Instant asset write-off extended
The immediate write-off of depreciable assets costing less than $20,000 purchased by small business entities (with an aggregated turnover of less than $10m) was due to expire on 30 June 2018. The concession has been extended for a further 12 months to 30 June 2019. The concession has been in place since 12 May 2015 and has been very popular with small business entities, particularly at this time of year.
In conjunction with this extension, the current “lockout” laws for small business depreciation rules (these prevent small businesses from re-entering the small business depreciation regime for 5 years after they opt out) will also not apply until 30 June 2019. This means that these small businesses can also potentially still access the immediate write-off.
Small business CGT concessions
From 7.30pm on 8 May 2018, the Government proposes to tighten the small business capital gains tax (CGT) concessions to ensure partners that alienate rights to future partnership income will no longer be able to access the small business CGT concessions in relation to these rights.
This is intended to stop the concession being inappropriately accessed in relation to the assignment of a right to future partnership income to an entity, without giving that entity any role in the partnership.
Division 7A UPE rule strengthened
Division 7A is an integrity rule that requires benefits provided by private companies to their associates to be taxed as dividends unless they are made subject to a complying division 7A loan or another exception applies. Since 2009 the ATO has considered that unpaid present entitlements (UPEs) to corporate beneficiaries of a trust (distributions that were made to the company but not paid) may be subject to Division 7A but also subject to special rules.
From 1 July 2019, the Division 7A legislation will be amended to ensure that UPEs come within the scope of Division 7A.
The Government also announced that it would defer the start date of proposed changes to Division 7A announced in the 2016-17 Budget from 1 July 2018 to 1 July 2019.
Circular trust distributions
From 1 July 2019 specific anti-avoidance rules regarding circular trust distributions will be extended to include family trusts.
The measure applies to stop ‘round robin” trust distributions, where a distribution ultimately returns to the original trustee – in a way that avoids tax being paid on that amount. Tax on such a distribution will be imposed at a rate equal to the top personal tax rate plus Medicare.
Large Business and International
Other than a proposal to investigate further initiatives on taxing the digital economy, no significant new tax measures were noted that would have any major impact on most large business or international dealings. Rather, a number of measures have been proposed to tighten existing rules.
Taxing the Digital Economy
The Federal Government continues its focus on taxing the digital economy, although at this stage no new measures have been announced apart from the promise of a consultation paper to be issued on possible taxing models. Possible solutions that would be canvassed include the introduction of a “digital presence” or “virtual permanent establishment” concept, including having interim measures such as a flat percentage tax based on turnover of a digital business in a particular country.
Definition of “Significant Global Entity”
Under the current Significant Global Entity (SGE) rules, entities that are classified as SGE’s have greater tax reporting obligations (e.g. local and country-by-country reporting) and are subject to stricter anti-avoidance provisions compared to other taxpayers. An unintended outcome of the SGE rules was that the definition of “SGE” was too narrow and only caught groups headed by public companies and private corporate groups that were required to prepare consolidated accounts.
As a result, the Federal Budget proposes to expand the definition of an SGE to include members of large multinational groups headed by private companies, trusts, partnerships and investment entities that meet the relevant turnover tests.
The expanded SGE definition is to apply for income years starting on or after 1 July 2018.
Managed Investment Trusts – more information exchange countries to be added
Two measures were announced affecting Managed Investment Trusts (MITs).
The first measure relates to the proposal to expand the list of countries whose residents can benefit from the reduced 15% withholding (instead of 30%) on certain distributions from MITs. The additional countries to be added are those which have entered into agreed information sharing arrangements with Australia in order to protect revenues.
The updated list is to be effective from 1 January 2019.
The second measure is aimed at preventing the 50% capital gains discount being accessed by certain beneficiaries of MITs and Attribution MITs (AMITs) that should not be entitled to such a discount (e.g. non-resident beneficiaries). This is to be achieved by removing the 50% capital gains discount at the trust level. MITs and AMITs deriving capital gains can continue to distribute such gains that can be discounted in the hands of the beneficiary who qualify.
This measure will apply to payments made from 1 July 2019.
Two thin capitalisation integrity measures were announced in the Federal Budget.
The first relates to the tightening of the thin capitalisation rules which will require entities to align the value of assets adopted for thin capitalisation purposes with the values adopted in the financial statements. Valuations that were made prior to 7.30PM (AEST) on 8 May 2018 may be relied on until the beginning of an entity’s first income year commencing on or after 1 July 2019.
The second thin capitalisation integrity measure is more technical and is aimed to restrict foreign controlled Australian consolidated groups and multiple entry consolidated groups from accessing certain thin capitalisation safe harbour tests aimed at “outward investors” rather than “inward investors”. This measure is intended to apply to income years commencing on or after 1 July 2019.
Commitment to Company Tax Cuts
The Federal Government confirmed its commitment to gradually cut the company tax rate for all companies to 25% by 2026-27 under a phased approach as set out in its Ten Year Enterprise Plan. Smaller entities currently benefit from the 27.5% rate while the phasing in of the lower 27.5% corporate tax rate to other corporate tax entities with aggregated turnover of $50 million or more would start from the 2019-20 income year.
Indirect Taxes & GST
Excise changes for smaller brewers
The Government is increasing the alcohol excise refund scheme annual cap to $100,000, up from $30,000. Concessional draught beer excise will also apply to 8 litre or greater kegs. These changes will begin on 1 July 2019. The increased cap should provide additional support to local brewers, and also extends to makers of other fermented beverages and distilleries. The change to keg size will allow smaller brewers to gain access to concessional excise rates, as these brewers generally provide their product in smaller kegs than the current concessional keg size of 48 litres. These changes are expected to assist smaller brewers to compete with the major brewers.
GST changes to offshore suppliers of hotel accommodation
Offshore suppliers of Australian hotel accommodation will need to include such supplies in the calculation of their GST turnover from 1 July 2019. The GST turnover calculation is used to determine if a supplier must charge GST. Currently offshore providers do not have to include supplies of Australian hotel accommodation in their GST turnover. As a result of this measure more offshore suppliers will be required to register for GST and charge it accordingly to customers. This is a response to the increased popularity of online booking services and puts local suppliers of hotel accommodation on an even playing field as offshore providers.
Luxury car tax changes for refurbished vehicles
Cars that are taken overseas for refurbishment and re-imported back to Australia will no longer incur luxury car tax from 1 January 2019. The same car, refurbished in Australia, would not incur luxury car tax. This is a fairness measure to ensure there are no additional taxes applied for having the refurbishment done overseas.