PWC'S FEDERAL BUDGET INSIGHTS - PWC AUSTRALIA
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PwC’s
Federal Budget
Insights
PwC’s analysis of the Australian Federal Budget 2019-2020
pwc.com.au
Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | i Contents 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
balance
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 challenges? 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
2
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 45,000Insights | 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 > 200,000Insights | PwC’s analysis of the Australian Federal Budget 2019-2020 | 05
Corporate Tax and
3
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
Superannuation
4
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
5
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”, andInsights | 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
6
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
7
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
8
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
measures
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
9
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 regimeInsights | 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 bureausInsights | 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.
distributions
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.Contacts
For further information, contact your usual PwC advisor or one of these contacts:
Summary
Jeremy Thorpe Pete Calleja Lynda Brumm
+61 (2) 8266 4611 +61 (2) 8266 8837 +61 (7) 3257 5471
jeremy.thorpe@pwc.com pete.calleja@pwc.com lynda.brumm@pwc.com
Julie Coates Tom Seymour Craig Fenton
+61 (2) 8266 2006 +61 (7) 3257 8623 +61 (7) 3257 8851
julie.coates@pwc.com tom.seymour@pwc.com craig.fenton@pwc.com
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
bruce.ellis@pwc.com marco.feltrin@pwc.com +61 (8) 9238 3403 liam.collins@pwc.com
Glen Frost Abhi Aggarwal michelle.tremain@pwc.com Pete Calleja
+61 (2) 8266 2266 +61 (7) 3257 5193 Gary Dutton +61 (2) 8266 8837
glen.frost@pwc.com abhi.aggarwal@pwc.com +61 (7) 3257 8783 pete.calleja@pwc.com
Martina Crowley Alice Kase gary.dutton@pwc.com Lynda Brumm
+61 (8) 9238 3222 +61 (2) 8266 5506 Stephanie Males +61 (7) 3257 5471
martina.crowley@pwc.com alice.kase@pwc.com +61 (2) 6271 3414 lynda.brumm@pwc.com
Murray Evans Jeffrey May stephanie.males@pwc.com
Michael Dean
+61 (2) 4925 1139 +61 (3) 8603 0729 Ben Lannan +61 (2) 8266 5427
murray.evans@pwc.com jeffrey.may@pwc.com +61 (3) 8603 2067 michael.dean@pwc.com
Samantha Vidler Ken Woo ben.lannan@pwc.com
+61 (7) 3257 8813 +61 (2) 8266 2948 Forward Tax Agenda
samantha.vidler@pwc.com ken.woo@pwc.com 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 pete.calleja@pwc.com
norah.seddon@pwc.com naree.brooks@pwc.com katie.f.lin@pwc.com
Paul Abbey
Global Tax Greg Kent +61 (3) 8603 6733
Corporate Tax and +61 (3) 8603 3149 paul.abbey@pwc.com
Private Business Michael Bona greg.kent@pwc.com
+61 (7) 3257 5015 Lynda Brumm
Sanjiv Jeraj michael.bona@pwc.com Paula Shannon +61 (7) 3257 5471
+61 (3) 8603 3187 +61 (7) 3257 5751 lynda.brumm@pwc.com
sanjiv.jeraj@pwc.com Peter Collins paula.shannon@pwc.com
+61 (3) 8603 6247 Jonathan Malone
Samantha Vidler peter.collins@pwc.com +61 (2) 8266 4770
+61 (7) 3257 8813 jonathan.r.malone@pwc.com
samantha.vidler@pwc.com Sach Pelpola
+61 (3) 8603 1376 Ellen Thomas
Simon Le Maistre sach.pelpola@pwc.com +61 (2) 8266 3550
+61 (3) 8603 2272 ellen.thomas@pwc.com
simon.le.maistre@pwc.com Angela Danieletto
+61 (2) 8266 0973
Michael Dean angela.danieletto@pwc.com
+61 (2) 8266 5427
michael.dean@pwc.com Jonathan Malone
+61 (2) 8266 4770
Martina Crowley jonathan.r.malone@pwc.com
+61 (8) 9238 3222
martina.crowley@pwc.com
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