PROSPERITY OR PERIL FEDERAL BUDGET 2017-18 - PWC AUSTRALIA
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Prosperity or peril
Federal Budget 2017-18
2.5% $75bn Measures
to stimulate
A forecast return
to budget surplus
Medicare levy spending on housing
increased from
July 2019
infrastructure over
the next 10 years
supply and by 2021
encourage
investment in
affordable housing
www.pwc.com.au
Contents 01 Overview........................................................................ 2 02 Housing tax measures..................................................... 4 03 Financial services............................................................ 9 04 Global taxes.................................................................. 10 05 Private business............................................................ 12 06 Personal taxes............................................................... 13 07 Superannuation............................................................ 15 08 Indirect tax................................................................... 16 09 Other tax measures....................................................... 18 10 Forward tax agenda...................................................... 20 Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1
01
Overview
Is trust the new budget currency?
Regaining trust, and not a So the 2017-18 Federal Budget
return to budget surplus, has been framed around a
was clearly Treasurer Scott suite of new institutions,
Morrison’s key objective for the new regulation, new levies
2017-18 Federal Budget. and a significant foray into
directly funding key national
In recent years the budget
infrastructure programs and
process has lost much of its
corporations.
economic credibility, and with
a backdrop of growing distrust The big banks, in particular,
of institutions generally, the have been specifically
Government needed to push targeted. There are new
the reset button. It needed – to registration requirements
use the Treasurer’s own words for senior executives, a new
– an “honest budget”. regulatory agency to oversee
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 2
01 | Overview
consumer financial services After an underlying cash deficit
complaints, and a new levy of $29.4 billion in 2016‑17,
on bank liabilities, which a surplus is now expected
Treasury expects will raise by 2020‑21, with the budget
$6.2 billion over the forward balance to remain in the black
estimates. All are likely to thereafter. Indeed, the economic
pass the popularity test, with narrative of the budget was one
the electorate and the cross- of optimism. Economic growth
benchers. But the economic will be modest this year, but
impacts warrant careful pick up strongly next year and
consideration. Any mechanism thereafter track at a healthy
that imposes a material cost 3 per cent. This growth will
on the financial system should then underwrite strong nominal
be expected to adversely growth in Commonwealth tax
affect future investment and receipts. The only problem?
economic growth. We’ve heard this before. In
virtually all recent budgets the
The Federal Budget is now a forecast profile has been the
$460 billion endeavour. Though same – a pick-up in economic
previous Budgets have gone to growth 2-3 years out doing
lengths to try to communicate the budget heavy-lifting. The
where revenue comes from risk is that a slower-growth
and what programs it supports, global economy will act as a
the Treasurer clearly thought drag on our economy, and with
this was not enough. The it, the lift in Commonwealth
solution? Hypothecation – revenues expected to restore the
the policy of directly linking fiscal balance.
revenue mechanisms to specific
expenditure programs. The One important difference this
Treasury historically has time is that the Government
railed against such schemes, has finally addressed the
arguing they are inflexible so‑called “zombie measures”,
and inefficient. But they are that is, previously claimed
simple to explain and generally budget savings measures
reasonably popular (as much as with no realistic prospect
any tax or levy can be). So, the of Senate support. Indeed,
2017-18 Federal Budget sees the combination of budget
new hypothecation initiatives initiatives, targeting housing
in the Medicare levy (now affordability, defence,
specifically attributed to a new infrastructure, welfare and tax
Medicare Guarantee Fund, and system integrity, should make
with a 0.5 per cent increase the path to a budget surplus far
to fund National Disability less exposed to Parliamentary
Insurance Scheme obligations) hold-up.
and a new levy on skilled
migration (directed to a new
Skilling Australians Fund).
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 3
02
Housing tax • introducing a first home
super saver scheme to
permit future contributions
measures to superannuation funds
to be withdrawn for a first
home deposit
As widely speculated in the • measures to encourage • permitting “down-sizers”
lead up to this year’s Federal investment in affordable to contribute some or all
Budget, the Government has housing through managed of the proceeds of selling
announced a range of tax and investment trusts (MITs) their principal residence to
superannuation measures to superannuation as a non-
• introducing of an annual concessional contribution
address housing affordability charge on foreign owners
in Australia, particularly in the above and beyond
of residential property that existing caps
eastern States. is left unoccupied or not
available for rent • disallowing deductions
The following tax and
for travel expenses
superannuation related • changing the foreign resident related to inspecting,
measures were announced CGT regime maintaining or collecting
as part of the Government’s • denying foreign investors and rent for a residential rental
comprehensive housing package: temporary residents access property, and
• increasing the capital gains to the CGT main residence • limiting depreciation
tax (CGT) discount for exemption deductions to outlays actually
Australian residents who
incurred by investors in
invest in affordable housing
residential real estate.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 4
02 | Housing tax measures
As expected no changes were rate and it is made available investors supply their property
announced to limit negative for eligible tenants on low to for affordable housing. In
gearing. Below, we have moderate incomes. Tenant this context, if an individual
provided additional details on eligibility will be based rents out their property from
the key tax and superannuation on household income and 1 January 2018 as affordable
aspects of this package. household consumption. housing, provided the
investment meets the eligibility
Increased CGT discount To qualify for this additional
requirements, the 60 per
discount, the housing must
for investing in cent CGT discount should be
also be managed through a
applicable from 1 January 2021.
