federal budget tax bulletin 2016-17

FEDERAL BUDGETTAX BULLETIN 2016–17

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© Thomson Reuters – Weekly Tax Bulletin 2016 Budget Report | 1

THOMSON REUTERS WEEKLY TAX BULLETIN

Issue 18, 3 MAY 2016

SPECIAL ISSUE - 2016 FEDERAL BUDGET REPORT

[With special comments by Reuters News]

In this issue

EXECUTIVE SUMMARY

[542] 2016-17 Federal Budget: small tax cut to address bracket creep, major tax help for SMEs, phased

company tax cut, major super tax changes, MNEs targeted, 10-year tax plan, tobacco tax up

[543] Govt announces details of "Ten Year Enterprise Tax Plan": SME tax breaks, reduced company tax rate,

bracket creep, etc

[544] Government delivers sombre election budget for "extraordinary times" – by Reuters News

PERSONAL TAXATION

[545] Personal tax rates: small tax cut from 1 July 2016; Budget deficit levy not to be extended

[546] Medicare levy low-income thresholds for 2015-16

[547] Medicare Levy Surcharge and Private Health Insurance Rebate - indexation pause to continue

[548] Higher education options: HELP debts, etc

[549] ADF exemptions extended

[550] "Backpacker tax" to proceed, it seems?

MULTINATIONAL TAX MEASURES

[551] Diverted profits tax ("Google tax") at 40% to be introduced

[552] Govt to implement OECD BEPS hybrid mismatch arrangement rules

[553] Tax Avoidance Taskforce on MNEs to be established within the ATO

[554] Transfer pricing rules to be strengthened to implement 2015 OECD recommendations

[555] Administrative penalties to be significantly increased for significant global entities

No changes to thin cap safe harbour rules - see [542]

SMALL BUSINESS

[556] Small business threshold to increase to $10m

[557] Reduced tax rates for small business


BROADER BUSINESS TAXATION

[558] Company tax rate to reduce to 25% by 2026-27

[559] Changes to Div 7A flagged

[560] Asset backed financing arrangements

[561] Consolidation measures

[562] Collective investment vehicles – proposed new types

[563] TOFA reforms

SUPERANNUATION

[564] Superannuation pension phase - $1.6m transfer balance cap for retirement accounts

[565] Transition to retirement pensions - tax concessions to be reduced

[566] Non-concessional contributions: $500,000 lifetime cap from Budget night

[567] Concessional contributions cap cut to $25,000 from 1 July 2017

[568] Concessional contributions catch-up for account balances less than $500,000

[569] Superannuation contributions tax (extra 15%) for incomes $250,001+

[570] Tax deductions for personal super contributions extended

[571] Superannuation contribution rules - work test to be removed for age 65 to 74

[572] Low income super tax offset (LISTO) to be introduced

[573] Low income spouse super tax offset to be extended

[574] Retirement income products - tax exemption extended

[575] Anti-detriment deduction to be removed for super death benefits

[576] Objective of superannuation to be enshrined in stand-alone legislation

GST MEASURES

[577] GST measures in 2016-17 Federal Budget

[578] GST and the importation of low-value goods

[579] GST small business taxpayers: election to use cash basis

[580] BAS reporting for GST small businesses

TAX ADMINISTRATION

[581] Protection for tax whistleblowers

[582] ATO guidelines on new tax laws

[583] Regulatory Reform Bills planned

OTHER MEASURES

[584] Deductible gift recipients list changes


[585] Concessions for diplomats, consulates and international organisations

[586] Passport fees to rise - again

[587] Agricultural production levies to be increased

[588] Excise refund scheme for distillers

[589] Wine equalisation tax rebate integrity proposals

[590] Tobacco excise increases and enforcement

[591] Tourist visa fees

[592] Removal of the Special Duty on Imported Used Vehicles confirmed

[593] Youth Jobs PaTH (Prepare, Trial, Hire) scheme – helping SMEs

[594] Sustainable welfare – DSP eligibility to be reviewed

[595] Supporting financial technology – FinTech: regulatory sandbox, etc

[596] NDIS – closing carbon tax compensation to help fund NDIS

Return to Top

EXECUTIVE SUMMARY

[542] 2016-17 Federal Budget: small tax cut to address bracket creep, major tax help for SMEs,

phased company tax cut, major super tax changes, MNEs targeted, 10-year tax plan, tobacco tax

up

On Tuesday, 3 May 2016, Treasurer Scott Morrison handed down the 2016-17 Federal Budget, his 1st Budget.

