Federal Budget
PwC’s analysis of the Australian Federal Budget 2019-2020

Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | i

1. Our summary: Good news day                        01

2. Personal Tax                                      03

3. Corporate Tax and Private Business                05

4. Superannuation                                    07

5. Global Taxes                                      09

6. Indirect Taxes and Trade Measures                 11

7. Employment Taxes                                  13

8. Other Measures                                    14

9. Forward Tax Agenda                                16
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 01

       1     Our summary

Good news day
Good news can be remarkably          Table 1.1: Income tax offsets for Australian tax residents
hard to sell. Every day, there
are stories of achievement                                         2017-18 (act.)    2018-19 (est.)    2019-20 (est.)

and progress which pass with         Budget surplus (deficit)

little recognition. The prevailing     Underlying cash                      (10.10)             (4.20)             7.10
trend is to report mostly on
                                       as % GDP                               (0.50)            (0.20)             0.40
the negative, as a scan of any
                                     Real GDP growth                          2.80              2.25               2.75
media headlines will confirm.
                                     Unemployment                             5.40              5.00               5.00
There is plenty of good news, it
                                     CPI                                      2.10              1.50               2.25
just rarely makes the front page.
                                     Wages growth                             2.10              2.50               2.75
Treasurer Josh Frydenberg will
be hoping for a different outcome
with his first, decidedly good       Beyond the big budget                     Indeed, without the welcome
news, Federal Budget.                announcements, it is sometimes            boost of a resources sector
This Budget was always going         the small changes that go under           travelling well in both export
to be shaped by the political        the radar.                                volumes (especially for iron
reality of a Federal election only                                             ore) and price (especially for
                                     Last year, the Federal Budget             metallurgical coal), Australia’s
weeks away. An economy which         heralded real GDP growth
remains in remarkably good                                                     economic growth would have
                                     would accelerate “to 3 per                been around a further ¼ per cent
shape - notwithstanding some         cent growth in 2018–19 and
challenges, more on those later -                                              down. Not all (Budget) heroes
                                     2019–20”, bolstered by both               wear capes.
has allowed the Treasurer to claim   favourable domestic and
the first Budget surplus in more     international conditions.                 The wages picture is similar.
than a decade, with room still for                                             Despite an improvement in
big spending in all the expected     Treasury’s expectations now are           unemployment sitting happily
areas and a centrepiece budget       that the economy will “grow at            at five per cent, wages growth
strategy of significant personal     around its estimated potential            remains sluggish, and the
income tax cuts.                     rate of 2¾ per cent in 2019-20            expected rebound in wages
                                     and 2020-21.” Did you spot the            growth is pushed out another
There is good budget news for        subtle shift? In an enterprise as
middle-income earners, small                                                   year in Treasury’s projections.
                                     big as the Australian economy,            Although designed to solve a
businesses, regional Australia,      that missing ¼ per cent growth
pensioners, apprentices,                                                       completely different political
                                     will be noticed.                          equation, the tax cuts announced
infrastructure, the environment,
and even an extra $1 billion for                                               by the Treasurer will boost
the Australian Taxation Office.                                                household disposable incomes,
                                                                               and will go at least some way
                                                                               towards filling the gap that
                                                                               moribund wages growth otherwise
                                                                               will leave in the real economy.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 02

And what of those
Last year, the Budget papers
boasted Australia was “well
placed to benefit from the global
upswing” and “GDP growth in
major advanced economies
has become increasingly
synchronised”. What a difference
a year makes.
In a classic Treasury
understatement, the Budget
papers now dryly observe the
“... risks associated with Brexit
have become more pronounced
in recent months …”, flagging
also elevated tensions in the
wider global trade landscape.
Treasury also points to the
softening in domestic property
markets, and downside risks
to both dwelling investment
and household consumption
– two of the mainstays of
Australia’s economy.
That $7 billion surplus next year
is close, but we aren’t there yet.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 03

Personal Tax

As expected, the Government          Changes to personal income taxes
has announced further tax relief
for low and middle income            Low and Middle Income Tax Offset and Low Income Tax Offset
earners building on last year’s
                                     The new LMITO, which applies             From 1 July 2022, the LITO and
Personal Income Tax Plan which
                                     from 1 July 2018 until 30 June           the LMITO will merge into a
is already legislated.
                                     2022, currently provides a tax           new LITO. The Government has
This relief is provided by way of:   offset of up to $530 per year in         announced in this year’s Budget
                                     addition to the LITO (which is a         that the maximum amount of
• from 1 July 2018 until 30 June
                                     maximum of $445).                        this LITO will be increased from
  2022, a significant increase in
                                                                              $645 (as currently legislated) to
  the Low and Middle Income          The Government has announced             $700 per year, to be phased in as
  Tax Offset (LMITO)                 its intention to increase the            set out in Table 2.2.
• from 1 July 2022, an increase      maximum amount of the LMITO
  in both the top threshold of the   to $1,080 per year, to be phased
  19 per cent personal income        in as set out in Table 2.1. The
  tax bracket and an increase        first time that the benefit of this
  to the Low Income Tax Offset       reduction in income tax will be
  (LITO), and                        received by affected taxpayers
                                     will be when they are assessed
• from 1 July 2024, a reduction in   on their 2018-19 income
  the 32.5 per cent marginal tax     tax return.
  rate to 30 per cent.
                                     Table 2.1: Increase in Low and Middle Income Tax Offset for Australian
                                     tax residents