affordable housing registered community housing
provider, and held as affordable Investment in affordable
From 1 January 2018, resident
housing for a minimum period
individual taxpayers will
of three years. housing by MITs
be granted an additional
10 per cent CGT discount for Furthermore, the Government In a welcome move, the
investments in qualifying has indicated that current Government will seek to
affordable housing. This means investments in affordable encourage private sector and
that individuals investing housing through the National foreign investment in affordable
in such properties will be Rental Affordability Scheme housing by allowing MITs to
entitled to a 60 per cent CGT (NRAS) will not be entitled to acquire, construct or redevelop
discount (up from the existing the 60 per cent CGT discount property to hold for affordable
50 per cent discount). This because NRAS providers housing from 1 July 2017.
benefit will also flow through already receive an annual Much of the detail of this
MITs to resident investors as financial incentive to supply proposal is lacking, however it
outlined below. The current affordable housing. In order appears that the Government
one-third CGT discount to benefit from the additional intends to amend the tax law
for superannuation funds 10 per cent CGT discount, to ensure that the acquisition,
remains unchanged. investors will need to wait until construction or redevelopment
their investments cease to be of affordable housing is an
Whilst it is expected that
covered by NRAS. “eligible investment business”,
the Government will consult
further on the implementation Finally, the additional attracting flow through taxation
of this policy, it has indicated discount will not be limited to for resident investors (and
that a property will qualify as investments in new affordable thereby allowing them to access
“affordable” housing if rent housing but will also apply the CGT discount) and the
is charged at below market to existing properties if concessional MIT withholding
rates for foreign investors.
To be eligible for the
concessional MIT withholding
rates, the MIT must hold, and
make available for rent, the
affordable housing asset for
at least ten years. Where the
property is held for rent as
affordable housing for less
than ten years, certain foreign
investors will still have access
to the concessional 15 per cent
withholding rate on investment
returns, but will be subject to
30 per cent final withholding
rate on the distribution of
the capital gain from sale of
the property.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 5
02 | Housing tax measures
As an additional integrity to foreign persons who make a from 7.30pm (AEST) on 9 May
measure, up to 20 per cent of foreign investment application 2017, the “principal asset test”
the income of the MIT may for residential property from will be applied on an associate
be derived from other eligible 7.30pm (AEST) on 9 May 2017, inclusive basis.
investment activities permitted will be levied annually and will
There are also proposed
under the existing tax law. If be equivalent to the relevant
amendments to the current
this 20 per cent threshold is foreign investment application
foreign resident CGT
breached in any income year, fee imposed on the property
withholding regime, which
foreign investors will be subject at the time it was acquired by
came into effect from 1 July
to 30 per cent withholding tax the foreign investor. Treasurer
2016. Under the current
on investment returns for that Scott Morrison indicated in his
regime, where a foreign
income year. Budget speech that this annual
resident disposes of certain
charge would be at least $5,000
Resident individual investors taxable Australian property,
per property.
will be able to take advantage the purchaser is required to
of the increased CGT discount No information has been withhold ten per cent of the
for affordable housing (see provided as to how this new purchase price and pay this
above), for eligible properties annual charge will interact amount to the Australian
held via MITs. To access the with existing state based Taxation Office (ATO). The
increased discount, the property taxes. For example, the foreign resident vendor is
will only need to be held as Victorian Government recently then entitled to claim a credit
affordable housing for three announced plans to impose a in the tax return for the
years rather than the ten years Vacant Residential Property Tax amount withheld. Certain
required for foreign residents on dwellings that are vacant transactions, including real
to benefit from the 15 per cent for more than a total of six property transactions with a
withholding rate. months in a calendar year, from market value under $2 million,
1 January 2018. are excluded.
As noted above, the
Government has indicated Changes to foreign From 1 July 2017, the
it will consult further on the withholding rate under this
implementation of this policy, resident CGT regime regime will be increased from
including what property A number of changes have 10 per cent to 12.5 per cent.
will qualify as “affordable” been announced to the foreign In addition, from 1 July 2017
housing for the purposes of this resident CGT regime. Foreign the threshold for exempt real
measure and the increased CGT residents are broadly subject property will be decreased from
discount discussed above. The to CGT only on the disposal $2 million to $750,000.
Government may also need to of taxable Australia property, Whilst the Government’s aim is
consider whether GST changes which includes real property to reduce the risk that foreign
are required to allow input in Australia and indirect residents avoid paying a CGT
tax credits to be claimed for Australian real property liability they owe in Australia,
properties that are to be held for interests. Broadly, a share in as a result of these proposed
rental in order to support this a company or an interest in a amendments, a much larger
policy initiative. trust is an indirect Australian number of transactions will
real property interest where be potentially caught by this
Annual charge on foreign the investor holds at least ten regime. Resident vendors are
owners of underutilised percent of the company or not unaffected by this regime
residential property trust (known as the portfolio - under the current law, a
interest test) and real property resident vendor is required to
The Government has announced in Australia comprises at least get a clearance certificate from
a “ghost house tax” for foreign 50 per cent of the underlying the ATO confirming they are
investors who leave residential assets in the company or trust an Australian resident when
properties unoccupied or not (known as the principal asset they dispose of real property
genuinely available for rent for test). The Government has that would otherwise be subject
at least six months of each year. indicated that it will amend to withholding. The original
The charge, which will apply these rules so that, with effect $2 million threshold for real
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 6
02 | Housing tax measures
property was intended to carve the main residence exemption can then be withdrawn from
out the majority of residential until 30 June 2019. 1 July 2018. Withdrawals of
house sales. Assuming the concessional contributions
current clearance certificate Helping first home buyers will be taxed at marginal rates
process remains in place, the to save for a deposit less a 30 per cent offset. When
proposed decrease to $750,000 non-concessional amounts
will have a huge impact on Referred to as the “first home are withdrawn, they will not
residential housing sales super saver scheme”, the be taxed.