In the lead up to the Budget, the Government repeatedly emphasised the need for Australia to "live within its

means" and that the Government had to carefully examine its expenditures. That theme was strongly confirmed

by the Treasurer in his Budget Speech. Mr Morrison said the Budget was "not a typical Budget" in terms of

sweeteners etc, but was about the Government's economic plan for Australia. And of course, with an expected

double dissolution election to be held just 2 months after the Budget, on 2 July 2016, the 2016 Budget assumes a

greater importance and context than normal.

The Treasurer said the Budget is designed to essentially do 3 things:

to grow the economy and to support growth in jobs;

to ensure the tax system is better targeted so it can support investment that drives jobs and growth; and

to ensure that "we continue on our strong path to Budget balance by keeping our expenditure under

control, by living within our means".

Mr Morrison said the Budget is 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 SMEs and the Budget announced number of

changes to support small business, some starting on 1 July 2016.

From a taxation and superannuation point of view, the Budget contained a number of significant announcements.

These included modest reform of the tax brackets in an attempt to address tax bracket creep by increasing the

$80,000 tax bracket threshold to $87,000, 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, 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 2016-17 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. [Thomson Reuters

note: One assumes this means there would be no change to the GST rate or base in the next term of a Coalition

Government.]

With an eye on the election, the Treasurer noted that several special appropriation Bills were introduced into the

House of Reps on 2 May 2016 which deal "with the unusual situation we have going to an election on the second

of July, that will ensure a continuity of supply over the course of the election period".

The economics

In his Budget Speech, the Treasurer said the deficit in underlying cash balance terms is expected to reduce from

$39.9 billion in 2015-16 to $37.1 billion, or 2.2% as a share of the economy in 2016-17. Mr Morrison said the

deficit is then projected to fall to $6.0 billion or just 0.3% of GDP over the next 4 years to 2019-20. "We are

achieving this by policies that continue to control spending", he said.

The Government says the economy is forecast to grow by 2.5% in both 2015-16 and 2016-17 and to pick up to

3% in 2017-18. It says the underlying cash balance is expected to improve in each and every year over the

forward estimates period, from a deficit of 2.4% of GDP in 2015-16 to 0.3% of GDP in 2019-20. "The budget is

projected to return to balance by 2020-21", the Government said.

Budget documents state that total revenue for 2016-17 is expected to be $416.9 billion, an increase of 5.2% on

estimated revenue in 2015-16. Total expenses for 2016-17 are expected to be $450.6 billion, an increase of 4.4%

on estimated expenses in 2015-16.

The Government said it has committed a record $50 billion in infrastructure investment between 2013-14 and

2019-20 for roads, rail, airports and dams.

The Treasurer said payments as a share of the economy will fall from 25.8% in 2015-16 down to 25.2% in 2019-


20. At the same time, there is no increase in the projected tax burden as a share of the economy, compared to

the 2015-16 Budget, Mr Morrison said.

An outline of the major revenue-related announcements is given below.

Revenue measures announced

The major revenue measures announced in the Budget included:

increasing the tax bracket at which the 37% tax rate starts from $80,001 to $87,001, to start from

1 July 2016;

a phased reduction in the company tax rate over 10 years;

major SME tax changes - small business threshold to be increased to $10 million, reduced tax rates for

small business;

significant new measures directed at MNE tax avoidance eg a diverted profits tax, hybrid mismatch

measures, strengthened transfer pricing rules, significant increase in administrative penalties;

superannuation eg:

$1.6m 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 incomes $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.