                                     Taxable Income ($)        Revised amount of the LMITO ($)
                                     37,000 or less            255
                                     37,001 to 48,000          255 plus 7.5 per cent of excess over 37,000
                                     48,001 to 90,000          1,080
                                     90,001 to 126,000         1,080 less 3.0 per cent of excess over 90,000

                                     Table 2.2: New Low Income Tax Offset for Australian tax residents

                                     Taxable Income ($)        Revised amount of the new LITO ($)
                                     37,000 or less            700
                                     37,001 to 45,000          700 less 5.0 per cent of excess over 37,500
                                     45,001 to 66,667          325 less 1.5 per cent of excess over 45,000
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 04

Change to the personal                 One-off Energy                           Medicare levy
income tax brackets                    Assistance Payment
                                                                                The Medicare levy low-income
Under the already legislated           The Government will also make            thresholds for singles, families
Personal Income Tax Plan,              a one-off Energy Assistance              and seniors and pensioners will
gradual changes to the tax             Payment of $75 for singles and           increase from the 2018-19 income
thresholds will occur to eventually    $62.50 for each member of                tax year as follows:
remove the 37 per cent tax             a couple ($125 total) who are
                                                                                • Individuals $22,398 (increased
bracket and apply a 32.5 per           eligible for ‘qualifying payments’
                                                                                  from $21,980)
cent tax rate to taxable income        as at 2 April 2019 and who
between $41,000 and $200,000           are residents of Australia for           • Families $37,794 (increased
by 1 July 2024.                        tax purposes.                              from $37,089), with an
                                                                                  additional $3,471 for each
Additional tax threshold and           Qualifying payments include the            dependent child or student
marginal rate changes have now         Age Pension, Carer Payment,                (increased from $3,406)
been announced, increasing             Disability Support Pension,
the current top threshold of the       Parenting Payment Single, the            • Single seniors and pensioners
19 per cent tax bracket from           Veterans’ Service Pension and              $35,418 (increased from
$41,000 to $45,000 from 1 July         the Veterans’ Income Support               $34,758), and
2022 and reducing the 32.5 per         Supplement, Veterans’ disability         • The family threshold for
cent marginal tax rate to 30 per       payments, War Widow(er)s                   seniors and pensioners will
cent from 1 July 2024.                 Pension, and certain permanent             be increased to $49,304
                                       impairment payments.                       (increased from $48,385) plus
Table 2.3 summarises all of the                                                   $3,471 for each dependent
relevant changes announced.            The payment will be exempt                 child or student (increased
                                       from income tax with first                 from $3,406).
                                       payments expected to be made
                                       automatically before 30 June
                                       2019, subject to the passage
                                       of legislation.

Table 2.3: Income tax rates for Australian tax residents (Income range ($))

Rate (%)          Current Thresholds               Thresholds                      Thresholds
                  (from 1 July 2018)               from 1 July 2022                from 1 July 2024
Tax free          0 - 18,200                       0 - 18,200                      0 - 18,200
19                18,201 - 37,000                  18,201 - 45,000                 18,201 - 45,000
30                                                                                 45,001 -200,000
32.5              37,001 - 90,000                  45,001 - 120,000
37                90,001 - 180,000                 120,001 - 180,000
45                > 180,000                        > 180,000                       > 200,000
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 05

Corporate Tax and

Private Business
The Government has provided
a boost to small and medium
sized businesses, increasing the
instant asset write-off threshold
and extending the measures
to include medium sized
businesses. The deferral of the
proposals to amend the deemed
dividend rules (Division 7A) until
1 July 2020 is also welcome
news as it allows private business
groups more time to plan their
cash flow in readiness for the
new measures.

Boost to the instant
asset write-off
In order to enhance business
activity and investment the
Government has announced
the threshold for the instant
asset write-off will be increased
to $30,000. Access to the
write‑off will also be expanded
to include both small and
medium businesses which have
an aggregated annual turnover
of up to $50 million.
                                     As with the existing instant            As a result, determining access
Medium businesses (aggregated        asset write-off the threshold is        to the concession for the 2019
annual turnover of $10 million       applied on a per asset basis,           income year may be complicated
or more to less than $50 million)    allowing businesses to benefit          for small businesses as there are
will benefit from the increased      from the write-off of multiple          three different threshold amounts
$30,000 instant asset write-off      depreciable assets.                     which may apply. The applicable
for depreciable assets purchased                                             threshold amounts will depend
and first used, or installed ready   The Government had previously           upon when the assets are first
for use, from 7:30pm (AEDT) on       announced on 29 January 2019            used or installed ready for use as
2 April 2019 to 30 June 2020.        an increase in the instant asset        set out in Table 3.1.
                                     write-off threshold from the
                                     historical $20,000 to $25,000 for
                                     small businesses (those with an
                                     aggregated annual turnover of
                                     less than $10 million).
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 06

