Reduction of the tax rate for all companies
The Government is committed to fully implement the previously announced 10-year Enterprise Tax Plan and to reduce the tax rate for all companies to 25% by 2027.
Significant global entity
Australian entities forming part of large multi-national groups are currently subject to increased reporting and integrity measures. These measures apply where an Australian entity forms part of an accounting consolidated group with a turnover in excess of A$1bn.
There has been uncertainty where large multinational groups are headed by private companies, trusts or partnerships that may not be obliged to prepare consolidated financial statements.
The definition of ‘Significant Global Entity’ will be amended to clarify the application of these rules to such groups. The changes will apply to income years commencing on or after 1 July 2018.
Under the current thin capitalisation rules, entities can elect to revalue their assets to determine their thin cap position. This increases the amount of debt that can be held by the Australian members of multinational groups.
The thin capitalisation rules will be tightened, such that revaluations for thin capitalisation purposes will only be permitted where these revaluations are also reflected in the financial statements of an entity.
These rules will apply to income years commencing on or after 1 July 2019.
Income tax consolidation
Various changes to the tax consolidation rules were proposed to clarify or prevent misuse of the income tax consolidation measures.
The start date of the integrity rules to prevent non-residents from ‘churning’ assets between tax consolidated groups was expected to be 14 May 2013, as the measures were originally announced in the 2013-2014 Budget.
Under the 2018-2019 Budget, the start date of one aspect of this measure will be deferred to apply only from the date of introduction of the enabling legislation. This part of the measures relates to grouping of associates when determining whether the anti-churn rules apply.
In the 2016-2017 Budget, it was proposed that deferred tax liabilities should be excluded in entry and exit calculations. The purpose of this is to prevent a double benefit in the form of an increase to the cost base of the assets of the joining entity, as well as a tax deduction on crystallisation of the liability. These new measures included complex transitional rules which were removed from the final legislation.
More countries eligible for reduced withholding on MIT distribution
Effective from 1 January 2019, 56 new jurisdictions will be added into the list of countries whose residents are eligible to access a reduced withholding tax rate of 15% (rather than the standard 30%) on certain distributions from Australian Managed Investment Trusts (MITs).
Listed countries are those which have entered into effective information sharing agreements with Australia. These agreements form an important part of Australia’s commitment to combat against offshore tax avoidance and evasion.
Capital gains discount removed at trust level for MITs and AMITs
As an integrity measure, Managed Investment Trusts (MITs) and Attribution MITs (AMITs) will be prevented from applying the 50% capital gains discount at the trust level. This measure will apply to payments made from 1 July 2019 and it will prevent beneficiaries that are not entitled to the CGT discount in their own right from getting a benefit from the CGT discount being applied at the trust level.
Deferral of TOFA reform
The Government has deferred the start date of changes to the taxation of financial arrangements (TOFA) rules. This regulation reform aims to reduce the scope of the TOFA rules, decrease compliance costs and increase certainty.
This measure has been deferred to allow additional time to design the simplified rules, to prevent unintended outcomes and to ensure compliance cost savings are realised.