Although speculated before the Budget, the Government did not announce any changes to Australia's thin

capitalization rules. There had been media speculation that the Government would reduce the permitted "thin

capitalisation" ratio from its current 1.5:1(60% / 40%) down to 1:1 (50% / 50%) thus reducing tax deductions for

some highly geared corporate groups. This did not happen.

Australia has had a "thin cap" regime since 1987, although it was completely rewritten and "internationalised" in

2001. The rules operate to deny "excess" interest expense deductions, with various limits:

A "safe harbour" debt amount;

An arm's length debt amount; and

A worldwide gearing level.

The "safe harbour" ratio was originally 3:1 (on a debt:equity basis), but was reduced to 1.5:1 for the 2014-15

income year. (These ratios translate to 75% / 25% and 60% / 40% on a debt to total assets basis).

More information on the tax and related announcements is also contained in a number of Budget press releases


on the Treasurer's website and the Assistant Treasurer's website.

Where to get Budget documents

On the web

The 2016-17 Budget Papers are available at any of the following websites:

2016-17 Central Budget website

Federal Government

Department of Finance.

Print copies

The 2016-17 Budget Papers are also available for sale from the CanPrint Communications Pty Limited shopfront

in Canberra at 16 Nyrang St, Fyshwick (tel: 1300 889 873) from 7:30pm on 3 May 2016.

The Budget documents can also be ordered through CanPrint Communications Pty Ltd to be posted. An order

form can be faxed to (02) 6293 8333; or mailed to: CanPrint Communications Pty Ltd, PO Box 7456, Canberra

MC ACT 2610. Full details of purchase options are on the Federal Budget website.

by Terry Hayes

[email protected]

Return to Top

[543] Govt announces details of "Ten Year Enterprise Tax Plan": SME tax breaks, reduced company

tax rate, bracket creep, etc

As part of the 2016-17 Federal Budget, the Government announced a number of significant "tax reform"

measures as part of what it called its "Ten Year Enterprise Tax Plan". These include:

Increase the small business entity turnover threshold to $10 million from 1 July 2016 - see para [556] of

this Bulletin.

Increase the unincorporated small business tax discount incrementally over 10 years from 5% to 16% -

see para [556] of this Bulletin.

Reduce the company tax rate to 25% over 10 years - see para [558] of this Bulletin.

Targeted personal tax relief - increase the 32.5% tax threshold from $80,000 to $87,000 from

1 July 2016 - see para [545] of this Bulletin.

Targeted amendments to Div 7A - see para [559] of this Bulletin.

Better targeting the deductible liabilities measure - addresses double counting of deductible liabilities

under the consolidation regime - see para [561] of this Bulletin.

http://sjm.ministers.treasury.gov.au/

http://kmo.ministers.treasury.gov.au/

http://www.budget.gov.au/

http://budget.gov.au/

http://www.finance.gov.au/publications/commonwealth-budget/

https://treasury.infoservices.com.au/page/budget2016

http://www.budget.gov.au/purchase.htm



mailto:[email protected]


Enhancing access to asset backed financing - see para [560] of this Bulletin.

Introduce a new tax and regulatory framework for 2 new types of collective investment vehicles (CIVs) -

see para [562] of this Bulletin.

Reform of the TOFA rules to reduce the scope, decrease compliance costs and increase certainty - see

para [563] of this Bulletin.

Extend brewery refund scheme to domestic distillers and producers of low strength beverages - see

para [588] of this Bulletin.

Reduce WET rebate cap and tighten eligibility criteria - see para [589] of this Bulletin.

by Terry Hayes

[email protected]

Return to Top

[544] Government delivers sombre election budget for "extraordinary times" – by Reuters News

The Government unveiled an economic blueprint in its 2016-17 Budget on Tuesday, 3 May 2016 aimed at

creating jobs and growth in "extraordinary times", just hours after the Reserve Bank slashed interest rates to an

all-time low.

Stealing the thunder from the Government's annual budget, the Reserve Bank cut the cash rate by a quarter

percentage point to 1.75%, citing surprisingly low inflation and uncertainty about the global outlook.

This year's spending plan had an unusually high degree of difficulty as it effectively doubles as the launch of an

unofficial election campaign after Prime Minister said he planned to use a political deadlock to dissolve

Parliament.