Table 3.1: Instant asset write-off thresholds

                                       Assets first used or           Assets first used or             Assets first used or
                                       installed ready for            installed ready for use          installed ready for
                                       use on or before               between 29 January               use from 7:30pm
                                       28 January 2019                2019 and prior to 7:30pm         (AEDT) 2 April 2019 to
                                                                      (AEDT) 2 April 2019              30 June 2020
Small business (aggregated             $20,000                        $25,000                          $30,000
annual turnover of less than
$10 million)
Medium business (aggregated            –                             –                                 $30,000*
annual turnover of $10 million to
less than $50 million)

*Note: a medium business asset must also be purchased after 7:30pm (AEDT) 2 April 2019 to qualify for the concession

Deferral of private                          The Division 7A reforms were
company deemed                               originally due to apply from
                                             1 July 2019 (as announced in last
dividend reforms                             year’s Federal Budget). The delay
The Government has announced                 to the start date by 12 months
that it will defer its proposals to          is welcome news as this will
amend the Division 7A deemed                 allow further and important
dividend rules, which apply to               consultation on the details of the
treat certain loans from private             measures and also to refine the
companies to its shareholders                approach to their implementation.
and associates as taxable                    In particular, this should
dividends, to now apply to                   enable appropriate transitional
income years commencing on                   arrangements to be developed
or after 1 July 2020. Importantly,           in relation to UPEs and loans
this will also result in the deferral        which are currently outside the
of the proposed changes to the               operation of these rules so that
treatment of unpaid present                  affected taxpayers have sufficient
entitlements (UPEs).                         time to plan and manage their
                                             cash flow position.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 07


While no major changes to the          Permanent tax
existing superannuation system         relief for merging
were announced in this year’s
Federal Budget, the Government
                                       superannuation funds
has put forward a number of            In a welcome move, the
proposals to ensure that the           current tax relief for merging
superannuation system operates         superannuation funds will
as intended and to ensure              be made permanent from
greater fairness and flexibility for   1 July 2020, ensuring that
participants nearing retirement.       superannuation fund member
                                       balances are not affected by
                                       tax when superannuation funds
                                       merge. This should remove tax
                                       as an impediment to mergers and
                                       facilitate industry consolidation.
                                       Self-managed superannuation
                                       funds are excluded from this
                                       tax relief.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 08

Removal of work test               Insurance within                        Funding to enable
requirement                        superannuation                          electronic refund
From 1 July 2020, individuals      The Government has announced            requests under a number
aged 65 and 66 will be able to     a delayed start date of 1               of superannuation
make voluntary concessional and    October 2019 for the previously         arrangements
non-concessional superannuation    announced measures which seek
contributions, without meeting     to ensure that insurance within         An additional $19.3 million will
the “work test”. The work          superannuation is only offered          also be provided to the Australian
test requires an individual to     on an opt-in basis for individual       Taxation Office (ATO) over three
work at least 40 hours over        accounts with balances of less          years from 2020-21 to enable
a 30 consecutive day period        than $6,000 and new accounts            electronic requests to be sent
for gain or reward before they     belonging to a member who is            to superannuation funds for the
are able to make voluntary         under the age of 25 years.              release of money required under
contributions to superannuation.                                           a number of superannuation
This approach is welcome as it     Streamlining requirements               arrangements. This change is
                                                                           intended to apply from 31 March
will enable participants nearing   for calculation of exempt               2021. The start date of self-
retirement to improve their        current pension income
retirement savings regardless                                              managed superannuation funds
of their working arrangements.     The Budget includes a number            rollovers in Superstream will be
                                   of measures targeted at reducing        delayed until 31 March 2021 to
Extension of bring-forward         costs and simplifying reporting         coincide with this change.
arrangements                       for superannuation funds by
                                   streamlining the administrative
The bring-forward arrangements     requirements for the calculation
which currently apply to           of exempt current pension
individuals aged less than         income (ECPI) from 1 July 2020.
65 years will be extended to
those aged 65 and 66 from 1 July   In welcome news the Government
2020. Under the bring-forward      has confirmed that it will remove
rules, individuals meeting the     a requirement for superannuation
age requirement can make three     funds to obtain an actuarial
years’ worth of non-concessional   certificate when calculating ECPI
superannuation contributions       using the proportionate method,
(i.e. after-tax contributions),    where all members of the fund
thereby contributing up to         are fully in the retirement phase
$300,000 in a single year, with    for all of the income year.
no further non-concessional        Changes will also be made
contributions for the following    to allow superannuation fund
two years.                         trustees to choose their preferred
                                   method of calculating ECPI where
Spouse contributions               there are interests in both the
From 1 July 2020, the age limit    accumulation and retirement
for spouse contributions will      phases during an income year.
increase from 69 to 74 years.
Currently those individuals aged
70 years and over cannot receive
contributions made by another
person on their behalf.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 09

