Tax measures spring clean
The government recently announced the result of its post-election spring clean on tax measures - find out what will go, what will stay and what other changes could be in store.
Of the 92 unlegislated tax and superannuation measures, the government announced it would proceed with 18 measures, abandon 7 measures and make amendments to 3.
The remaining 64 measures will be reviewed and the government will determine the results before the end of the year.
Measures that will not proceed:
- Self- Education expenses cap of $2,000 - the deduction will no longer be capped.
- Removal of statutory formula method for motor vehicle FBT - the proposal for all car fringe benefits to be calculated using the operating cost method will not go ahead.
- Taxation of superannuation pension earnings above $100,000 at 15%
Measures that will proceed:
- Phase out of net medical expenses tax offset (NMETO) for individuals - the rate of offset and medical expense threshold will depend on family status and income until it is phased out completely.
- Improvements to the integrity of Australia's foreign resident capital gains tax (CGT) regime - a new withholding regime will apply to sales of Australian real property by foreign residents.
- Dividend washing loophole - the loophole which allows double dipping on franking credits will be closed.
- Better targeting of deductions for exploration activity - to support genuine exploration activity rather than the costs of acquiring mining rights and information.
Measures that will proceed with amendments:
Profit shifting and international tax avoidance
A combination of proposed measures is intended to address concerns that multinational businesses are artificially loading debt into Australia. The package of measures is intended to:
- Tighten the safe harbour settings in the thin capitalisation rules - the 'safe harbour' debt limit will drop from 3:1 to 5:1 debt to equity.
- Reform the exemption for foreign non-portfolio dividends (the section 23AJ exemption) - to ensure that only returns on equity are eligible for the exemption.
- Repeal the special rule that allows tax deductibility for interest expenses incurred in deriving exempt foreign income (the section 25-90 deduction) - the deduction will remain despite ATO concerns about contrived cross border financing arrangements in order to claim the deduction.
Entitlement to GST Refunds
The proposed amendments which restrict GST refunds to circumstances where taxpayers have not passed on GST to their customers will also proceed with amendments.
The remaining 64 measures
The government has indicated that it is not inclined to proceed with these measures. While they may have minimal revenue impact a number of the measures had been long anticipated by taxpayers and practitioners, including:
- Amendment of the debt/equity rules - to improve the operation of the integrity rule in the debt/equity measures.
- Controlled Foreign Company (CFC) rules - the rules were to be rewritten following the repeal of the foreign investment fund (FIF) rules effective 30 June 2010.
- Earn out rules on the sale of a business - payments made under a standard earn out arrangement were to be treated as relating to the asset being sold for the seller, and would be part of the cost base of the asset purchased for the buyer.
Protection for taxpayers
The government has announced that there will be protection for taxpayers who have self -assessed in accordance with announced changes which will not proceed. In addition taxpayers who have paid additional tax as a result of compliance with measures that will not proceed will be entitled to a refund.
For more information or if you have any concerns about any of the above, please contact our specialist tax team in Sydney on 02 8346 6000 or Newcastle on 02 4962 2688.