Alongside a raft of indirect tax changes including the abolition of the carbon pricing mechanism and changes to the taxation of mining companies and mining activity, the new government is set to decrease Australia’s main rate of corporation tax by 1.5 percentage points.
The 30% rate will therefore move to 28.5%, with the new levy taking effect on July 1 2015.
“At the same time as the rate reduction, the Coalition intends to introduce a new levy to help fund its paid parental leave scheme,” said Leon Mok, executive director at Baker Tilly Pitcher Partners, based in Perth. “The levy will apply to companies with taxable income in excess of A$5 million ($4.6 million) and will apply to that portion of the taxable income which exceeds $5 million.”
Another change lined up by the new government, led by Tony Abbott, will see the removal of the loss carry-back mechanism legislated for by the ousted Labor government.
“This would have granted eligible companies the ability to claim refundable tax offsets in years where they incurred tax losses and these could be offset against tax paid in prior income years up to a maximum of two years. The Coalition has announced its intention to repeal this loss carry-back mechanism,” said Mok.
The tax treatment of R&D activity is another area in which the new government could look to stamp its mark from a tax policy viewpoint.
Australia has an R&D tax incentive regime providing for either a 45% refundable tax offset or a 40% non-refundable offset for eligible R&D expenditure incurred by eligible entities.
“Before the election, the Labor government introduced draft legislation to remove the R&D tax incentive for taxpayers with annual aggregate Australian assessable income of $20 billion or more and to introduce quarterly credits for eligible taxpayers,” said Mok. “The draft legislation did not pass before the election and therefore lapsed. It is unlikely that the Coalition will proceed with these changes.”
Exploration development incentive
A new investor tax credit scheme will be welcomed by the resources sector.
“Under the arrangements, investors in junior exploration companies may be able to obtain direct tax deductions in their own tax returns for exploration expenditure by the exploration company,” said Hayden Bentley, partner at McCullough Robertson.
Ian Macfarlane MP confirmed the new government is seeking to introduce the incentive that will allow investors to deduct the expense of mining exploration against their taxable income, starting on July 1 2014.
“Our scheme will target small exploration companies by limiting eligibility to companies with no taxable income and will be capped at $100 million over the forward estimates,” said Macfarlane.
The introduction of such a scheme was Labor party policy at the 2007 election, but never materialised.
“While the industry may be cautious, the commitment to a firm start date of July 1 2014 and the announcement of a specific budget costs for the measure is significant,” said Damien Clarke, also a partner at McCullough Robertson.
Other changes to look out for
A number of other changes to the tax regime were announced in the May 2013 federal budget, and Mok explains the Coalition has reserved the right to implement some of those measures.
These measures include:
- Proposed changes to the safe harbour limit and de minimis threshold for Australia’s thin capitalisation regime. This regime operates to limit tax deductions for interest expenses and borrowing costs where debt-to-equity ratios exceed prescribed limits, particularly where there is some degree of foreign control and therefore a risk that profits may be shifted out of Australia by funding Australian operations with high levels of debt;
- Proposed changes relating to the tax treatment of non-portfolio dividends from outside Australia to limit the exemption to equity interest under Australia debt/equity rules;
- Removing the ability to deduct interest incurred to capitalise foreign subsidiaries from which exempt non-portfolio dividends are received;
- Removing the immediate deductibility of certain mineral exploration expenditure relating to mining rights and information;
- Introducing certain integrity changes to Australia’s tax consolidation regime; and
- Limiting the tax concessions available to offshore banking units (OBUs).
Another area of tax policy to keep an eye on is information exchange in conjunction with tax transparency initiatives and efforts to tackle base erosion and profit shifting (BEPS). Under the Labor government, Australia was keen to lead the way on such issues, and with the country set to take on the G20 presidency for a year from December 1, Abbott must decide if he is to continue to drive the work Australia has already been doing in these areas.
Teresa Dyson, partner at Deloitte, does not think the change in government will mean a diminished interest in driving action on a domestic and international level.
“The BEPS issue is an important one for the government, Treasury and the ATO and I suspect it will continue to receive significant support and activity notwithstanding the change in government,” said Dyson.