going forward. Government will amend the
superannuation law to allow A couple can effectively double
Denying access to first home buyers to withdraw these limits by both taking
future voluntary concessional advantage of the measure to
the main residence buy their first home together.
and non-concessional
exemption for foreign contributions to superannuation All first home buyers should be
and temporary residents for a first home deposit. able to take advantage of this
new measure, including those
The Government will amend Under this proposed measure, that are self-employed, due to
the law to prevent foreign and from 1 July 2017, first home the recent law amendments
temporary tax residents from buyers can contribute up that will allow deductions
claiming the main residence to $15,000 per year (and for personal superannuation
CGT exemption when they sell up to $30,000 in total) to contributions from 1 July 2017.
a property in Australia. This superannuation, within the
measure will apply from 7.30pm existing contribution caps (i.e.
(AEST) on 9 May 2017. However for concessional contributions,
under grandfathering rules, the cap is $25,000 per year from
existing properties held prior to 1 July 2017). These amounts,
this time will remain eligible for plus associated earnings,
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 7
02 | Housing tax measures
Higher superannuation Limiting depreciation
caps for downsizers for residential rental
From 1 July 2018, the property
Government will allow a person The Government has
aged 65 years or over to make a announced that it will limit
non-concessional contribution depreciation deductions on
of up to $300,000 from the plant and equipment (e.g. hot
proceeds of selling their home. water systems or dishwashers)
These contributions will be to outlays actually incurred
in addition to those currently by investors in residential real
permitted under existing estate properties from 1 July
rules and caps and they will 2017. This means that when an
be exempt from the existing investor purchases residential
age test, work test and the property which includes
$1.6 million balance test for items of depreciable plant
making non-concessional and equipment, they will not
contributions. be able to claim depreciation
deductions. Instead the cost
This measure will apply to the of items of existing plant and
sale of a principal residence equipment will be reflected in
owned for the past ten or more the cost base for CGT purposes.
years and both members of
a couple will be able to take Existing investments will
advantage of this measure for be grandfathered such that
the same house. plant and equipment forming
part of residential investment
Denying deductions properties as of 9 May 2017
(including contracts already
for travel expenses entered into at 7:30PM (AEST)
on residential rental on 9 May 2017) will continue
property to give rise to deductions for
depreciation until either the
From 1 July 2017, investors investor no longer owns the
will no longer be able to claim asset, or the asset reaches the
tax deductions for travel end of its effective life.
expenses related to inspecting,
maintaining or collecting
rent on a residential rental
property. This measure will
affect all taxpayers - resident
and non-residents - who receive
assessable rental property
income. Property management
fees paid to third parties such
as real estate agents will remain
tax deductible.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 8
03
Financial services It is understood that the levy
should be deductible to the
banks, but this will need to be
specifically confirmed.
The relevant Budget Papers also
highlight that the Australian
Competition and Consumer
Commission will undertake
a residential mortgage pricing
enquiry until 30 June 2018
which will allow it to require
banks to explain any changes
or proposed changes they
make to their interest rates
and other fees.
Relevantly, the United Kingdom
(UK) introduced a bank levy
in 2011. The levy rate was
increased several times since
it was first introduced, and
recently a staggered reduction
in the rate over the period
to 2021 was announced (the
UK levy is currently 0.17 per
Liabilities subject to the levy cent and will reduce to 0.1 per
Introduction of cent by 2021,with those rates
will include items such as
a Major Bank Levy corporate bonds, commercial halved in respect of long-term
paper, certificates of deposit, liabilities/equity). In the UK,
The Government has introduced the calculation of the balances
a major bank levy on Authorised and Tier 2 capital instruments.
The levy will not apply to to which the bank levy attaches
Deposit-taking Institutions has been complicated to say
(ADIs) which have licensed the additional Tier 1 capital
and deposits of individuals, the least, requiring in-depth
entity liabilities of at least reconciliations and extensive
$100 billion. The levy will apply businesses and other entities
protected by the Financial industry consultation to get the
from 1 July 2017. detail right. No doubt those UK
Claims Scheme. It is not
The levy will be payable at a rate immediately clear whether experiences will be relevant
of 0.015 per cent per quarter the calculation will be based as the Australian version
on the specified liabilities of on global or only Australian is developed.
