Australian Government's Plans for Unenacted Tax

by K&L Gates LLP
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The Announcement

At the time the Coalition Government (Government) was elected in September 2013, there were 96 tax and superannuation proposals announced by the previous government that had not been enacted. On 6 November 2013, the Government released a statement clarifying its intentions regarding these proposed measures.

Of the 96 proposals:

  • four have been addressed by the proposed mining and carbon tax repeal packages
  • the Government will proceed with 18 without any major amendments 
  • three will be substantially amended before the Government intends to pass them
  • the Government will not proceed with seven of the proposals
  • 64 will be a subject to a review by Assistant Treasurer, Arthur Sinodinos AO, with assistance from the Board of Taxation. This review starts with a disposition not to proceed with the remaining 64 measures and will investigate whether there are any compelling reasons to alter this position. The Government will consult with tax experts and industry in coming to a final decision.

The Government is intending to resolve all policies relating to these matters by 1 December 2013 for inclusion in the Mid Year Economic and Fiscal Outlook.

Key Measures That Will Proceed

The measures that will proceed as previously announced include: 

  • introducing a new managed investment trust regime – including the creation of an elective 'attribution' system of taxation to replace the present entitlement system
  • broadening the definition of Taxable Australian Real Property to incorporate mining information and goodwill in mining businesses
  • the introduction of a 10 percent non final withholding tax from 1 July 2016 on non residents disposing of certain taxable Australian property
  • denying the research and development tax offset to large companies with incomes of AUD20 billion or more
  • improving the integrity of the consolidation regime including preventing entities claiming double deductions
  • working towards signing and enacting a treaty status inter-governmental agreement with the United States to enable the financial sector to comply with U.S. Foreign Account Tax Compliance Act (FATCA) reporting rules
  • implementing Element 3 of the investment manager regime, which extends the conduit income measures:
    • to exempt foreign managed funds from tax on gains from the disposal of foreign non-portfolio investments
    • to exempt those funds from tax on gains from the disposal of certain portfolio Australian financial arrangements.
  • better targeting the deduction for exploration expenses to genuine exploration activity – restricting the immediate deduction for the cost of acquiring mining rights, so that it is only available for genuine exploration activities.

Key Measures That Will be Substantially Amended

The measures that the Government will substantially amend before seeking to pass them include:

  • measures to address aggressive tax structures that seek to shift profits by artificially loading debt into Australia: 
  •  
    • the proposed 'tightening' of the thin capitalisation will proceed with the general safe harbour debt to equity ratio being reduced from 75 percent of adjusted Australian assets to 60 percent, the worldwide gearing ratio reduced from 120 percent to 100 percent and an extension of the worldwide gearing test to inbound investors. However, the de minimis threshold test will be increased from AUD250,000 to AUD2 million per annum of debt deductions
    • the Government will however not proceed with Labor's proposal to deny interest deductions taken under Section 25-90 of the Income Tax Assessment Act 1997 in relation to investments producing foreign income which is non-assessable nonexempt income in Australia. Instead, the Government will seek to introduce a targeted anti-avoidance provision.
  • previously announced changes to the exemption for foreign non-portfolio dividends (s 23AJ) will proceed so that the provision applies to returns on foreign non-portfolio equity interests 
  •  the proposed changes to the offshore banking unit regime including integrity measures. The measure that proposed to exclude all related party dealings will not proceed and instead a targeted integrity rule will be introduced.

Key Measures That the Government Will Not Proceed With

The measures that the Government will not proceed with include:

  • the abolition of the statutory formula method for calculating fringe benefit tax on salary-sacrificed and employer provided cars
  • the AUD2,000 cap on the amount people can deduct as self-education expenses
  • tax on earnings on superannuation assets supporting retirement income streams above AUD100,000.

Key Measures Subject to Review

The measures that will be subject to a review (with a disposition not to proceed) include:

  • the proposed rewrite of the controlled foreign corporation (CFC) rules
  • the proposed amendments to the Capital gains tax earnout rules.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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