Australian Regulatory Compliance Review

Budget details for business

The Budget details have been released. The thrust of the Budget is delivery of election announcements; the Budget reveals the conditions and costings.

Worth noting from the Treasurer's speech:

Supporting business

Mr Speaker, the Government supports the aspirations of Australian business, including small business, for a simpler tax system and less regulation.

Our nation has the potential to be a financial services hub in the Asia Pacific Region - the fastest growing region in the world. To support this ambition, the Budget begins the process of significantly reducing the withholding tax, by reducing the current interim rate of 30 per cent to a final rate of 7.5 per cent for most non resident investors.

This Budget confirms our commitment to a comprehensive agenda of regulation reform - cutting red tape and making it easier for business, particularly small business, to deal with government.

To improve innovation and productivity, the Government will invest $251 million over five years to establish Enterprise Connect Innovation Centres....

COAG Reform Fund

Where funds are used to finance capital projects with the States, they will be distributed to the States from the three new funds I have just announced through a new Council of Australian Governments (COAG) Reform Fund.

The COAG Reform Fund will also distribute funding provided in future budgets to the States for recurrent expenditure in areas of COAG national reforms, through new National Partnership payments.

In 2008 09, the States will receive $78.6 billion in total payments, an increase of 4.8 per cent. And new financial arrangements will allow all levels of government to work together to improve outcomes and reduce costs...

Australia's future tax system

Tonight, I confirm the most comprehensive review of Australia’s tax system since World War 2. The Australia’s Future Tax System (AFTS) review will be reporting progressively from this July through to the end of 2009.

Treasury details

Revenue details are in Budget Paper 2 starting with Treasury's delivery of the Government's election commitments including the income tax cuts from 1 July 2008:

                                                                                                                                                                                                                                                                                                                   

Current			From 1 July 2008			From 1 July 2009			From 1 July 2010
Taxable income       ($)	Rate       (%)		Taxable income       ($)	Rate       (%)		Taxable income       ($)	Rate       (%)		Taxable income       ($)	Rate       (%)
0 - 6000	0		0 - 6000	0		0 - 6000	0		0 - 6000	0
6,001 - 30,000	15		6,001 - 34,000	15		6,001 - 35,0000	15		6,001 - 37,000	15
30,001 - 75,000	30		34,001 - 80,000	30		35,001 - 80,000	30		37,001 - 80,000	30
75,001 - 150,000	40		80,001 - 180,000	40		80,001 - 180,000	38		80,001 - 180,000	37
150,001 +	45		180,001 +	45		180,001 +	45		180,001 +	45

Other Treasury -related announcements can be found here including:

• Family trusts
• Political donations — removing tax deductibility
• Capital gains tax — extend small business concessions
• Depreciation of computer software
• Employee share schemes — election requirements
• FBT refinements
• GST and the sale of real property
• Increasing the Luxury Car Tax
• Managed funds — changes to the eligible investment rules
• Taxation of Financial Arrangements

And here are the details of the Superannuation Clearing House Facility and First Home Saver Accounts.

Australian Government Budget 2008-09

The 2008-09 Budget Papers will be available after 7:30 pm, Tuesday 13 May 2008 from www.budget.gov.au and from Department of Finance and Deregulation, Australian Taxation Office, australia.gov.au and Parliament of Australia.

Treasurer Wayne Swan's interview with Laurie Oakes yesterday foreshadowed the following announcements:

• the tax on luxury cars will increase from 25 per cent to 33 per cent;
• a comprehensive review of our tax system. "We'll look at personal taxation. We'll look at the transfer payment system. We'll look at how that affects individuals, how is affects families, how it affects retirees. We'll look at the company tax system, and we'll also look at all of the implications, say, of an emissions trading system for taxation as well...Federal, local government taxes and state government taxes – a comprehensive review of  the relationship between all of those...we have ruled out any broadening of that base of the GST  or any increase in the GST rate...we've  ruled out any change to tax-free super "
• an increase in the threshold at which the Medicare levy commences.

National Rental Affordability Scheme

The Prime Minister has announced the National Rental Affordability Scheme which is designed to create a new ‘asset class’ of affordable rental properties.

Under the Scheme, the Commonwealth will provide private investors with tax credits of $6,000 a year for ten years for new properties that are rented at 20 per cent below the prevailing market level.

States and Territories have agreed to provide $2,000 per home either through cash payments or in kind, such as via the provision of cut price land or concessions on stamp duty.

The initiative would mean, for example, that rent on a new average three bedroom unit would fall for $350 a week to $280 a week – a $70 saving.

Inspector-General of Taxation: review of the potential revenue bias of ATO in private binding rulings involving large complex matters

The Government has released the Inspector-General of Taxation’s report on the Review of the potential revenue bias in private binding rulings involving large complex matters.

The review looked at whether there is a ‘pro-revenue’ bias evident in private binding rulings (PBRs) issued by the Australian Taxation Office (the Tax Office).

The Inspector-General found no evidence of undue revenue bias in PBRs. However, he did find that the perceptions of undue revenue bias by the Tax Office are widespread.

The Inspector-General has recommended that the Tax Office should act to reduce the widespread perceptions of revenue bias among large business PBR applicants by:

• increasing transparency, improving  communication and more clearly demonstrating objectivity;
• clarifying and adhering to the  processes and protocols that govern inter-agency interactions; and
• further reducing delays in large  business PBR processes.

