This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.  
 

Australian Budget Scraps Planned Business Tax Cuts

Thursday, May 10, 2012

A planned cut to business tax rates will not go ahead in Australia, as the government seeks to redirect projected mining tax revenue to help families and small businesses in the face of ongoing disputes with opposition parties.

The announcement was made by Treasurer Wayne Swan in his May 8 Budget. According to Swan, the Budget “is about discipline and restraint but also about priorities; ensuring precious funds are re-directed to the purposes and people that need them most.”

The Budget will redirect AUD33.6bn (USD33.9bn) across the economy, with AUD5bn earmarked for new payments to households, AUD714m to help companies compete, and AUD3.7bn for small business tax breaks. In addition, a new AUD3.6bn “Spreading the Boom” package will use proceeds from the controversial Minerals Resource Rent Tax (MRRT), which had been intended for a company tax cut, announced earlier this year.

Swan described in his speech how surplus remains the best defence against challenges in the global economy, pointing to moderate recovery in the US and ongoing issues in the eurozone. A high dollar is also causing problems, with billions “ripped” from the Australian tax base, and tax receipts as a share of gross domestic product (GDP) not expected to recover to pre-crisis levels for some years. Swan explained that tax as a proportion of the economy will be 22.1% this year, in comparison to the 23.7% the government inherited from its predecessors, a difference of AUD24bn. Taxes are a further AUD12bn down since Swan’s last update, meaning that the total write down figure since the economic crisis began has now reached AUD150bn. As a result, the 2011-12 deficit was AUD44bn, with debt expected to peak at 9.6% of GDP. The economy is projected to grow by 3.25% in 2012-13 and 3% in 2013-14, while unemployment will remain at 5.5% over the next two years. The intention is to return to an AUD1.5bn surplus in 2012-13.

Swan went on to state that, “from the firm foundations of a surplus budget, we announce new policies to spread the benefits” of the mining boom. The government had intended to reduce company tax rates, using funds generated from the MRRT. In March, Swan announced that projected MRRT revenue would place the government in a position to lower the rate from 30% to 29% for small businesses from 2012-13, with the headline rate to drop the following year. However, blaming parliamentary “gridlock” over the measure on the actions of opposition coalition forces, Swan said that funds intended for this initiative will now be redirected to families and other small business-related measures. He added that he would not allow such opposition to prevent the benefits of the mining boom from reaching the wider Australian public.

As a result, a series of less headline-grabbing tax measures will now be introduced. Rather than receiving tax cuts, small businesses are now being targeted with tax breaks. The Budget confirms the introduction of a “loss carry back” scheme announced earlier in the week, which is set to enter into force from this July. At a cost of AUD714m, it will allow small businesses to offset current year tax losses of up to AUD1m against tax paid in previous years and receive a refund of up to AUD300,000. From July 1, 2013, companies will be able to carry back up to AUD1m worth of losses against tax paid up to two years earlier. Swan said of the initiative that it “will support businesses facing challenges in our patchwork economy. It will encourage businesses to invest and adapt, boosting productivity and strengthening our economy as it goes through a period of major transition.”

Also confirmed in the Budget is a write-off scheme originally announced alongside planned rate cuts in March. From July 1, all small businesses will be able to write-off any new business asset costing less than AUD6,500, for as many assets as they purchase. Swan anticipates this tax break to be worth around AUD1bn in its first year alone. Small businesses will also be able to instantly write-off the first AUD5,000 of the cost of a new motor vehicle, from July 1. Swan explained: “These reforms will help small businesses - whether they operate as sole traders, partnerships, companies or trusts - to invest to compete.”

Among the other key measures in a Budget peppered with detail-heavy tax policies are the following:

  • The superannuation guarantee rate is to be increased to 12%, intended to boost retirement savings. A higher concessional contribution cap for older Australians with a balance of AUD500,000 will be introduced, with a revised start date of July, 2014. The tax break concessional contribution for the top 1% of earners will be reduced, bringing it into line with concessions for the average wage earner.
  • The tax concession for living-away-from-home allowances and benefits is to be amended, with a 12 month time limit to be placed on how long an employee can receive the tax concession at a particular work location.
  • The tax treatment of employment termination payments (ETPs) is to be reformed, to improve the fairness of such “golden handshakes”. ETPS are currently taxed at a maximum 15% for those over preservation age (the age at which they are entitled to access their pension benefits) and 30% for those under, up to an indexed cap of AUD165,000. The reform will retain the existing concession for payments related to hardship, and will save an estimated AUD196.4m.
  • The personal income tax rate and thresholds applicable to non-residents’ Australian income will be adjusted to better align with those of residents. This will apply from July 1.
  • The government will remove eligibility for the 50% discount on capital gains earned May 8 by non-residents on taxable Australian property, such as real estate and mining assets. Non-residents will still be entitled to a discount on capital gains accrued prior to May 8 (after offsetting any capital losses), provided they choose to value the asset as at that time.
  • A “Schoolkids Bonus” will replace the Education Tax Refund, making the scheme automatic, with those eligible receiving AUD820 per year for secondary school children and AUD410 for children at primary school, in a lump sum form.
  • From July 1, eight existing dependency offsets will be consolidated into a single offset available to taxpayers maintaining a dependant who is unable to work due to disability or carer responsibilities.
  • From July 1, the government will phase out the mature age worker tax offset (MAWTO) for taxpayers born on or after July 1, 1957.
  • From September 1, 2012, the inbound duty free allowance for international travellers will be reduced to 50 cigarettes or 50 grams of tobacco.
  • The government will update the method of determining the taxable value of airline transport fringe benefits from stand-by value to market value, applicable to benefits provided after 7.30pm (AEST) on May 8.