Australian banks where the balances, and whether the
qualifying liabilities of those financial statements or
banks exceed the threshold of regulatory returns will be
$100 billion. The Treasurer has used as the foundation for the
indicated that this levy will, calculations. Many essential
in effect, apply only to the five details will need to be clarified
largest Australian banks. in order to fully understand the
implications of the levy.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 904
Global taxes mismatches that occur in cross-
border transactions relating
to regulatory capital known as
Additional Tier 1 (AT1) by:
Building on already strong Application of the hybrid • preventing returns on
anti-avoidance and integrity
rules within the existing tax mismatch rules to AT1 capital from carrying
regulatory capital franking credits where such
framework, Australia continues
returns are tax deductible in
to pursue measures aimed
The Government announced in a foreign jurisdiction, and
at addressing perceived tax
avoidance by multinational last year’s Federal Budget that it • where the AT1 capital is not
corporations (MNCs). plans to implement the majority wholly used in the offshore
of the recommendations from operations of the issuer,
In addition to the measures the Organisation of Economic requiring the franking
discussed below, the Cooperation and Development’s account of the issuer to be
Government has also (OECD) work on eliminating debited as if the returns were
announced changes to the hybrid mismatches with effect to be franked.
foreign resident Capital Gains from the later of 1 January
Tax (CGT) regime (including 2018 or six months after the The measure will apply to
the relatively new foreign relevant law is enacted. No returns on AT1 instruments
resident CGT withholding further announcement was paid from the later of 1 January
regime) as part of its housing made in relation to the timing 2018 or six months after the law
affordability package. These of these measures in this year’s is enacted.
proposed changes will, however, Federal Budget. Transitional arrangements
have wider ramifications. Refer will apply to AT1 instruments
to Housing tax measures for In this year’s Federal Budget,
the Government has announced issued before 8 May 2017 such
further details. that the measure will not apply
that it will address hybrid tax
to returns paid before the next
call date of the instrument
occurring after 8 May 2017.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1004 | Global tax
Multinational
Anti‑avoidance Law
The Multinational
Anti‑Avoidance Legislation
(MAAL), which took effect in
Australia from 1 January 2016
targets, in broad terms, certain
arrangements designed to avoid
a taxable presence in Australia.
Originally intended to affect
30 unnamed multinational
corporations (MNCs), the
MAAL cast a much wider net
than expected, affecting a large
number of MNCs.
In the 2017-18 Federal Budget,
the Government announced
that it will extend the scope
of the MAAL so that it will
apply to:
• corporate structures that
involve the interposition of
partnerships that have any
foreign resident partners
• trusts that have any foreign
resident trustees, and
• foreign trusts that
temporarily have their central
management and control
in Australia.
This measure, intended to
ensure the integrity of the
original policy intent, will apply
from 1 January 2016.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1105
Private business It is also worth noting that the
Federal Government has made
good progress in implementing
the reforms announced in last
Although not a specific focus Extension of immediate year’s Federal Budget that
of this year’s Federal Budget, specifically affect small to
there are a number of measures $20,000 write-off of medium businesses and start
that were announced that depreciable assets up ventures.
will impact private business The Government will extend
taxpayers: Of particular note, the
the immediate deductibility of legislation to progressively
assets costing less than $20,000 reduce the corporate tax
Changes to the small for small business entities rate for companies with
business capital gains tax (i.e. those with aggregated aggregated turnover of less
(CGT) concessions annual turnover of less than than $50 million and to
$10 million) which was due increase the small business
The Government has to expire on 30 June 2017
announced from 1 July 2017 aggregated turnover threshold
by a further 12 months to to $10 million for certain
that it will limit access to small 30 June 2018. The measure
business CGT concessions to concessions (including the
will provide additional time instant asset write-off, but
ensure that they can only be for small business to access
accessed in relation to assets not the small business CGT
this concession, providing concessions) is now ready to
used in a small business or significant incentives for many
ownership interests in a small be enacted to clear the way
businesses to increase their for small to medium business
business. Limited information is current capital expenditure
currently available in relation to taxpayers to be able to reap the
spend. However, the after-tax full benefits of tax savings.
this measure however it appears consequences of the proposed
to be targeted at the application immediate deduction for
of the maximum net asset value depreciating assets should be
test and the small business considered. For example, if this
entity eligibility requirements. results in a tax loss, there is no
immediate cash-flow advantage.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1206
Personal taxes Temporary Budget
Repair levy will expire
The Temporary Budget Repair
While individual taxpayers the pressure on foreign investors
levy of 2 per cent of taxable
were spared from any direct in order to boost affordable
income in excess of $180,000
tax increases in the 2016-17 housing for Australians. Some
will automatically expire on
Federal Budget, all taxpayers of these measures are applicable
30 June 2017 under law that
– resident and non-residents from 9 May 2017.
is currently in place. The
– will be impacted by a range
Other tax rates and levies Government has made no
of measures in this year’s
such as income tax rates or changes in this year’s Budget
Federal Budget.
Medicare levy surcharge remain to extend the Temporary
As expected, the Temporary unchanged. Budget Repair levy. Therefore,
Budget Repair levy which is excluding the impact of the
due to expire on 30 June 2017 Income tax rates Medicare levy, from 1 July 2017,
was not extended. Instead, the the top marginal tax income tax
No changes were announced in
Government has announced an rate will be 45 per cent.
the Federal Budget in relation to
increase of the Medicare levy personal income rates.
