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Setting Australia's direction
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The new Federal Government has handed down its first Budget, and in keeping with its promise to be fiscally responsible, the Budget shows a strong cash surplus of $21.7 billion for the 2008-09 financial year. A key feature of the Budget is a package of tax measures targeted at assisting families with expenses such as education and child care while at the same time also ‘means testing’ various Government payments such as the Baby Bonus and Family Tax Benefit Part B. The Budget also offers assistance to first home buyers through targeted savings accounts. Read more | | | |
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Future tax system review
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The Government has announced that it will provide $10 million over two years so that a comprehensive review of Australia’s tax system can be conducted. The review is to recommend a tax structure that positions Australia to deal with the demographic, social, economic and environmental challenges of the 21st century and enhance Australia’s economic and social outcomes. Read more |
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Capital Gains Tax: Scrip for Scrip Rollovers
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‘Scrip for scrip’ rollovers allow a company to acquire shares in another company by issuing shares in itself without triggering Capital Gains Tax for the shareholders in the target company. Read more |
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Taxation of Financial Arrangements
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Reintroduction of TOFA Stages 3 and 4
The Government plans to proceed with Taxation of Financial Arrangements (TOFA) Stages 3 and 4 which represent the final stages of the TOFA reforms. The Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007 (2007 TOFA Bill), which was introduced into Parliament last year, contained the TOFA Stages 3 and 4 measures. The Bill lapsed when the 2007 Federal election was called. Read more |
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Current election of taxation treatment
Under the current law, a taxpayer may elect to be assessed on any discount received on employee shares or rights in the income tax year in which the shares or rights are acquired. Read more | | | |
Managed Investment Trusts: Final withholding tax
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Distributions of income from Managed Investment Trusts (MITs) to non-residents (apart from interest, dividends and royalties) are currently subject to a non-final withholding tax of 30%. New rules will ultimately replace this with a final Withholding Tax of 7.5% on these distributions, and the rules will cover distributions made directly from MITs to foreign residents as well as distributions made through other intermediaries (including custodians). Read more |
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Managed funds: Changes to the eligible investment rules
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As part of the Government’s policies to attract international investment in Australian managed funds and to maintain the competitive neutrality between businesses conducted by companies and trusts, the 2009 Budget announces measures to clarify the application of the ‘public trading trust’ rules contained in Division 6C of the Income Tax Assessment Act 1936. Read more |
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Depreciation of computer software
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The Government will increase the period over which capital expenditure on in-house computer software is depreciated. Read more |
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Family Trusts: Reversing the concessions
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The Budget announcement followed up on the current Government’s election promise to wind back the increased flexibility of family trusts enacted by the former Government. Family trusts that have appointed inappropriate Read more |
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Capital Gains Tax: Small Business Concessions
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The Government has announced that it will extend small business capital gains tax (CGT) concessions to partners in a partnership and entities owning CGT assets used by a related entity where the partnership or related entity passes the small business entity test. Read more |
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Superannuation: Easing the administrative burden
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Superannuation Clearing House Facility
The Government will provide $16.1 million to the Australian Taxation Office to fund a Superannuation Clearing House Facility from 2009-10, to assist managing employers’ obligations to provide superannuation choice to employees. A Superannuation Clearing House allows an employer to pay their contributions to a single location. The clearing house will then distribute the contributions to the superannuation funds chosen by each employee. Read more |
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Fringe Benefits Tax
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The Budget measures on Fringe Benefits Tax (FBT) are by and large ‘integrity measures’ to combat what the Government perceives as an erosion of the fairness of the FBT system through tax planning arrangements and changes in technology.
The key FBT measures include:
• Removing the FBT exemption for ‘work-related items’ that are not primarily used for work purposes and denying employees depreciation deductions on work-related items that are exempt from FBT;
• Subjecting the full value of a fringe benefit provided to both an employee and their associate in relation to a jointly held asset to FBT; and
• Tightening the FBT exemption on meals provided to employees for consumption on their employer’s premises under a ‘meal card’ type arrangement.
Work-related items
Currently, certain work related items are exempt from FBT, regardless of whether they are primarily used for work purposes eg. laptop computers and personal digital assistants. In contrast, other items, such as mobile and car phones, are only FBT-exempt if they are primarily for use in the employees’ employment. The new measures aim to provide consistent treatment across all such items that are purchased after the Budget announcement so that they will only be exempt from FBT if they are primarily used for work purposes. The exemption will also be limited to one item of each type per employee per year. The list of work-related items will also be updated to reflect changes in technology.
Further, new law will be introduced to deny employees depreciation deductions on FBT-exempt work-related items that are purchased after the Budget announcement. This measure is designed to close the ‘double dipping’ loophole under the current law where employees are able to claim such depreciation deductions when they purchase the item and seek reimbursement from their employers.