Global Tax

Building on already strong           • specify that, for income years
anti‑avoidance and integrity rules     commencing on or after April
within the existing tax framework,     2019, the so-called integrity
Australia continues to pursue          rule, which affects certain
measures aimed at addressing           payments of interest (or of a
perceived tax avoidance by             similar character) directly or
multinational corporations.            indirectly to foreign interposed
                                       zero or low rate (FIZLR)
Refinement to Australia’s              entities, can apply where other
hybrid mismatch rules                  provisions have applied. This
                                       is a change from the current
In this year’s Budget, the             law which states that the
Government announced                   integrity rule does not apply
proposed amendments to the             if a payment gives rise to any
recently introduced Australian         of the other six types of hybrid
hybrid mismatch rules. These           mismatches. As a reminder,
amendments will broadly have           the integrity rule is a unilateral
the same application date as the       measure and is a key departure
original hybrid mismatch rules         from the Organisation for
(i.e. income years commencing          Economic Co‑operation
on or after 1 January 2019).           and Development (OECD)
The proposed amendments are            recommendations
expected to:                           in relation to hybrid
                                       mismatch arrangements.
• include rules which clarify
  the application of the hybrid      Although some of these changes
  mismatch rules to Australian       had been anticipated, taxpayers
  multiple entry consolidated        face significant uncertainty
  (MEC) groups and trusts. The       because details of the proposals
  manner in which the rules          have not yet been released
  apply to trusts has been a         by the Government. This all
  particular area of uncertainty     adds to existing uncertainty
  but the announcement does          associated with delays in long
  not clarify how these issues       awaited guidance from the
  might be resolved                  Australian Taxation Office (ATO)
• limit the definition of foreign    regarding the integrity rule and
  tax, which could impact,           important questions regarding the
  for example, the concept of        interaction of Australia’s hybrid
  “subject to foreign income         mismatch rules with foreign
  tax” and “foreign income           (particularly US) tax rules.
  tax deduction”, and
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 10

Measures in relation                  –– rules to reduce potential          Updating the list
to tax treaties                          double taxation, and               of information
Two separate measures
                                      –– limitation of benefits article     exchange countries
                                         which deny treaty benefits
impacting tax treaties                                                      The Government has announced
                                         in certain circumstances
were announced:                                                             in this year’s Budget that it will
                                         where there is a principal
• Refinements to the                     purpose to take advantage          include Curacao, Lebanon,
  International Tax Agreements           of the treaty.                     Nauru, Pakistan, Panama, Peru,
  Act 1953 to provide that certain                                          Qatar and United Arab Emirates
  income covered by a tax             If the DTA enters into force          into the list of countries whose
  treaty is deemed to have an         during the 2019 calendar year,        residents are eligible to access
  Australian source. No start         the withholding tax rules will        a reduced withholding tax
  date was announced for the          apply from 1 January 2020.            rate of 15 per cent on certain
  proposed amendments.                While in respect of other             distributions from managed
                                      Australian tax in relation to         investment trusts (MITs) and
• A double tax agreement (DTA)        income, profits or gain, the          Attribution MITs (or ten per cent
  between Australia and the           new DTA will apply to any year        for certain distributions from
  State of Israel, which was          of income beginning on or             clean buildings MITs), instead of
  signed on 28 March 2019, will       after 1 July next following the       the default rate of 30 per cent.
  be given the force of law in        date on which the DTA enters          The updated list of countries will
  Australia. The key features of      into force.                           be effective from 1 January 2020.
  this new DTA include:
                                                                            These countries are in addition to
  –– reduced withholding tax                                                the 54 jurisdictions which were
     rates for dividends (zero to                                           added to the list of information
     15 per cent), interest (zero                                           exchange countries with effect
     to ten per cent) and royalties                                         from 1 January 2019.
     (five per cent)
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 11

Indirect Taxes and

Trade Measures
Supporting Australian                 Increased luxury car
exports                               tax refunds for eligible
The Government announced it           primary producers and
will provide $61 million over three   tourism operators
years from 2019-20 to support         The Government will further
Australian exporters, comprising:     extend luxury car tax refund
• $60 million over three              arrangements for primary
  years from 2019-20 to the           producers and tourism operators.
  Export Market Development           For vehicles acquired on or after
  Grants (EMDG) scheme.               1 July 2019, eligible primary
  This additional funding will        producers and tourism operators
  support the EMDG scheme in          will be able to apply for a luxury
  assisting Australian small and      car tax refund to a maximum of
  medium enterprise exporters         $10,000 (up from $3,000 under
  to increase exports to new          the current arrangements). This
  markets, gain exposure in           measure will not impact on the
  international markets, develop      eligibility criteria and types of
  brand recognition and form          vehicles eligible for the current
  relationships with potential        partial refund.
  overseas customers, and
• $1 million in 2019-20 to
  further promote Australian
  export industries.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 12

