Federal Election on 2 July 2016
The Treasurer has handed down his first Budget, an “election Budget”. Labor has made it clear that it will reject some of the key revenue measures announced in the Budget. A number of Bills containing important tax changes have been enacted and some other Bills have lapsed. With less than two months for an election campaign for the two main political parties, now is a good time to recap what has happened so far.
Budget night
On 3 May 2016, Treasurer Scott Morrison delivered his first Budget. Mr Morrison said the Budget was a national economic plan for jobs and growth, for a stronger economy.
“It’s not a typical Budget,” he said. “This is not a time to be throwing money around, you have to spend money wisely, you have to target it and the ultimate test is will it drive jobs and growth.”
The Treasurer said that the people making the economy work were small-to-medium enterprises (SMEs). The Budget announced a number of changes to support small businesses, with some changes starting on 1 July 2016.
The Budget contained a number of significant taxation and superannuation announcements. These included a modest reform of the tax brackets by increasing the $80,000 tax bracket threshold to $87,000, in an attempt to address tax bracket creep; major superannuation changes (balance cap on retirement accounts, lifetime non-concessional contributions cap, transitional to retirement change); a further crackdown on multinational enterprise (MNE) tax avoidance; and GST changes on the importation of low-value goods.
The Government also confirmed that the 2% temporary budget deficit levy (on incomes over $180,000) would expire at the end of the 2016–2017 financial year, as currently legislated.
While the Budget itself was relatively quiet on GST changes, in a pre-Budget interview on Sky News on 1 May 2016, the Prime Minister said there would be no change to the GST in the next Parliament.
“We’ve looked very carefully at the proposal to raise the GST…but we’ve rejected it,” Mr Turnbull said. “I can give you this absolute undertaking: there will be no change to the GST in the next Parliament,” he said. [Note: presumably this means there would be no change to the GST rate or base in the next term of a Coalition Government.]
The major revenue measures announced in the Budget include the following:
- increasing the tax bracket at which the 37% tax rate starts from $80,001 to $87,001 from 1 July 2016;
- a phased reduction in the company tax rate to 25% by 2026–2027;
- major SME tax changes – small business threshold to be increased to $10 million and reduced tax rates for small businesses;
- new measures directed at MNE tax avoidance, eg a diverted profits tax, hybrid mismatch measures, strengthened transfer pricing rules and a significant increase in administrative penalties;
- superannuation:
- $1.6 million transfer balance cap for retirement accounts;
- Non-concessional contributions: $500,000 lifetime cap from Budget night;
- Concessional contributions cap cut to $25,000 from 1 July 2017;
- Concessional contributions catch-up for account balances less than $500,000;
- Superannuation contributions tax (extra 15%) for income more than $250,001;
- Transition to retirement income streams – integrity proposal.
- The Government is to impose GST on goods imported by consumers regardless of value. The new rules will commence on 1 July 2017.
The Opposition’s Budget reply
On 5 May 2016, Federal Opposition Leader Bill Shorten delivered his reply speech stating that Labor will not support the Government’s 10-year plan to reduce the company tax rate to 25% for all companies by 2026–2027. However, Labor will support a tax cut for small businesses with a turnover of less than $2 million per year. He also confirmed that Labor is opposed to any increase in the GST rate.
On the superannuation front, Mr Shorten said Labor’s policies would only ever be prospective. As such, Labor does not support the Government’s proposed $500,000 lifetime cap for non-concessional contributions from Budget night. [Note: the Government’s proposed $500,000 lifetime cap would take into account all non-concessional contributions made on or after 1 July 2007 – although contributions made before the 3 May 2016 Budget night would not result in any tax penalty.]
Instead, Mr Shorten said Labor would support its own policies to reduce the superannuation tax concessions for the top end. [Note: presumably, this means that Labor does not support the Government’s proposed $1.6 million transfer balance cap for retirement accounts from 1 July 2017. If elected, Labor would run with its policy to cap the tax exemption for earnings on a superannuation fund’s pension at $75,000 per annum per person (roughly equivalent to earnings at 5% from a $1.5 million account balance) from 1 July 2017.]
Mr Shorten said Labor would support the Government’s proposed bracket creep measure to increase the 32.5% personal income tax threshold from $80,000 to $87,000 from 1 July 2016. However, Labor does not support the removal of the 2% temporary budget deficit levy (on incomes over $180,000) which is legislated to expire at the end of the 2016–2017 financial year.
Bills that received Royal Assent and those that have lapsed
A number of Bills containing important tax changes have received Royal Assent (just before the 2016 Federal Election was announced). These Bills include the following:
- the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 which contains the following amendments:
- ?amends the ITAA 1997 to encourage new investment in Australian early-stage innovation companies with high growth potential by providing investors in such companies with tax incentives. These incentives include a 20% carry-forward non-refundable offset and specific CGT exemptions; and
- ? amends the early-stage venture capital limited partnership (ESVCLP) and venture capital limited partnership (VCLP) regimes within the Venture Capital Act 2002 and ITAA 1997 to improve access to venture capital investment and make the regimes more attractive to investors.
- the Tax and Superannuation Laws Amendment (2016 Measures No 1) Bill 2016 which contains the following amendments:
- ? amends the GST Act to ensure that digital products and other imported services supplied to Australian consumers by foreign entities are subject to GST in a similar way to equivalent supplies made by Australian entities;
- ?amends the GST Act to better target the way Australia’s GST rules apply to cross-border supplies that involve non-resident entities; and
- ?amends the tax law to increase the flexibility of Farm Management Deposits to assist primary producers.
With the issue of writs on 9 May 2016 for the holding of the 2016 Federal Election, all Bills that have not been passed by both Houses of Federal Parliament have lapsed. The Government is now in caretaker mode. These are the Bills:
- The Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016 which proposes to establish a remedial power for the Tax Commissioner to allow the Commissioner to make, by disallowable legislative instrument, one or more modifications to the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object.
- The Tax and Superannuation Laws Amendment (2015 Measures No 3) Bill 2015 which proposes to abolish the seafarer tax offset and to reduce the research and development (R&D) tax offset rates by 1.5 percentage points.
- The Superannuation Legislation Amendment (Choice of Fund) Bill 2016 which contains measures to enable employees under workplace determinations or enterprise agreements made from 1 July 2016 to choose their own superannuation fund.
Note that the lists above are not exhaustive.