The 2013-14 Federal Budget was handed down on 14 May 2013. The Budget was fairly moderate and, like the 2012-13 Budget, is designed to set a pathway towards a surplus in the future.
The main focus of the Budget is to protect the corporate tax base from international profit-shifting and erosion, close certain loopholes and better target certain tax concessions. However, there are changes that affect everyone.
Below is a summary of the most significant measures announced in the Budget. To make sure you get the most specific advice for your circumstances, particularly where you believe a Budget measure might affect you, it is essential you consult your tax adviser.
Tax Changes affecting Individuals and Families
Starting from 1 July 2012:
From 1 January 2014, the following changes to HECS-HELP program will cease to be available:
Phase out of net medical expenses tax offset
The net medical expenses tax offset (NMETO) will be phased out with transitional arrangements applying to those who currently claim the offset.
The Baby Bonus will cease to be available from 1 March 2014. Instead:
As part of the Clean Energy Future Package, the carbon price is projected to fall from $25.40 in 2014/15 to $12.10 in 2015/16. Further income tax cuts that had previously been legislated, in the form of a further increase in the tax-free threshold from 1 July 2015 will be deferred.
Disaster Income Recovery Subsidy (DIRS) payments provided to eligible persons, to provide financial assistance to employees, small business persons and farmers who experience a loss of income as a direct consequence of a natural disaster occurring in Australia between 3 January 2013 and 30 September 2013 will be exempt from income tax. This will affect the 2012-13 and 2013-14 income years.
Capping of work-related self-education expense deductions
From 1 July 2014, a cap of $2,000 will be imposed on work-related education expenses incurred by individuals. Deductible expenses include costs of courses of study or other education activity (such as conferences and workshops) including tuition fees, registration fees, textbooks and professional and trade journals.
Tax changes affecting companies and finance arrangements
Following on from Board of Taxation recommendations, certain loopholes will be closed in the tax consolidation regime. The measures will affect transactions taking place after 14 May 2013 (and the amendments concerning intra-group liabilities and assets subject to the TOFA regime will only apply to income tax returns and requests for amended assessments lodged from 14 May 2013). The measures address loopholes where “double deductions” have been able to be claimed and include:
Amendments will also be introduced to ensure that when an entity leaves a consolidated group, only net gains and losses are recognised for certain intra-group liabilities and assets (between the leaving entity and remaining members) which become subject to the TOFA regime upon leaving.
With effect from 1 July 2013, measures will be introduced to ensure that sophisticated investors will not be able to engage in "dividend washing". Dividend washing allows an investor to claim two sets of franking credits on effectively the same parcel of shares. Changes to the 45 day holding rule and “last-in first-out” rules will be considered during consultation with business on this issue. Investors with franking credit tax offset entitlements of more than $5,000 will be affected.
The Board of Taxation will also consider ways to improve the operation of the arm’s length test.
Various International Tax measures
From 1 July 2014, the exemption available to Australian companies for foreign non-portfolio dividend income (the interest holding is >10% of equity interests in the foreign entities) will be amended (as previously announced in the 2009-10 Budget) to ensure that:
From 1 July 2014, the tax deduction for interest expenses incurred in deriving certain foreign exempt income will be removed.
3) CFC rules
The reforms to the controlled foreign company (CFC) rules and foreign source income attribution rules previously announced in the 2009/10 Budget will be reconsidered after the Organisation of Economic Co-operation and Development (OECD) completes its analysis on base erosion and profit shifting.
Certain loopholes in the current Offshore Banking Unit regime will be closed off from 1 July 2013.
The immediate deduction for the cost of assets first used for exploration will be amended to mining rights and information. This impacts taxpayers who start to hold mining rights or information from 7.30pm (AEST) on 14 May 2013 unless the taxpayer has committed to acquire the mining right or information before that time or are taken by tax law to already hold the right or information before that time.
Capital Gains Tax changes
Further to the changes already being made to how capital gains tax (CGT) applies to non-residents, in addition, the principal asset test will be amended. The amendments will ensure that indirect Australian real interests are taxable if disposed of by a non-resident. In particular, the amendments will involve:
A 10% non-final withholding tax will also be introduced to apply to disposals of certain taxable Australian property by non-residents. Residential property transactions under the value of $2.5 million or disposals by Australian residents will not be affected. A purchaser will be required to withhold and remit to the Australian Taxation Office 10% of the proceeds from the sale.