Progress on Free                      Enhancing Australia’s
Trade Agreements                      agricultural trade
Progress on the following             The Government announced
Free Trade Agreements was             a package of measures to
acknowledged in the Budget:           enhance agricultural exports
• The Indonesia-Australia             and trade through increasing
  Comprehensive Economic              export markets access and
  Partnership Agreement               emerging export opportunities.
  (IA‑CEPA) was signed by the         The measures will provide
  Australian and Indonesian           $29.4 million over four years from
  governments on 4 March 2019.        2019-20 (and $2.6 million per year
  Over time, the IA-CEPA will         ongoing), including:
  provide significantly improved      • $5.1 million over four years
  preferential duty arrangements        from 2019-20 (and $0.2 million
  or remove tariffs for 99 per          per year ongoing) for actions to
  cent of Australian goods              reduce the impact of non-tariff
  exports to Indonesia.                 policies on agricultural and
• On 26 March 2019, the                 food exports
  Australian and Hong Kong            • $11.4 million over four years
  governments signed the                from 2019-20 (and $2.4 million
  Australia-Hong Kong Free              per year ongoing) to improve
  Trade Agreement (A-HKFTA).            technical market access for
  Upon ratification, A-HKFTA will       horticulture exports
  ensure that goods exported          • $6.8 million over four years
  from Australia continue to            from 2019-20 to extend the
  be entered into Hong Kong             Agricultural Trade and Market
  duty free, whilst tariffs will be     Access Cooperation program.
  eliminated on imports into            This will assist Australian
  Australia from Hong Kong.             businesses to reduce technical
                                        barriers to trade for agricultural
Revised start date for the              exports and secure access to
biosecurity imports levy                premium markets
The Budget acknowledges the           • $6.1 million over four years
Government’s announcement               from 2019-20 to extend the
of a change in the start date           Package Assisting Small
of the biosecurity imports levy         Exporters program. This
(previously announced in the            measure will support small
2018-19 Budget) from 1 July             exporters to overcome barriers
2019 to 1 September 2019.               in export sector participation.
The later start date will allow
recommendations on the design         Other indirect
and implementation of the levy to     tax measures
be made by an industry steering
committee to the Minister for         The Government has granted
Agriculture and Water Resources.      or extended access to refunds
                                      of indirect tax (including goods
                                      and services tax, fuel and alcohol
                                      taxes) for certain diplomatic
                                      and consular representations
                                      under the Indirect Tax
                                      Concession Scheme.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 13

Employment Taxes

Single Touch                           • Simplification and automation
Payroll changes                          in reporting of employment
                                         income for social security
The Government has announced             purposes through STP. From
measures relating to the Single          1 July 2020, income support
Touch Payroll (STP) system which         recipients who are employed
streamlines the way employers            will report income received
report employee payroll and              during the fortnight, with income
superannuation information. STP          data being shared with the
‘real time’ reporting applied to the     Department of Human Services
majority of employers with 20 or         through expanded data-sharing
more employees from 1 July 2018          arrangements. This measure
and will apply to employers with         will reduce the likelihood of
fewer than 20 employees from             income support recipients
1 July 2019.                             receiving an overpayment of
                                         income support payments (and
Specifically, the following
                                         subsequently being required
measures are proposed:
                                         to repay the amounts). This
• Funding of $82.4 million over          measure does not impact on the
  four years from 2019-20                eligibility criteria or maximum
  (including capital funding of          payment rates.
  $16 million over four years
  from 2019-20) to the Australian      Sham contracting
  Taxation Office (ATO) and the
                                       The Government announced
  Department of Veterans’ Affairs
                                       it will provide $9.2 million over
  to support the expansion of
                                       four years from 2019-20 (and
  data collected through STP
                                       $2.3 million ongoing) to establish
  by the ATO and the use of
                                       a dedicated sham contracting
  this data by Commonwealth
                                       unit within the Fair Work
  agencies. STP data will be
                                       Ombudsman. This dedicated
  expanded to include more
                                       unit aims to address sham
  information about gross pay
                                       contracting behaviour by some
  amounts and other details.
                                       employers to avoid employment
                                       entitlements through increasing
                                       education, compliance and
                                       enforcement activities, and
                                       dedicating additional resources
                                       to investigate and litigate cases.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 14

Other Measures

More funding to ATO’s Tax            Funding to implement
Avoidance Taskforce                  Banking Royal
The Australian Taxation (ATO) will   Commission measures
be provided with $1 billion over     The Government has allocated
four years to extend the operation   $606.7 million of funding to
of the Tax Avoidance Taskforce       facilitate its response to the Royal
until 30 June 2023. The Taskforce    Commission into Misconduct
will have a renewed focus on         in the Banking, Superannuation
multinationals, big business         and Financial Services Industry
and high wealth individuals,         over the next five years. Both
and expand its programs and          the Australian Securities and
market coverage to include           Investments Commission (ASIC)
increased scrutiny of specialist     and the Australian Prudential
tax advisors and intermediaries      Regulation Authority (APRA)
that promote tax avoidance           will have additional funding to
schemes and strategies. This is      help restore trust in Australia’s
estimated to collect an additional   financial sector.
$3.6 billion in revenue over the
forward estimates.                   ASIC will be provided with
                                     an additional $404.8 million
A further $24.2 million of funding   to implement its new
has also been provided in            enforcement strategy and
2018‑19 to the Department of         expand its capabilities and
Treasury to conduct a campaign       roles in accordance with the
focused on improving the integrity   recommendations of the Royal
of the Australian tax system.        Commission. APRA will have an
                                     additional $145 million in funding
                                     to strengthen its supervisory
                                     and enforcement activities which
                                     will support its response to key
                                     areas of concern raised by the
                                     Royal Commission.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 15