(from 2 per cent to 2.5 per cent) Increase of the
from 1 July 2019. Personal income tax rates for Medicare levy
the 2017-18 year will therefore
With regards to housing, the remain the same as for the
Government chose to maintain The Government has
2016-17 year (see table below). announced that the Medicare
levy will increase from 2 per
Table 1: Tax rates for 2017-18 income year cent to 2.5 per cent from 1 July
2019. Other tax rates that are
Non-resident linked to the top personal tax
Resident individual individual 2017-18 rate, such as the fringe benefits
Taxable income 2017-18 marginal marginal income tax rate, will also increase.
threshold range ($) income tax rate (%) tax rate (%) For the 2017-18 year, the
0 – 18,200 0 32.5 Medicare levy rate will remain
at 2 per cent of taxable income.
18,201 – 37,000 19 32.5
37,001 – 87,000 32.5 32.5
87,001 – 180,000 37 37
180,001 + 45 45
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1306 | Personal tax
The Medicare levy low-income Private health insurance Housing affordability
thresholds for singles, families and Medicare levy
and seniors and pensioners The Government also made
will increase. The increased surcharge announcements in order to
thresholds for the 2017-18 reduce pressure on affordability
year are: Although there has been no of housing for Australians.
announced change to the
• Individuals $21,655 Private Health Insurance Rebate Various measures will affect
(increased from $21,335) and Medicare levy surcharge, foreign individuals with regards
• Families $36,541 (increased it is worth noting that the to Capital Gains Tax (CGT)
from $36,001), with an private health insurance rebate such as:
additional $3,356 for each percentage is indexed annually • CGT main residence exemption
dependent child or student at 1 April. is no longer available from
(increased from $3,306) 7.30pm (AEST) on 9 May 2017
The current private health
• Single seniors and pensioners insurance rebate entitlements for foreign and temporary
$34,244 (increased from and surcharge applicable to tax residents, subject to
$33,738), and individuals who do not have the grandfathering provisions for
• The family threshold for appropriate health insurance existing properties.
seniors and pensioners will hospital cover, from 1 April • CGT withholding tax rate on
be increased to $47,670 2017 to 31 March 2018 are sales by foreign tax residents
(increased from $46,966) as follows. increased from 10 per cent to
plus $3,356 for each 12.5 per cent from 1 July 2017.
dependent child or student • CGT withholding threshold for
(increased from $3,306). sales by foreign tax residents
decreased from $2 million to
$750,000 from 1 July 2017.
Table 2: Private health insurance rebate entitlements and Medicare • A new charge on vacant
levy surcharge from 1 April 2017 to 31 March 2018 property owned by foreign
persons who do not live in the
property and do not rent it out
Full or have it genuinely available
entitlement Tier 1 Tier 2 Tier 3 for rent for at least six month
Taxable income per year. This change will
apply to foreign persons who
Singles $90,000 $90,001 – $105,001 – > $140,000 make a foreign investment
or less $105,000 $140,000 application for residential
Families $180,000 $180,001 – $210,001 – > $280,000 property from 7.30pm (AEST)
or less $210,000 $280,000 on 9 May 2017.
Rebate In addition, the Government
will increase the CGT discount
Aged under 25.934% 17.289% 8.644% 0% for Australian resident
65 years
individual taxpayers who invest
Aged 65 – 30.256% 21.612% 12.966% 0% in affordable housing. From
69 years 1 January 2018, such investors
will be entitled to a 60 per
Aged 70 34.579% 25.934% 17.289% 0%
cent discount.
or over
More details and other
Medicare Levy surcharge
measures affecting housing can
All ages 0.0% 1.0% 1.25% 1.5% be found in the Housing tax
measures section.
Note: For families with children, the thresholds are increased by $1,500 for each child after the first.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1407
Superannuation Extending tax relief
for merging of
superannuation funds
After the raft of changes Integrity measures
announced in last year’s Federal The Government has announced
Budget applicable from 1 July The following integrity an extension of the existing
2017, limited superannuation measures have been also been loss relief and asset rollover for
changes have been included in announced which are intended merging superannuation funds
this year’s Federal Budget. to ensure that the 2016-17 until 1 July 2020. This measure
superannuation reform package will be widely welcomed by
Superannuation and operates as intended: superannuation funds that are
currently in the process of,
housing affordability • From 1 July 2017 limited or considering, merging. The
recourse borrowing current relief, which has been
Two superannuation measures arrangements (LRBA) will in place since 1 October 2011
have been included as part be included in a member’s (although even this was an
of the housing affordability total superannuation balance extension of a prior measure
package, namely: and transfer balance cap. dating back to 2008), is due to
• Voluntary concessional Exposure Draft legislation expire on 1 July 2017.
contributions, as well as non- was released on 27 April 2017
concessional contributions, that seeks to ensure that the It is somewhat disappointing
to superannuation made by outstanding balance of a that the Government has not
first home buyers from 1 July LRBA will now be included seen fit to make this relief a
2017 may be withdrawn for a in a member’s annual total permanent feature, and has only
first home deposit, along with superannuation balance extended it for another three
associated deemed earnings. and the repayment of the years, as it is likely that the
principal and interest of consolidation of superannuation
• From 1 July 2018, a person funds will continue indefinitely
a LRBA from a member’s
aged 65 or over will be able as the super fund industry
accumulation account will
to make a non-concessional grows and changes over time.
be a credit in the member’s
contribution of up to
transfer balance account.
