Have the tax goal posts moved?

Labor is our newly appointed Federal Government and Jim Chalmers is the new Treasurer. The new Government has inherited a significant budget deficit of over $1 trillion and has already announced a line by line budget review. This includes cancellation or deferral of significant capital intensive projects.

In terms of tax policy, it would be fair to say that the “tax goal posts” have, at this stage, not changed significantly.   However, a new Government creates some uncertainty in terms of whether proposed tax changes previously announced will proceed.

Investors and retirees should take comfort that there appears to be no plans to revisit negative gearing, the capital gains discount, or changes to superannuation. Further, the already legislated “Stage 3” tax cuts for individuals effective from 1 July 2024 will still proceed as planned. For businesses, the temporary full expensing of depreciable assets and loss carry back measures will continue to operate until 30 June 2023.

Labor has made known that it plans to focus on tax avoidance.  This includes supporting OECD reforms that target multinationals and improving tax transparency. Labor has forecasted these measures will raise $5 billion in additional revenue over a four year period. The additional revenue will no doubt be used to help fund its spending initiatives.   The bulk of this spending appears to relate to childcare subsidies ($5.4 billion) and aged care services ($2.5 billion) over its four year projections.

Crackdown on Tax Avoidance and Multinationals

Multinationals continue to be in the spotlight.  The new Government announced four main initiatives to start no earlier than 2023:

  1. Adoption of the OECD’s proposal of a 15% minimum global tax rate;
  2. Limiting debt deductions that can be claimed by multinationals capped at 30% of profit while maintaining the arm’s length debt test and worldwide gearing ratio;
  3. Restricting tax deductions where intellectual property is held in a tax haven;
  4. Introduction of transparency measures including beneficial ownership disclosures, public disclosure of Country-by-Country reporting data and additional tax disclosures for Government tenders.

Bentleys expect that many multinationals will be closely monitoring these developments.  For example, high asset value, low income businesses may be adversely impacted by the proposed debt deduction measures.  Businesses will need to ensure that they have adequate tax governance and tax risk mitigation measures in place to deal with the changes.

Tax Incentives for Electric Cars

Apart from the crackdown on multinationals, the only other main tax policy that has been announced relates to a proposed Fringe Benefits Tax (FBT) and tariff exemption for electric vehicles below the luxury car tax threshold (currently $79,659).

The concession is proposed to start from 1 July 2022 and will be reviewed after 3 years having regard to the level of electric car adoption during that period.

We expect this to generate a great deal of interest for employees and employers in terms of FBT and salary packaging. This will be subject of course to seeing the detail and mechanics of how the proposed concession is to operate.

Tax Measures in Limbo

The change in Government also means that there is now uncertainty in relation to the former Government’s tax proposals in the following areas (most of which relate to announcements in the recent FY22 Federal Budget):

  • Tax Residency Individuals – The proposed introduction of a 183 day “bright line” test to determine the tax residency status of individuals.
  • Tax Residency Corporates – Limiting instances when a foreign incorporated company would be deemed an Australian tax resident by modifying the central management and control test.
  • Tax Residency of SMSFs – This measure was intended to extend safe harbour measures from 2 to 5 years for SMSFs in respect of members that were undertaking overseas work and education opportunities.
  • Patent Box Regime – This incentive was aimed to tax corporate income derived from eligible Australian patents in the medical and biotechnology sectors, at a concessional rate of 17%.
  • 20% Small Business Boost – This incentive was to provide SMEs (aggregated turnover under $50m) with an additional 20% deduction on technology and related training spending and initiatives.
  • 30% Digital Games Tax Offset – This incentive was to provide a 30% refundable tax offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure.

Whether the above proposals by the former Government will see the light of day remains to be seen.

There are also many other unanswered questions such as:

  • Will we see any new tax revenue raising measures to fund child care, aged care and other spending initiatives?
  • Will Green and “Teal independent” climate policies influence tax policy?
  • How will inflationary impacts in the economy be managed with tax policy?

We expect the Government’s Federal Budget to be released in October this year will shed further light on these questions.  We will all be waiting to see the extent to which the “tax goal posts” will be shifting.

Contact your local Bentleys tax advisor today.
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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.