Black economy –                      Income tax exemptions for
strengthening the                    flood and storm grants
ABN system                           An income tax exemption will
The Government has announced         be provided for qualifying grants
that it will disrupt black economy   made to primary producers,
behaviour and target the misuse      small businesses and non‑profit
of the Australian Business           organisations affected by
Number (ABN) system. From            North Queensland floods. The
1 July 2021, ABN holders with an     exemption will apply where the
income tax return obligation will    grants relate to the monsoonal
be required to lodge their income    trough, which produced
tax return. From 1 July 2022,        flooding that started on or after
ABN holders will be required to      25 January 2019 and continued
confirm the accuracy of their        into February 2019.
details on the Australian Business   Similarly, payments to primary
Register annually. Currently,        producers in the Fassifern Valley
ABN holders are able to retain       in Queensland affected by
their ABN regardless of whether      storm damage in October 2018
they comply with their income        will be treated as income tax
tax return lodgment obligation       exempt. This relates to payments
or the obligation to update their    distributed to affected taxpayers
ABN details. The Government’s        through a grant totalling $1 million
announcement builds on its           to the Foundation for Rural and
comprehensive actions to reduce      Regional Renewal.
the impact of the black economy.
                                     Further ATO funding
Updates to deductible
                                     to strengthen integrity
gift recipients
From 1 July 2020, Men’s Sheds
and Women’s Sheds will be            The Government has announced
able to access Deductible Gift       that it will provide $42.1 million
Recipient (DGR) status via           over four years to the ATO to
the establishment of a DGR           increase activities to recover
general category.                    unpaid tax and superannuation
                                     liabilities. This initiative will focus
For the period 1 July 2019 to        on larger businesses and high
30 June 2024, the following          wealth individuals to ensure
organisations have been              on-time payment of their tax
approved as specifically-            and superannuation liabilities.
listed DGRs:                         These activities will not extend
• Australian Academy of Law          to small businesses.

• China Matters Limited
• Foundation Broken Hill Limited
• Motherless Daughters
  Australia Limited
• Superannuation Consumers
  Centre Limited, and
• The Headstone Project
  (Tasmania) Incorporated.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 16

Forward Tax Agenda

In the past 12 months, the          It is pleasing to see the
Government has made solid           Government recently released
progress in implementing its        its response to the Treasury
tax legislative agenda with         consultation paper on the digital
a number of important reforms       economy released last year.
enacted including:                  Treasurer Josh Frydenberg
• the Organisation of Economic      announced in March 2019 that
  Co-operation and Development      given feedback received from
  (OECD) Multilateral Instrument,   the consultation and recent
  which entered into force for      international developments,
  Australia as early as 1 January   “the Government has decided
  2019 for some treaty countries,   to continue to focus our efforts
                                    on engaging in a multilateral
• anti-hybrid provisions that       process and not to proceed
  apply to income years             with an interim measure, such
  commencing on or after            as a digital services tax, at this
  1 January 2019, and               time.” This will provide much
• a range of measures targeting     needed certainty to taxpayers
  the black economy.                focussed on digitalisation in the
                                    global economy.
                                    There are, however, a number
                                    of critical previously announced
                                    measures that have not yet been
                                    enacted. Some of these are
                                    highlighted in Table 9.1 over the
                                    following pages.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 17

Table 9.1: Key measure previously announced still to be legislated

Measure                                 Status
Global tax
Thin capitalisation changes             Currently before Parliament. The measure relating to revaluation of assets is
including removal of ability to         proposed to apply from 8 May 2018, subject to transitional rules applicable until
revalue assets off balance sheet and    income years that commence on or after 1 July 2019.
treat foreign controlled Australian     The change to the treatment of consolidated groups is proposed to apply
tax consolidated and multiple           to income years commencing on or after 1 July 2019.
entry consolidated groups with
foreign investments or operations
as both outward and inward
investing entities
Broadening the definition of            Currently before Parliament.
significant global entity (SGE)         The concept of SGE is relevant for a range of tax laws including Country-by-
                                        Country reporting, Multinational Anti-Avoidance Law, Diverted Profits Tax,
                                        and penalties.
Offshore Banking Unit (OBU) reforms     Announced in October 2018 to address concerns raised by the OECD Forum
                                        on Harmful Tax Practices.
Corporate tax
Reforming the integrity provisions      Draft legislation to implement the Board of Taxation’s recommended approach
in the debt/equity rules                to improve the debt and equity tax rules was released in October 2016. The
                                        new rules are proposed to apply 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).
Better targeting the research and       These reforms, which were announced in the 2018-19 Federal Budget,
development (R&D) tax incentive         are currently in a Bill before Parliament.
                                        The Senate Economics Legislation Committee handed down its report on the Bill
                                        in February 2019, recommending further examination and analysis of the impact
                                        of the R&D reforms be undertaken.
Removing barriers to the use            Originally announced in the 2016-17 Federal Budget, and proposed to apply with
of asset backed financing               effect from 1 July 2018.
Preventing franked distributions        Originally announced in the 2016-17 Mid Year Economic and Fiscal Outlook
funded by capital raisings              (MYEFO) and proposed to apply to distributions made after 12:00pm (AEDT)
                                        on 19 December 2016.
Reforms to taxation of financial        Originally announced in the 2016-17 Federal Budget. In December 2017, the
arrangements (TOFA)                     Government announced that it will defer the commencement of this proposal until
                                        income years that begin after Royal Assent.
Petroleum Resource Rent Tax             Currently before Parliament and expected to be passed this week. Reforms
(PRRT) reforms including measures       proposed to apply from 1 July 2019.
to lower the uplift rates for general
expenditure and exploration
expenditure and removal of onshore
projects from the PRRT regime
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 18