This will affect transactions from 1 July 2016.
The CGT treatment of native title benefits has been clarified such that, from 1 July 2008, there will be no CGT implications arising from the transfer of native title rights (or the right to a native title benefit) to an Indigenous holding entity or Indigenous person, or from the creation of a trust that is an Indigenous holding entity over such rights. Capital gains or losses made from surrendering or cancelling such rights will also be disregarded.
With effect from 1 July 2012, minor amendments will be made to the 2012/13 Budget measure to reduce the higher tax concession for superannuation contributions of very high income earners (greater than $300,000). These minor amendments involve:
From 1 July 2013, the excess contributions tax system will be amended to ensure excess concessional contributions will be taxed at an individual’s marginal income rate. There will also be an interest charge to recognise that the tax on the excess contribution is being collected later than normal income tax. Individuals will also be allowed to withdraw any excess concessional contributions from their super fund.
The concessional contributions cap will be increased from $25,000 to $35,000 from 1 July 2013 for individuals aged 60 and over. Individuals aged 50 and over will be able to access the higher cap from 1 July 2014. Once the general concessional cap reaches $35,000 through indexation, which is anticipated to be by 1 July 2018, this higher cap will be available to all individuals.
Where an individual has an entitlement for the low income superannuation contribution that is below $20, the entitlements will now be paid. Entitlements below $10 will be rounded up to $10 and paid as well. This will impact individuals with incomes of up to $37,000.
Tax Administration Changes – Various funding to the Australian Taxation Office
The Budget provides for $67.9 million to be provided to the Australian Taxation Office over 4 years to form a Task Force to undertake compliance activity in relation to taxpayers who have been involved in egregious tax avoidance and evasion using trust structures.
The Task Force is to target the exploitation of trusts where trusts may have been used to conceal income, mischaracterise transactions, artificially reduce trust income amounts and underpay tax. The Task Force will focus on known tax scheme designers and promoters, and individuals and businesses who participate in these arrangements.
This measure is estimated to increase revenue by $379m over the forward estimates period.
The previously announced proposal to apply the Pay As You Go (PAYG) instalment system to large companies requiring them to make monthly instalment payments will be extended out to all large entities including trusts, superannuation funds, sole traders and large investors. This will apply to all entities in the PAYG system with turnover of $1 billion or more from 1 January 2016 and all entities with turnover of $20 million or more from 1 January 2017.
No change has been made to the original proposal that affects companies which remains as:
Some exceptions apply for certain entities other than head companies with a turnover of less than $100 million. There are modifications for entities who are in the taxation of financial arrangements regime.
The Australian Taxation Office will also be provided with $109.1 million over four years to increase its compliance activity targeted at restructuring activity that facilitates profit shifting opportunities.
The Australian Taxation Office will be provided with $77.8m over four years to improve compliance by expanding its data matching activities using third party information.
The measure will establish new and strengthen existing reporting systems for:
This measure is estimated to have a gain to revenue of $610.2m over the forward estimates period.
The information provided to the Tax Office will also improve the pre-filling of tax returns.
The Australian Taxation Office and Department of Finance and Deregulation will receive $80.2 million over the forward estimates period to strengthen up-front checks for issuing Australian Business Numbers and encourage the use of AUSkey, which is a secure credential for accessing the online services of the Australian Business Register. This measure will also enhance Standard Business Reporting to continue to reduce compliance costs for business.
The Australian Securities and Investments Commission (ASIC) will receive $1.4 million over four years to provide for a single, online registration for financial advisers registered with the Australian Securities and Investments Commission that also need to register as tax advisers from 30 June 2013. This follows the end of the exemption of financial advisers from the tax agent services licensing regime.
The cost is expected to be offset by the fees charged for financial advisers who are required to register.
The Government will establish a Tax Studies Institute (TSI) as a centre for excellence in tax research at the Crawford School of Public Policy at the Australian National University by providing a one-off endowment payment of $3m in 2012/13.
The Government will also establish a Tax System Advisory Board within the Australian Taxation Office to advise the Commissioner of Taxation and ATO Executive Committee on the strategic direction, culture, organisation, management, compliance planning, staff profile and information technology plans at the ATO. The cost of this measure will be met using existing ATO resources.
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