$300,000 from the proceeds
of selling their home. These • From 1 July 2018,
contributions will not be members will have reduced
subject to any age or work opportunities to use related
tests and will be in addition party transactions on non-
to any other voluntary commercial terms to increase
contributions made under superannuation savings. The
existing contribution rules. existing non-arm’s length
income provisions will be
See our Housing tax measures amended to ensure expenses
section for further discussion. that would normally apply in
a commercial transaction are
included when considering
whether a transaction is on
a commercial basis.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1508
Indirect tax fiscal equalization (HFE), which
underpins the distribution of
the GST revenue to the States
and Territories.
Goods and services tax Removing the double Under Australia’s current approach
taxation of digital to HFE, which was agreed to by
Improving the integrity all States and Territories prior
currency to the introduction of the GST in
of the Goods and Services 2000, the Commonwealth Grants
The Government has confirmed
Tax (GST) on property its commitment to remove Commission recommends a GST
transactions double taxation of digital distribution that provides each
currency, such as Bitcoin. State with the capacity to provide
As part of its tax integrity From 1 July 2017, the GST its citizens with a comparable level
package, the Government will treatment of digital currency of government services.
improve the integrity of the will align with that of money
GST on property transactions. The inquiry is expected to
i.e. purchases of digital currency
From 1 July 2018, purchasers of consider the influence the current
will no longer be subject to the
newly constructed residential system has on productivity,
GST. Currently, consumers can
properties or new subdivisions efficiency and economic growth,
be subject to the GST on the
will be required to remit the including the movement of
purchase of digital currency and
GST directly to the Australian capital and labour across state
again on its use in exchange for
Taxation Office (ATO) as part borders; the incentives for
other goods and services (which
of settlement. By changing the States to undertake fiscal
are also subject to the GST).
the compliance obligations, (expense and revenue) reforms
this measure will significantly that improve the operation of
GST distribution to the their own jurisdictions, and on
alter the way in which the ATO
collects the required GST. States and Territories their abilities to prepare and
In the lead up to the Federal deliver annual budgets.
Budget, the Treasurer has asked Following a period of public
the Productivity Commission consultation, the Productivity
to undertake an inquiry into Commission is due to report
the impact on our economy of to Federal Government by
Australia’s system of horizontal 31 January 2018.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1608 | Indirect taxes
Other key indirect Duty relief for high tech business while simultaneously
tax measures manufacture accelerating opportunities
for data analytics and risk
As part of a range of measures management as part of the
Tobacco taxation to promote high technology security focus of the current
The Government will adjust the manufacturing businesses, Federal Budget. It will be
taxation treatment of roll your customs duty relief will be critical that industry engages
own (RYO) tobacco and other extended to motor vehicle with Government to ensure
products such as cigars so that producers for the importation that the needs of business are
manufactured cigarettes and of prototype vehicles and understood and incorporated
RYO tobacco cigarettes receive components to automotive in policy implementation.
comparable tax treatment. This service providers. Businesses
adjustment will be phased in relying on this concession when Strengthening food safety
over four years from 2017 to importing these goods should and assurance
2020 to match the timing of the carefully review eligibility
criteria relating to prototypes. There are key initiatives that
previously legislated tobacco
emphasise the requirement for
tax increases which occur on
1 September each year. Technology in trade some of the largest Australian
companies to control and
History has shown that any Significantly, there is a monitor both supply chain
increase in the significance of clear signal that the Federal integrity and quality control at
these products as revenue items Government will invest heavily source. This includes specific
has triggered increased scrutiny in a range of technologies measures to extend the power
and supply chain security aimed at establishing a single of Federal Government agencies
focus by Australian Border data entry point that will limit to detain imports at the
Force and related agencies. duplication across a range border, together with specific
This suggests that importers of agencies. requirements in the livestock
of tobacco products can expect Whilst not limited to trade, industry to ensure enhanced
more targeted reviews of there are clear indications of track and trace capability for
their imports. a digital transformation that outbound trade which supports
reflects the establishment domestic and international
of a single window for trade standards on live exports.
and other government data,
improving efficiency for
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1709
Other tax measures Targeting organised
tax crime
An additional $28.2 million will
Increase in Fringe Accordingly, the rate of FBT is be provided to the Australian
expected to be set at 47.5 per Taxation Office (ATO) to target
Benefits Tax rate cent. As the Federal Budget organised crime. Although
papers do not indicate a start limited details are available,
As noted in the Personal Taxes
date for any FBT rate change, this looks to be an extension
section, due to the increase in
we would expect it to operate of measures announced in
the Medicare levy to 2.5 per
from the commencement of previous Federal Budgets to use
cent from 1 July 2019, the
the FBT year commencing cross-agency collaboration to
Fringe Benefits Tax (FBT) rate
1 April 2020 (at the latest). counter crime and tax evasion.
will also be increased in line
A corresponding increase in the
with the top individual marginal
gross-up rate will be required
tax rate (plus Medicare levy).
for calculating the taxable value
of fringe benefits.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1809 | Other tax measures
Recommendations from
the Black Economy
Taskforce
The interim report of the Black
Economy Taskforce, which
was established in December
2016, was released as part
of the Federal Budget. Three
recommendations from the
interim report were accepted by
the Government for immediate
action and announced in the
2017-18 Federal Budget:
• The taxable payments
reporting system will be
extended to the courier and
cleaning industries from
1 July 2018 with the first
annual report required to be
lodged by August 2019.