Table 9.1: Key measure previously announced still to be legislated (continued)

Measure                                 Status
Asset and wealth management
Package of measures to improve the      Currently before Parliament and expected to be passed this week.
integrity of the law for arrangements   These changes will generally take effect from 1 July 2019 (subject to transitional
involving stapled structures and        rules for existing investments).
limit access to tax concessions for
foreign investors
Removal of the capital gains tax        Announced in the 2018-19 Federal Budget. The start date was deferred from
(CGT) discount at trust level for       1 July 2019 to 1 July 2020 in the 2018-19 MYEFO.
Managed Investment Trusts (MITs)
and Attribution MITs
Corporate and limited partnership       Draft legislation dealing with the tax and regulatory framework for corporate CIVs
collective investment vehicle (CIV)     has been released for public consultation.
                                        No draft legislation has been made available for the proposed limited
                                        partnership CIV.
Personal tax and superannuation
Taxation of income for use of an        A consultation paper was released in December 2018. This measure is proposed
individual’s fame and image             to apply from 1 July 2019.
Superannuation guarantee (SG)           A Bill to implement the 12-month amnesty from 24 May 2018 is currently
12-month amnesty for historical         before Parliament.
underpayment of SG and increase in
penalties for those that do not come
forward during the amnesty
Removal of CGT main residence           Currently before Parliament. Proposed to apply from 7:30pm by legal time in the
exemption for foreign residents         ACT on 9 May 2017, with a transitional period until 30 June 2019 for dwellings held
                                        before 9 May 2017.
Other measures
Goods and services tax (GST) for        Currently before Parliament. Proposed to apply from 1 July 2019.
online bookings for accommodation
in Australia
Measures to deal with the black         Following last year’s Budget announcement, a number of black economy
economy including implementing          measures have already been enacted in addition to relatively recent consultation
a reporting regime for the              on recommendations for a sharing economy reporting regime and also to
sharing economy                         modernise offences, penalties and streamline prosecution processes.
Denial of deductions for vacant land    Draft legislation to implement this measure was released in October 2018.
                                        The measure is proposed to have effect from 1 July 2019.
Improving the transparency of tax       In January 2018, the Government released draft legislation for this proposal. Further
debts by authorising the Australian     changes to this measure were announced in the 2018-19 MYEFO, including raising
Taxation Office (ATO) to disclose       the threshold for reporting from $10,000 to $100,000. This measure will take effect
certain business tax debts to credit    the day after Royal Assent of the enabling legislation.
reporting bureaus
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 19

Opposition tax policies               Table 9.2: Key tax policies of Australian Labor Party
With a Federal election looming,
                                      Policy area      Australian Labor Party policy
it would be remiss not to take
into account the policies of          Company          The Labor Party will maintain the legislated reduction in the
                                      income           company tax rate to 25 per cent by 2021-22 for small and
the Australian Labor Party in
                                      tax rate         medium sized-business with aggregated turnover of up to
considering what the forward                           $50 million.
tax agenda may look like. In
Table 9.2, we summarise some          Personal         The Labor Party has proposed larger personal tax cuts than
                                      income tax       those that have already been legislated for taxpayers earning
of the key tax policies that
                                      rates            less than $125,000 and has indicated an intention to increase
have been announced by the                             the top marginal tax rate from 47 per cent to 49 per cent.
Australian Labor Party to date.
                                      Personal tax     From 1 July 2019, introduce a $3,000 cap on the amount
A number of these tax policies        deductions       individuals can claim as deductions for the management of their
were announced by the Australian                       taxation affairs.
Labor Party prior to the 2016         Accelerated      From 1 July 2021, implement a new Australian Investment
election, and for some of these       depreciation     Guarantee, allowing businesses to immediately deduct 20 per
proposals, a start date is unclear.   of certain       cent of the value of investment in eligible depreciating assets
We may hear more on these             business         (including electric vehicles), with the balance depreciated in line
measures from the Opposition          assets           with normal depreciation rates from the first year.
Leader in the Budget reply            Taxation of      Introduce a minimum 30 per cent tax rate for discretionary trust
speech scheduled for Thursday         discretionary    distributions to mature individual beneficiaries (aged 18 years
4 April 2019.                         trust            and over) with effect from 1 July 2019.
                                      Imputation       From 1 July 2019, cash refunds of excess franking credits will
                                      reform           be removed for certain individuals and superannuation funds.
                                                       Australian Government pension or allowance recipients and
                                                       self-managed superannuation funds which have at least one
                                                       Australian Government pensioner or allowance recipient before
                                                       28 March 2018 will be exempt from this measure.
                                      Multinational    Amend the thin capitalisation rules to limit the amount of debt
                                      tax avoidance    deductions multinational companies can claim in Australia to
                                                       the debt-to-equity ratio of a group’s entire global operations.
                                                       Provide additional funding to the ATO to properly investigate
                                                       and pursue multinational profit shifting.
                                      Transparency     A range of additional measures to promote tax transparency
                                                       are proposed including a mandatory Extractive Industries
                                                       Transparency scheme for large Australian extractive companies
                                                       to disclose payments (including taxes) arising from minerals
                                                       exploration, prospection, discovery, development or extraction;
                                                       publishing of Country-By-Country reports (excerpts); restoring
                                                       the $100 million threshold for public reporting by the ATO of tax
                                                       information of large private companies; and the establishment
                                                       of a publicly accessible central register of beneficial ownership
                                                       of Australian companies, trusts and other corporate structures.
                                      Capital          Reduce the CGT discount for individuals from 50 per cent to
                                      Gains Tax        25 per cent. This is proposed to apply to assets acquired on or
                                                       after 1 January 2020. Assets acquired before this date will not
                                                       be affected.
                                      Negative         Limit negative gearing to new housing investments. This is
                                      gearing          proposed to apply to assets acquired on or after 1 January
                                                       2020. Assets acquired before this date will not be affected.
                                      Build-to-rent    Reduce the MIT withholding tax rate from 30 per cent to 15 per
                                      housing          cent for fund payments attributable to investments in build-to-
                                                       rent housing.
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 20

