Australian federal budget released with a wave of reforms

The Australian government delivered its 2023/24 Federal Budget on Tuesday 9 May 2023, demonstrating and reaffirming its strong commitment to critically important international and related tax reforms.

The key initiatives from the Budget include:

• Implementing the OECD/G20-led Pillar II solution, incorporating the 15% global minimum tax for large multinational enterprises for income years commencing on or after January 1 2024;

• Expanding Australia’s general anti-avoidance rules (Part IVA) to apply, firstly, to arrangements designed to access lower withholding tax rates on income paid to foreign residents (for example, under double tax treaties) and, secondly, potentially where there is a dominant purpose to reduce foreign income tax;

• Reducing the managed investment trust withholding tax rate from 30% to 15% for eligible new build-to-rent projects;

• Extending the clean building managed investment trust withholding tax concession (10%) to eligible data centres and warehouses;

• Limiting the proportion of petroleum resource rent tax (PRRT) ‘assessable income’ that can be offset by deductions to 90% (of the assessable receipts), effectively introducing a ‘cap’ on deductions. Separately, the government will ‘modernise’ the PRRT from July 1 2024, following the Treasury review of the PRRT, including gas transfer pricing;

• Tightening (or clarifying) the concept of ‘exploration for petroleum’ in the practical application of PRRT; and

• Deferring the start date for the tax integrity measure previously announced for franked distributions funded by capital raisings from December 19 2016 to September 15 2022.

The government also continues to progress other international tax developments dealing with thin capitalisation, restricting deductibility of payments for intangibles in low tax jurisdictions and international tax transparency/disclosure. It is expected that these international tax developments will progress through parliament in the coming weeks.