With the polls narrowing, the Government is keen to drive home the message that it alone can be trusted to

manage an economy hampered by a once-in-a-century mining downturn and balance public finances after years

of deficits.

"These are extraordinary times," Morrison told Parliament in his Budget Speech. "At such a sensitive time, none

of us can become complacent or make decisions that could put our successful transition at risk. There is too

much at stake."

As expected, the Budget stuck by the Government's pledge to live within its means, offering little in the way of

vote-buying sweeteners despite the looming 2 July election. "This is not the time to be splashing money around

or increasing the tax burden on our economy," the Treasurer added.

The Government did promise to lower the corporate tax rate for small firms to 27.5% from July 2016 and broaden

the middle-income tax bracket so fewer people would be hit by the second top marginal tax rate of 37%.



"While these are modest changes to our personal income tax system … they are affordable. They are not funded

by higher deficits or higher borrowing," Morrison said.

On revenue boosting measures, the Government said it is cracking down on tax avoidance by multinational

companies, proposing a UK-style diverted profits tax (DPT).

A widely flagged hike in the tobacco tax was also confirmed, with the Government saying it would increase the

excise by 12.5% every year for the next 4 years starting September 2017.

Morrison, however, said there was no plan to "remove or limit" negative gearing.

Road to surplus

The Budget deficit is estimated at $37.1 billion, or 2.2% of Australia's GDP in 2016-17, slightly worse than the last

estimate of $33.7 billion deficit.

The red ink is projected to fade to $6.0 billion by 2019-20, with the aim of returning the book to balance by 2020-

21.

A credible path to budget surpluses is important for Australia to maintain its top notch triple-A credit rating. Rating

agencies have warned the inability of the government to balance its finances will lead to higher debt issuance,

which in turn will threaten its highly coveted rating.

On economic growth, the government sees real GDP at 2.5% in 2016-17, then strengthening to 3.0% through to

2019-20. Nominal GDP growth is forecast to speed up to 4.25% in 2016-17, from 2.5% for the current fiscal year,

then climbing to 5.0% through 2019-20.

"This is the right plan for Australia to overcome the challenges of economic transition and to clear a path for long-

term growth and jobs in a stronger, new economy," Morrison said. (Writing by Ian Chua, editing by Jane Wardell

and Terry Hayes.)

by Terry Hayes

[email protected]

Return to Top

PERSONAL TAXATION

[545] Personal tax rates: small tax cut from 1 July 2016; Budget deficit levy not to be extended

The Government announced in the Budget that it will increase the 32.5% personal income tax threshold from

$80,000 to $87,000 from 1 July 2016 in an attempt to go some way to addressing tax bracket creep. The

Government expects this will stop around 500,000 taxpayers facing the 37% marginal tax rate. The Government



considers this will prevent average full-time wage earners from moving into the second top tax bracket until 2019-

20.

This measure has a cost to revenue of $4.0 billion over the forward estimates period, the Government said.

In the lead-up to the Budget, the Treasurer indicated that the 2% Budget deficit levy (tax) on incomes over

$180,000 would not be extended beyond its initial 3 years. The levy was announced in last year's Budget, has

been legislated and applies for 3 years from 1 July 2014. It is due to cease at the end of the 2016-17 financial

year.

Personal tax rates

The currently legislated rates for 2015-16 and proposed new personal tax rates and thresholds for 2016-17

(including the 2% temporary budget deficit levy, but excluding the 2% Medicare levy) are as follows:

Personal income tax rates and thresholds

2015-16 2016-17

Threshold Rate Threshold Rate

1st rate $0 - $18,200 0% $0 - $18,200 0%

2nd rate $18,201 - $37,000 19.0% $18,201 - $37,000 19.0%

3rd rate $37,001 - $80,000 32.5% $37,001 - $87,000 32.5%

4th rate $80,001 - $180,000 37.0% $87,001 - $180,000 37.0%

5th rate $180,001 47.0% $180,001 47.0%

With Medicare levy included, the top marginal rate is 49% from 1 July 2014 to 30 June 2017.