Comprehensive tax reform              Reform should also extend to
remains critical                      Australia’s consumption tax.
                                      We need to have a much more
With the Federal Budget moving        sophisticated debate about
towards surplus, now is the ideal     where Goods and Services Tax
time for our political leaders to     (GST) is and isn’t applied – and
step back and take a fresh look at    how much GST is applied.
our tax system. Australia’s social
and economic future may depend        Our ability to have a
upon it.                              constructive conversation about
                                      comprehensive tax reform today
In a global context, for Australia    will have a direct impact on
to remain internationally             our living standards tomorrow.
competitive for companies to          PwC strongly supports the
do business here, we need to          development of a better tax
progressively lower the corporate     system for Australia, and remains
tax rate. Australia’s top corporate   committed to joining a national
tax rate of 30 per cent is the        conversation on tax reform.
second highest amongst OECD
nations behind only France.
Although the recent reform to
reduce the Australian company
tax rate for small to medium
companies progressively down to
25 per cent by 2021-22 is a step
in the right direction, more could
be done across the board, also
noting that the current two-tiered
company tax rate regime adds
complexity to our tax system.
For further information, contact your usual PwC advisor or one of these contacts:
Jeremy Thorpe                       Pete Calleja                        Lynda Brumm
+61 (2) 8266 4611                   +61 (2) 8266 8837                   +61 (7) 3257 5471           
Julie Coates                        Tom Seymour                         Craig Fenton
+61 (2) 8266 2006                   +61 (7) 3257 8623                   +61 (7) 3257 8851             

Personal Tax                        Superannuation                      Indirect Taxes and                  Other Measures
Bruce Ellis                         Marco Feltrin                       Trade Measures                      Liam Collins
+61 (3) 8603 3303                   +61 (3) 8603 6796                   Michelle Tremain                    +61 (3) 8603 3119                      +61 (8) 9238 3403         
Glen Frost                          Abhi Aggarwal                         Pete Calleja
+61 (2) 8266 2266                   +61 (7) 3257 5193                   Gary Dutton                         +61 (2) 8266 8837                       +61 (7) 3257 8783         
Martina Crowley                     Alice Kase                                 Lynda Brumm
+61 (8) 9238 3222                   +61 (2) 8266 5506                   Stephanie Males                     +61 (7) 3257 5471                     +61 (2) 6271 3414         
Murray Evans                        Jeffrey May               
                                                                                                            Michael Dean
+61 (2) 4925 1139                   +61 (3) 8603 0729                   Ben Lannan                          +61 (2) 8266 5427                       +61 (3) 8603 2067         
Samantha Vidler                     Ken Woo                   
+61 (7) 3257 8813                   +61 (2) 8266 2948                                                       Forward Tax Agenda                        Employment Taxes                    Pete Calleja
Norah Seddon                        Naree Brooks                        Katie Lin                           +61 (2) 8266 8837
+61 (2) 8266 5864                   +61 (3) 8603 1200                   +61 (2) 8266 1186                     
                                                                                                            Paul Abbey
                                    Global Tax                          Greg Kent                           +61 (3) 8603 6733
Corporate Tax and                                                       +61 (3) 8603 3149         
Private Business                    Michael Bona              
                                    +61 (7) 3257 5015                                                       Lynda Brumm
Sanjiv Jeraj                              Paula Shannon                       +61 (7) 3257 5471
+61 (3) 8603 3187                                                       +61 (7) 3257 5751                         Peter Collins             
                                    +61 (3) 8603 6247                                                       Jonathan Malone
Samantha Vidler                                                              +61 (2) 8266 4770
+61 (7) 3257 8813                                                                                              Sach Pelpola
                                    +61 (3) 8603 1376                                                       Ellen Thomas
Simon Le Maistre                                                              +61 (2) 8266 3550
+61 (3) 8603 2272                                                                                             Angela Danieletto
                                    +61 (2) 8266 0973
Michael Dean              
+61 (2) 8266 5427                Jonathan Malone
                                    +61 (2) 8266 4770
Martina Crowley           
+61 (8) 9238 3222

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