• A further $32 million will be
provided to the ATO for one
year of additional funding to
target black economy risks
including non-lodgment,
income omission and
non-payment of employer
obligations.
• A prohibition will be enforced
on the use, manufacture or
distribution of technology
and software that deletes
records from electronic point
of sale.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 1910
Forward tax agenda Australia up for future growth
and prosperity. This is even
more relevant in times when tax
reforms are being undertaken
To round out this year’s all sides of politics to succeed. in many other jurisdictions (the
commentary on the tax and It seems that in place of much United States most recently
superannuation measures needed wholesale tax reform, formally embarking on a plan
announced in the 2017-18 the Government is targeting for comprehensive reforms to its
Federal Budget, we have discrete areas of change to tax system).
highlighted below the current taxation, such as integrity
status of previously announced measures for multinationals Australia as a nation needs to
tax measures. But first, where and a reduction in the company look at the sustainability of
are we up to with tax reform tax rate. the current tax system over
in Australia? the medium to longer term.
While it might be said that Many of the revenue measures
The last decade or so has seen substantive tax reform is announced in the 2017-18
a number of attempts at large currently ‘too hard’ to achieve Federal Budget are one-offs
scale tax reform in Australia in Australia, we should not and do not address underlying
which have failed to achieve give up on the challenge to structural issues.
the necessary consensus across create a tax system that sets
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 2010 | Forward tax agenda
A lower corporate Status of other
tax rate outstanding measures
Following the release in In the lead up to the Federal
April 2017 of the Trump Budget, the Government
Administration’s high level surprised us by indicating that its
principles for tax reform in responses to the following critical
the United States (which, issues would be considered
significantly, included a target outside of this Budget:
corporate tax rate of 15 per • reform to the Petroleum
cent), the Government has Resource Rent Tax, and
renewed its commitment to
lowering the corporate tax rate • tax treatment of stapled
in Australia to 25 per cent for arrangements.
all companies over the next ten Furthermore, we are still
years as first announced in last waiting on the Government’s
year’s Federal Budget. response to last year’s Research
The Government’s plan to and Development (R&D) Tax
pursue the full corporate tax Incentive Review conducted by
rate reduction package builds Chair of Innovation Australia Bill
on its recent success in passing Ferris, Australia’s Chief Scientist
through Parliament a phased-in Alan Finkel, and Secretary
reduction to the corporate tax to the Treasury John Fraser.
rate for companies that carry The Review made a number of
on a business with aggregated recommendations to improve the
turnover of up to $50 million. effectiveness and integrity of the
programme, achieve a stronger
Although a corporate tax rate focus on additionality and
reduction for smaller companies ensure that the current program
is a step in the right direction, is better targeted.
the biggest economic benefits
will be achieved when Australia Although the Government has
has lower income tax rates made some good progress in
applicable to all businesses. implementing many of its prior
Australia needs to reduce year announcements affecting
tax costs to not only attract taxation matters, there remains
foreign investment, but to once again a backlog of measures
promote economic growth and which still need to be dealt with
encourage investment and drive and introduced into Parliament.
improvements in real wages. This list has grown significantly
Global tax competition is a real since the Government reviewed
and fundamental challenge a backlog of announced but
to Australia’s ability to attract unenacted tax measures in
international investment and 2013 to “restore integrity in
the base line corporate tax rate the Australian tax system”. It is
is a key benchmark. pleasing to see additional funding
allocated to Treasury and the
Only time will tell if the Office of Parliamentary Counsel
Government can deliver on a in this year’s Federal Budget
promise of broader corporate to ensure dedicated drafting
tax rate cuts with the current resources are available to progress
composition of Parliament. “taxation reform legislation”.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 2110 | Forward tax agenda
Table 3: Key measures announced not yet introduced to Parliament
Measure Status
Amendments There are a number of proposed amendments to the tax consolidation regime that
to the tax remain outstanding, including the treatment of deductible liabilities in the tax cost
consolidation setting process. These amendments have been outstanding for many years and
regime some of these outstanding amendments have retrospective start dates back to the
commencement of the Taxation of Financial Arrangements (TOFA) regime (in most
cases, income years commencing on or after 1 July 2010), or for arrangements that
commenced on or after 14 May 2013. The revised deductible liability measure is
proposed to apply from 1 July 2016.
Reform of Major reforms to the TOFA rules are intended to reduce their scope, decrease
the Taxation compliance costs and increase certainty through the redesign to the TOFA
of Financial framework. The new simplified rules are proposed to apply to income years
Arrangements commencing on or after 1 January 2018.
(TOFA) regime
Implementation of The Government will seek to implement the anti-hybrid rules developed by the
anti-hybrid rules Organisation for Economic Cooperation and Development (OECD) with some
minor modifications as recommended by the Board of Taxation in its report to the
Government. The anti-hybrid rules are proposed to apply to payments made on or
after the latter of 1 January 2018 and six months after enactment of the relevant
law. This is now to be supplemented with the additional measure announced in the
2017‑18 Federal Budget applicable to regulatory capital (see Global Taxes).