Tax rates and thresholds summarised

The current 2015-16 tax rates (including the 2% temporary budget deficit levy, but excluding the 2% Medicare

levy) are as follows:

2015-16 income year

Taxable income $ Tax payable $

0 - 18,200

18,201 - 37,000

37,001 - 80,000

80,001 - 180,000

180,001+

Nil

Nil + 19% of excess over 18,200

3,572 + 32.5% of excess over 37,000

17,547 + 37% of excess over 80,000

54,547 + 47% of excess over $180,000

The proposed rates for the 2016-17 year (including the 2% temporary budget deficit levy, but excluding the 2%

Medicare levy) are:


2016-17


0 - 18,200

18,201 - 37,000

37,001 - 87,000

87,001 - 180,000

180,001+

Nil

Nil + 19% of excess over 18,200

3,572 + 32.5% of excess over 37,000

19,822 + 37% of excess over 87,000

54,232 + 47% of excess over $180,000

Low income tax offset

The currently legislated low income tax offset (LITO) rates have not changed and are:

LITO amount - $445.

Lower withdrawal limit - $37,000.

Upper withdrawal limit - $66,667.

Withdrawal rate - 1.5%.

Non-residents (foreign residents)

The current rates for non-residents (including the temporary budget deficit levy) for 2015-16 are:

2015-16


0 - 80,000

80,001 - 180,000

180,001+

32.5%

26,000 + 37% of excess over 80,000

63,000 + 47% of excess over $180,000

Note that foreign residents who hold a Special Program Visa (subclass 416) and are employed by an approved

employer under the Seasonal Labour Mobility Program will be taxed at 15%.

The proposed tax rates for non-residents (including the temporary deficit tax) for 2016-17 are:

2016-17


0 - 87,000 32.5%


87,001 - 180,000

180,001+

28,275 + 37% of excess over 87,000

62,685 + 47% of excess over $180,000

Source: Budget Paper No 2 [p 42]

by Terry Hayes

[email protected]

Return to Top

[546] Medicare levy low-income thresholds for 2015-16

From the 2015-16 income year, the Medicare levy low-income threshold for singles will be increased to $21,335

(up from $20,896 for 2014-15). The individual phase-in limit is $26,668 for 2015-16 (up from $26,120).

For couples with no children, the family income threshold will be increased to $36,001 (up from $35,261 for 2014-

15). The additional amount of threshold for each dependent child or student will be increased to $3,306 (up from

$3,238).

For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be

increased to $33,738 (up from $33,044 for 2014-15). The phase-in limit for taxpayers eligible for the SAPTO is

$42,172 for 2015-16 (up from $41,305). The threshold for families eligible for SAPTO will be increased to

$46,966 for 2015-16 (up from $46,000).

Date of effect

The increased thresholds will apply to the 2015-16 and later income years, as proposed in by the Tax and

Superannuation Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2016, introduced in

the House of Reps on 2 May 2016 and passed without amendment. It now moves to the Senate.

2015-16 Medicare levy low-income threshold amounts and phasing-in ranges

Category of taxpayer

No levy payable if taxable income or family income does not exceed (figure

for 2014-15)

Reduced levy if taxable income or family income

is within range (inclusive)

Ordinary rate of levy payable where taxable income or family income is equal to or exceeds

(figure for 2014-15)

Individual taxpayer 21,335 (20,896) 21,336 - 26,668 26,669 (26,121)

Single taxpayers eligible for SAPTO

33,738 (33,044) 33,739 - 42,172 42,173 (41,306)

Families eligible for SAPTO

46,966 (46,000) 46,967 - 58,707 58,708 (57,500)

Families with the following children and/or students

(family income) (family income) (family income)


http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5665

http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5665


0 36,001 (35,261) 36,002 - 45,001 45,002 (44,077)

1 39,307 (38,499) 39,308 - 49,133 49,134 (48,124)

2 42,613 (41,737) 42,614 - 53,266 53,267 (52,172)

3 45,919 (44,975) 45,920 - 57,398 57,399 (56,219)

