing of the superannuation guarantee charge reported last week, the Coalition Government has offered some assistance to older Australians planning for retirement. The rejection of the tax on superannuation pensions earning over $100,000 per annum will assist these Australians to fund their retirement.

GST

The retail industry will continue to lobby for a reduction in the low value threshold of imported goods for GST and customs duty purposes. This is despite the Coalition Government indicating that it will not proceed with such a reduction.

Australia’s threshold of $1,000 is relatively high by world standards and arguably favours the shift to on-line shopping by consumers. The Coalition Government has set no timetable for a proper examination of the level at which Australia’s threshold should be set.

Another measure to be amended relates to minor technical changes to previously announced restrictions on refunds of overpaid GST. In practice this will substantially change how taxpayers claim such refunds. The process will now be one that invites much tighter scrutiny of GST refund claims from the ATO and may potentially be biased towards the ATO at the expense of taxpayers who may have made simple mistakes in calculating their GST net amounts.