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 2210 | Forward tax agenda
Measure Status
Limiting the scope The Government released draft legislation to implement the Board of Taxation’s
of the integrity recommendations approach to improve the debt and equity tax rules. The new
provisions in the rules, once enacted, will replace the existing related scheme rules and repeal the
debt / equity rules equity override integrity provision, in relation to transactions entered into after the
commencement of the law which will be a day to be fixed by proclamation (or if there
is no proclamation, six months after Royal Assent).
Removing barriers Key barriers to the use of asset-backed financing arrangements (that is, financing
to the use of asset arrangements which are supported by assets such as deferred payment
backed financing arrangements and hire purchase arrangements) are to be removed with effect from
1 July 2018.
Private company From 1 July 2018, the operation and administration of the private company deemed
deemed dividends dividends rules (Division 7A of the Income Tax Assessment Act 1936) are to be
reformed so as to be clearer and assist in easing the compliance burden while
maintaining the overall integrity and policy intent of Division 7A.
Wine Equalisation The Government has released draft legislation on proposed changes to the WET to
Tax (WET) address integrity concerns. These changes include a reduction in the WET rebate cap
and tighter eligibility criteria from 1 July 2018.
New Collective To complement the commencement of the Asia Region Funds Passport, the
Investment Vehicles Government will introduce two new types of CIVs - a corporate CIV and limited
(CIVs) partnership CIV, both of which will have flow through status for tax purposes. The
corporate CIV is proposed to be available for income years starting on or after
1 July 2017, with the limited partnership CIV to follow one year later.
CIV non-resident The Government indicated last year that it would consider non-resident withholding
withholding taxes taxes on CIVs in the 2016-17 financial year. A consultation paper was released in
November 2016.
Protection for tax From 1 July 2018, new measures will be introduced to better protect individuals
whistleblowers (including employees, former employees and advisers) who disclose information to
the ATO on tax avoidance behaviour and other tax issues. A consultation paper was
released in December 2016.
Mandatory In May 2016 the Government released a consultation paper seeking community
disclosure of input on the adoption of the OECD’s mandatory disclosure rules for aggressive tax
aggressive tax arrangements in Australia. Broadly, these will require tax advisers and/or taxpayers
arrangements to make early disclosures of aggressive tax arrangements (often before income tax
returns are lodged), to provide tax authorities with timely information on arrangements
that have the potential to undermine the integrity of the income tax system.
Preventing franked A specific measure will be introduced to prevent franking credits being attached to
distributions funded a distribution declared by a company to its shareholders outside or additional to the
by capital raisings company’s normal dividend cycle, to the extent it is funded directly or indirectly by
capital raising activities which result in the issue of new equity interests. This measure
will apply to distributions made after 12:00pm (AEDT) on 19 December 2016.
Improving the From 1 July 2017, the ATO will be permitted to disclose certain tax debts to credit
transparency of tax reporting bureaus where a taxpayer has not effectively engaged with the ATO to
debts manage their outstanding debts. This measure will initially only apply to businesses
with an Australian Business Number and tax debt of more than $10,000 that is at
least 90 days overdue.
Prosperity or peril | PwC’s analysis of the 2017-18 Australian Federal Budget | 23Contacts
For further information, contact your usual PwC advisor or one of these contacts:
Managing Partner Australian
Financial Advisory Tax Leader
Tom Seymour Pete Calleja
+61 (7) 3257 8623 +61 (2) 8266 8837
tom.seymour@pwc.com pete.calleja@pwc.com
Economics Global taxes Superannuation
Jeremy Thorpe Peter Collins Naree Brooks
+61 (2) 8266 4611 +61 (3) 8603 6247 +61 (3) 8603 1200
jeremy.thorpe@pwc.com peter.collins@pwc.com naree.brooks@pwc.com
Craig Fenton Michael Bona Alice Kase
+61 (7) 3257 8851 +61 (7) 3257 5015 +61 (2) 8266 5506
craig.fenton@pwc.com michael.bona@pwc.com alice.kase@pwc.com
Housing tax measures Private business Marco Feltrin
+61 (3) 8603 6796
Clara Cutajar David Wills marco.feltrin@pwc.com
+61 (2) 8266 3497 +61 (3) 8603 3183
clara.cutajar@pwc.com david.a.wills@pwc.com Indirect taxes
Chris McLean Kel Fitzalan Michelle Tremain
+61 (2) 8266 1839 +61 (2) 8266 1600 +61 (8) 9238 3403
chris.mclean@pwc.com kel.fitzalan@pwc.com michelle.tremain@pwc.com
Josh Cardwell Personal taxes Ross Thorpe
+61 (2) 8266 0532 +61 (8) 9238 3117
josh.cardwell@pwc.com Glen Frost ross.thorpe@pwc.com
+61 (2) 8266 2266
Financial services glen.frost@pwc.com Other tax measures
Matt Osmond Norah Seddon Greg Kent
+61 (3) 8603 5883 +61 (2) 8266 5864 +61 (3) 8603 3149
matt.osmond@pwc.com norah.seddon@pwc.com greg.kent@pwc.com
Liam Collins Michael Bersten
+61 (3) 8603 3119 +61 (2) 8266 6858
liam.collins@pwc.com michael.bersten@pwc.com
Forward tax agenda
Paul Abbey
+61 (3) 8603 6733
paul.abbey@pwc.com
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