The Tax Office agrees, in part or  wholly, to all of the recommendations contained in the report.

Taxation arrangements for managed funds and property trusts

The Government has asked the Board of Taxation to review the taxation arrangements that apply to managed funds.

The Minister also released a consultation paper on interim changes to trading trust rules which apply to real estate investment trusts.

In conducting the review, the Assistant Treasurer has asked the Board, within the broad policy framework for the taxation of trusts as outlined in the Terms of Reference, to consider:

• international developments especially those in the US, UK and Canada.
• alternatives to the use of present entitlement to determine the income tax liability of beneficiaries and trustees, but which also provide broadly similar taxation outcomes for beneficiaries, having regard to the costs and benefits of those options;
• the international competitiveness of Australia's real estate investment trusts; and
• the desirability of extending relevant aspects of the recommended changes to the tax arrangements for other trusts.

Included in the review will be options to reform the trading trust rules in Division 6C of the Income Tax Assessment Act 1936 which particularly affect real estate investment trusts.

The consultation paper covers:

• Ways to clarify the scope and meaning of investment in land for the purpose of deriving rent.
• A 25 per cent allowance for non-rental income from an investment in land could be created to clarify the meaning of ‘primarily' in the context of investing in land for the purpose, or primarily the purpose, of deriving rent.
• An expansion of the range of financial instruments that a trustee could trade or invest in without triggering company taxation.

The Board will provide a final report around the middle of 2009.

Tax Laws Amendment (2008 Measures No. 1) Bill 2008

The Government has introduced Tax Laws Amendment (2008 Measures No. 1) Bill 2008 to implement a number of improvements to Australia’s taxation system, including the following:

Superannuation Lump Sums Paid to the Terminally Ill
The Bill will ensure that superannuation lump sum payments that are paid to a persons suffering from a terminal medical condition will be tax free, subject to conditions.

The Rudd Government has brought forward the date of effect for the measure so that it applies to payments made on or after 1 July 2007 rather than the 12 September 2007 that was originally announced by the former government.

Tax Deductibility for Trees Established in Carbon Sink Forests
This measure will encourage the establishment of carbon sink forests and highlights the Government's commitment to addressing climate change.

Under the changes the establishment costs will be immediately deductible for trees established in carbon sink forests in the 2007-08 to 2011-12 income years inclusive.  After this initial period, establishment costs will be deductible over 14 years and 105 days at a rate of 7 per cent per annum.

To be eligible for the deduction, the taxpayer must be carrying on a business and the carbon sink forest must meet Environmental and Natural Resource Management Guidelines.

Political Donations
The Government will remove the tax deductibility of political donations made on or after 1 July 2008 in line with its election commitment.

The  Government is repealing the specific deduction provisions in Division 30 of the Income Tax Assessment Act 1997, which currently allow deductions for contributions and gifts to political parties and to independent candidates and independent members up to a maximum of $1,500.

In addition, to ensure that a deduction is not available, these amendments also remove general deductions for business taxpayers for contributions and gifts to political parties, members and candidates.

Streamlining tax law changes

The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, has announced the appointment of a Tax Design Review Panel that will be charged with examining how to reduce delays in the enactment of tax legislation and improve the quality of tax law changes.

In conducting the review, the Panel will examine:

• options to reduce the delay between the announcement of proposed changes to tax laws and the introduction into Parliament of associated tax legislation;
• how the quality of the law can be improved through enhanced community consultation, particularly in the development of tax policy changes prior to the announcement of specific changes; and
• methods to increase community input into the prioritisation of changes to tax laws.

The Panel will report its findings to Government by 30 April 2008.

What is a charitable institution?

In Commissioner of Taxation v Word Investments Limited [2007] FCAFC 171 the Full Court of the Federal Court of Australia dismissed an appeal by the Taxation Commissioner against the Federal Court's decision that Word Investments is a "charitable institution" within the meaning of item 1.1 of the table in s 50-5 of the Income Tax Assessment Act 1997 (Cth).

Whilst Word carried out charitable and religious objects overseas, it also carried out financial activities including financial services and a funeral business in Australia.

Judge Allsop said:

Here, on the proper understanding of the memorandum of association, the purpose of all activities was, and could only be, the religious (and charitable) purposes of Word.  The evidence of the subjective motives of the directors conformed with and bolstered those constitutive purposes.  On the basis of the authorities to which I have referred, the commercial nature of the activities did not necessarily destroy the capacity of Word to be characterised as a charitable institution.

The Commissioner intends to appeal to the High Court.

See TR 2005/22 for the current approach of the Tax Office.

Labor also agrees to tax reform

As Labor has also agreed to a tax reform package if it is elected, it is now certain that whichever party is elected there will be tax changes from 1 July 2008 affecting at least those on incomes up to $180,000 (and all higher income earners if the Coalition is re-elected).

Labor has some variations on the Coalition's plan:

• a plan to reduce all the tax scales by setting the six-year goal of having only three - 15 per cent, 30 per cent and 40 per cent. Under Labor, the 30 per cent rate would apply to incomes between $37,000 and $180,000 and 40 per cent would come in after that.
• the reduction in the top tax rate for those on over $180,000 would not take effect for 3 years.

COALITION PROPOSAL (click on images to enlarge)



LABOR PROPOSAL