Jointly held assets
The FBT law will be amended to ensure that the full value of a fringe benefit that has been provided to both an employee and their associate in relation to a jointly owned asset will be subject to FBT. This measure aims to overcome the decision in National Australia Bank Ltd v Federal Commissioner of Taxation 93 ATC 4919 where a loan provided by an employer to an employee and their associate for the purchase of a jointly held asset was deemed to have been provided to the employee, which gave rise to an unintended FBT benefit under the ‘otherwise deductible rule’.
By way of an example, under the current law, if an employer reimburses an employee and their associate an expense that is related to their jointly owned rental property, the otherwise deductible rule will reduce the taxable value of the expense to nil as the reimbursement will be deemed to have been provided to the employee alone. The new measure will ensure that the otherwise deductible rule will not apply to the part of the benefit that is related to the associate’s interest in the property, effectively subjecting that part of the benefit to FBT.
The new measure will apply to new arrangements commencing after the Budget announcement, but any existing salary sacrifice arrangement will be allowed to continue until 31 March 2009.
Meal cards
The current law provides a FBT exemption on meals provided to employees which are consumed on a working day on their employer’s business premises. Such ‘meal card’ type arrangements enable employees to effectively purchase meals out of their pre-tax income. The new measures will remove the FBT exemption on meals under a salary sacrifice arrangement, even though the meals would otherwise be treated as exempt property benefits. Existing balances on meal cards at the time of the Budget announcement will remain FBT-exempt, provided that they are used by 31 March 2009. However, any addition to the existing balances after the Budget announcement will immediately be subject to FBT.
BDO Kendalls’ comment
The above Budget measures will no doubt close some more of the well known loopholes in the FBT system to equate the overall tax position of employees irrespective of whether they fund a cost out of their pre-tax or post-tax earnings. For instance, the measure to stop employees from claiming depreciation on FBT-exempt work-related items is arguably long overdue, considering the Australian Taxation Office has been aware of the practice for at least the last 15 years and has even released rulings to confirm its legitimacy.
Having said that, these measures seem to only have ‘tinkered around the edges’. The ‘statutory formula method’ of calculating car benefits, which has been demonised as an anti-green tax policy, has been left alone in this Budget. Given the haphazard approach to ‘loophole plugging’ by the Government, there remain some salary packaging opportunities which will be of benefit to employees.
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GST: Key issue
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Increased integrity measures surrounding the sale of real property, the GST-free status of international telecommunications and abandoning the previously announced package of GST relief for charities are the key GST issues arising from the 2008/09 Federal Budget. In addition, the GST refund provisions will be amended to clarify their operation and to restore the intended four year time limit on refunds. Read more |
Expansion of the Export Market Development Scheme
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The Treasurer announced an expansion of the popular Export Market Development Scheme, committing an extra $50 million in 2009/2010. The increased funding is in addition to the broadening of the eligibility criteria which takes effect from 1 July 2008. This measure is likely to have the effect of opening up the scheme to many previously ineligible companies. Read more |
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Customs duty & excise changes
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The Government has indicated that a number of changes will occur in respect of the customs duty and excise regime. Read more | | | |
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Luxury Car Tax changes
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As was widely tipped, the Government has indicated that the Luxury Car Tax (LCT) rate will increase effective 1 July 2008. Read more |
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Personal Income Tax
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In recognition of the increased financial pressures and rising living costs for families, the Government will deliver in full the previously announced:
• Personal income tax cuts;
• Increase in the low income tax offset;
• Increase in thresholds for the Senior Australians Tax Offset; and
• Increase in Medicare Levy Surcharge thresholds. Read more |
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Means-testing for Government support
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The Government will expand the definition of ‘income’ used to determine eligibility for Government support programs. According to the Government the changes are designed to make income tests for assistance programs fairer and better targeted to those in need. Read more |
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First Home Saver Account
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Assisting Australians save larger deposits for first homes
The Government announced changes to the proposed First Home Saver Accounts (FHSA) regime following the consultation process around the discussion paper released on 8 February 2008 and the issues identified as a result. Read more |
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Capital protected borrowings
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As part of the Budget, the Government has announced changes to the benchmark interest rate used to determine the capital component of capital protected borrowing arrangements. Read more |
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Removal of differential treatment of same sex couples and their children
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The Government has announced that it plans to remove differential treatment of same-sex couples and their children from Commonwealth laws in many areas including taxation. In relation to taxation, all legislative changes are expected to take effect on 1 July 2009 with the exception of Fringe Benefits Tax (where the amending legislation will apply from 1 April 2009). Read more |
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Increased funding for the ATO
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The Government has announced that it will provide additional funding of $257 million over four years from 2008-09 to the Australian Taxation Office (ATO). The purpose of the additional resources is to enable the ATO to improve compliance activities, particularly for large businesses and high wealth individuals. The additional cost of the compliance activities is expected to increase revenue by $2 billion over four years. Read more | | | |
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Budget gives Australia green light
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Labor’s first budget has provided Australian businesses and households with a range of grants, subsidies and incentives aimed at tackling the issue of climate change. Read more |
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Holding pattern for innovation
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There were no surprises in the Federal Budget with respect to the Government’s innovation programs. Read more | | | |
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