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Australian Tax Changes Effective From July 1

Friday, July 6, 2018

The Australian Government has set out the numerous changes made to the tax system on July 1 and launched a consultation on new tax rules for "stapled structures."

Phase one of the Government's three-stage income tax reform package took effect from July 1. As a result, the top threshold for the 32.5 percent tax bracket increased from AUD87,000 (USD64,279) to AUD90,000, and a tax offset of up to AUD530 a year for low and middle-income earners is now available.

Businesses with turnovers of between AUD25m and AUD50m will be able to access the reduced 27.5 percent small business company tax rate. This follows a July 2017 tax cut for businesses with a turnover of less than AUD25m. The Government estimates that around 940,000 businesses will benefit from the lower rate.

The GST regime has now been extended to low-value imported goods costing less than AUD1,000. Offshore businesses with an Australian turnover of AUD75,000 or more will be required to charge and remit GST to the Australian Taxation Office on sales of low-value imported goods to consumers in Australia. The aim is to remove an unfair advantage for foreign businesses and level the playing field for Australian firms.

Finally, the Government has taken steps to alleviate pressure on property prices. First-time buyers will be able to make withdrawals from their voluntary superannuation contributions under a First Home Super Saver Scheme.

According to Treasurer Scott Morrison, the measures "will help Australian families with the cost of living, grow our economy by freeing up businesses to invest and employ more Australians, boost essential services, and protect consumers."

Separately, the Australian Government has launched a brief consultation on new rules for stapled structures. The aim of the Government's overhaul of the tax regime for stapled structures is to ensure that trading income for foreign investors is taxed at the corporate tax rate (30 percent) and to limit access to broader concessions for passive income utilized by foreign governments and foreign pension funds. The Government's latest consultation outlines the requirements that stapled entities must meet to access a proposed infrastructure concession and transitional arrangements under the new regime.

A stapled structure is an arrangement where two or more entities that are commonly owned (at least one of which is a trust) are bound together, such that they cannot be bought or sold together. The Government believes that an increasing number of foreign investors are seeking to convert trading income into more favorably taxed passive income through the use of stapled structures. These structures are not available to domestic investors and are only available to land-rich businesses.

Under the changes announced in March, existing staples and government-approved new infrastructure staples will be able to access 15 percent concessional Managed Investment Trust (MIT) withholding tax rates on cross-staple rental arrangements for periods of either seven years (generally) or 15 years (for economic infrastructure arrangements). Investment in agricultural land will not be able to access the concessional rate.

As proposed in the Government's latest consultation, the Government wants to extend the integrity rules that apply to MITs, to ensure that all staples are required to set their rent at market prices. It will also introduce statutory caps on the amount of cross-staple rent that is able to access the concessional rate of withholding tax (available under the MIT regime) for new and existing infrastructure projects during the transitional or concession periods.

The Government said that these conditions will provide a further safeguard against aggressive cross-staple pricing arrangements and minimize the impact on commercial arrangements while mitigating tax integrity risks during the transition and concession periods. The consultation will close on July 12.