Stressing the importance of these measures, Swan said, “it is these responsible decisions which return the Budget to a UAD1.5bn surplus in 2012/13, and growing every year after that...Making the tax system more sustainable not only achieves savings now, but benefits the budget bottom line for decades to come.”

Mailing List

Click here to manage your mailing list preferences, or view our privacy statement.


The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




Latest News

Canadian Budget Focuses On 'Tax Fairness'
23/3/2017
The tax measures contained Canadian Finance Minister Bill Morneau's second Budget are focused on closing loopholes, cracking down on tax evasion, and improving tax reliefs for the "middle class."

Jersey Regulator Issues AML/CTF Funds Guidance
16/3/2017
Jersey's financial services regulator, the Jersey Financial Services Commission, has issued new anti-money laundering and countering the financing of terrorism guidance for Funds and Fund Operators.

More Tax Hikes For UK Taxpayers In 2017 Budget
9/3/2017
The UK Budget, released on March 9, 2017, featured tax measures to, among other things, hike taxes on self-employed workers, further close avenues for legal avoidance, and defer mandatory digital tax reporting until April 2019.

ACOSS Submits Recommendations For Australian Budget
2/3/2017
The Australian Council of Social Services has urged that the Government abolish ineffective tax concessions, introduce a sugary drinks tax, and scrap its company tax proposals.

MEPs Call For Wider Access To Beneficial Ownership Data
1/3/2017
EU citizens would be able to view information in registers of beneficial ownership without having to demonstrate a "legitimate interest," under proposed amendments the Anti-Money Laundering Directive.

New Zealand Tax Changes Enter Into Force
28/2/2017
A Bill including provisions to simplify New Zealand's tax processes, reduce compliance costs for smaller businesses, and tighten foreign trust disclosure rules received Royal Assent on February 21.

Guernsey Introduces Client Asset Handling Rules
22/2/2017
Guernsey's financial services regulator, the Guernsey Financial Services Commission, said it intends to introduce rules governing the holding and administration of client assets in 2017.

Australian Accountants Urge Tax Burden Shift
14/2/2017
Australia desperately needs large scale tax reform and should aim to rebalance its tax mix, the Institute of Public Accountants has argued.

IRS Issues Final Regulations On REIT Spin-Offs
24/1/2017
On January 18, the US Internal Revenue Service issued its final regulations regarding the measures included in the Protecting Americans from Tax Hikes Act to restrict the tax-free spin-offs involving publicly traded real estate investment trusts (REITs).

Bermuda, EU To Collaborate On Insurance, Pensions Oversight
17/1/2017
The European Insurance and Occupational Pensions Authority and the Bermuda Monetary Authority have newly signed a memorandum of understanding.

Hong Kong Consults On Beneficial Ownership Plans
13/1/2017
Hong Kong's Financial Services and the Treasury Bureau has launched public consultations on legislative proposals to increase the transparency of corporate beneficial ownership in the city, and to enhance its regulatory regime for combating money laundering and terrorist financing.

Hong Kong Reports On Incorporations In 2016
12/1/2017
There was an increase in local company incorporations in Hong Kong in 2016, although incorporations by foreign companies experienced a dip, according to the territory's Companies Registry.

Guernsey Regulator Outlines 2017 Funds Strategy
2/1/2017
Guernsey's financial services regulator, the Guernsey Financial Services Commission, has outlined its funds sector strategy for 2017.

Canada Waives Income, Activities Reporting For Labor Org's
21/12/2016
Canada's Revenue Minister has announced that certain reporting requirements on labor organizations and labor trusts will be waived.

South African Tax Bills Approved By Parliament
19/12/2016
South Africa's Ministry of Finance has published the 2016 Taxation Laws Amendment Bill, which has received parliamentary approval and gives effect to the tax changes announced in the Budget in February this year, together with legislation confirming the final details of. the Special Voluntary Disclosure Program.