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Australia: New government’s tax agenda

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Tom Seymour

The recently elected Australian government has made the first move towards repealing the Minerals Resource Rent Tax (MRRT) and the carbon pricing mechanism, with effect from July 1 2014, with the release of legislation to give effect to the repeal. As the introduction of the MRRT, which applies to Australian iron ore and coal miners, was linked to a number of tax concessions, the government's position is that some, but not all, of these tax concessions are to also now be repealed or amended. These include:

  • The company loss carry-back rules – to be repealed with effect from the start of the 2013-14 income year;

  • The increase to the compulsory superannuation guarantee (SG) charge to 12% – to be adjusted so that the 12% rate will not apply until July 1 2021 instead of July 1 2019;

  • A number of capital allowance concessions for eligible small business entities – to be repealed broadly from January 1 2014; and

  • Immediate deductions for geothermal energy exploration and prospecting expenditure – to be repealed with effect for expenditure incurred after June 30 2014.

The government has also made inroads into clearing the backlog of announced but not enacted tax measures from previous governments indicating that some measures will be abandoned and some will be subject to further consultation.

Of particular interest to large businesses with international operations was the fate of the package of measures announced by the previous government in the Federal Budget in May 2013, which were designed to tackle profit shifting through artificial loading of debt in Australia.

In a pleasing move, the new government announced that it will not proceed with the measure to deny interest deductions for debt funding costs associated with investments in foreign companies that generate exempt dividends, and will instead introduce a targeted anti-avoidance rule after consultation with stakeholders. The other elements of the international reform package, however, will proceed as originally announced. Specifically, the government will continue with the tightening of the thin capitalisation rules by reducing the safe harbour debt limit to 1.5:1 debt-to-equity ratio (reduced from the current 3:1 ratio). Additionally, it will remove the exemption for foreign non-portfolio dividends in respect of shares that are treated as debt interests for Australian tax purposes.

The government also indicated that it will not proceed with several other measures, including amendments to the tax treatment of Offshore Banking Units (to be replaced with a targeted integrity measure).

A number of outstanding tax measures have been given the go ahead, including the removal of the R&D tax incentive for very large businesses, a range of amendments to the tax consolidation provisions announced in this year's Federal Budget, the introduction of a new tax regime for Managed Investment Trusts and the third tranche of the Investment Manager Regime which provides a tax exemption for passive investments of certain foreign widely held funds.

Tom Seymour (tom.seymour@au.pwc.com)

PwC

Tel: +61 (7) 3257 8623

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