4 49,225 (48,213) 49,226 - 61,531 61,532 (60,267)

5 52,531 (51,451) 52,532 - 65,663 65,664 (64,314)

6 55,837 (54,689) 55,838 - 69,796 69,797 (68,362)

Each extra child + $3,306 ($3,238) + $4,133 ($4,047)


by Lisa Lynch

[email protected]

Return to Top

[547] Medicare Levy Surcharge and Private Health Insurance Rebate - indexation pause to continue

The Government will continue the pause on indexation of the income thresholds for the Medicare Levy Surcharge

and Private Health Insurance Rebate for a further 3 years from 1 July 2018.


by Lisa Lynch

[email protected]

Return to Top

[548] Higher education options: HELP debts, etc

The Government is considering a number of higher education reforms to commence in 2018. The guiding

principles are to provide genuine choice of higher education opportunities, ensure equity of access, enable

institutions to deliver world class education and provide a system that is affordable.

Options to be considered relating to the repayment of HELP debts include:

changes to repayment thresholds and rates, for example by commencing repayment of HELP debts at a

lower threshold income than the current minimum ($54,126 for 2015-16 and $54,870 for 2016-17);

change the indexation of HELP repayment thresholds form average weekly earnings to CPI;




a renewable lifetime limit on HELP loans;

restrictions on the availability of HELP loans or Commonwealth subsidies to those who have left the

workforce permanently;

discontinue the HECS-HELP benefit;

introduce a household income test for HELP repayments;

recovery of debts from deceased estates.

As regards HELP loan fees, the Government will consider a range of levels:

removing loan fees altogether;

a modest loan fee (eg 5%); or

a loan fee of 20% (as currently applies to VET FEE-HELP).

Source: Driving Innovation, Fairness and Excellence in Australian Higher Education

by Trevor Snape

[email protected]

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[549] ADF exemptions extended

The income tax exemption for Australian Defence Force personnel deployed on Operation PALATE II in

Afghanistan will remain in effect until 31 December 2016. It was due to end on 1 January 2016.

The Government will also update the coordinates for Operation MANITOU in international waters, with effect from

14 May 2015, and Operation OKRA in the Middle East, with effect from 9 September 2015, to reflect the actual

areas covered by the operations. ADF personnel deployed on the operations are entitled to an income tax

exemption.


by Trevor Snape

[email protected]

Return to Top

[550] "Backpacker tax" to proceed, it seems?

Despite some pressure being exerted on the Government in recent times, the Budget did not announce any




changes concerning the Government's proposed so-called "backpacker tax", ie removing the tax-free threshold

for overseas working holidaymakers in Australia. The changes are proposed to apply from 1 July 2016 and,

pending any direct announcement by the Government, seem set to proceed even though they had been criticised

by farmers' federations and others on the ground that it would adversely affect the agriculture workforce.

Earlier this year, the National Farmers' Federation (NFF), along with its member organisations, launched a

campaign encouraging the Federal Government not to proceed with the proposed so-called "backpacker tax"

which the NFF says will erode the agriculture workforce and the prosperity of regional communities. The

campaign was supported by the Tourism & Transport Forum Australia.

The NFF considers an effective tax rate of 19%, achieved through deactivation of the tax-free threshold, would be

fairer for both backpackers themselves and the industries which rely upon them. "Taxing backpackers at a rate of

32.5% will make work in Australian agriculture a highly unprofitable proposition [for them]", the NFF said.

Thomson Reuters note

The change was announced in the 2015-16 Federal Budget on 12 May 2015 and would see the tax residency

rules changed to treat most people who are temporarily in Australia for a working holiday as non-residents for tax

purposes, regardless of how long they are here. This means they would be taxed at 32.5% from their first

dollar of income - see 2015 WTB 20 [672]. The change has not yet been legislated, although it is proposed to

apply from 1 July 2016.

Currently, a working holiday maker can be treated as a resident for tax purposes if they satisfy the tax residency

rules, typically, that they are in Australia for more than 6 months. This means they are able to access resident tax

treatment, including the tax-free threshold, the low income tax offset and the lower tax rate of 19% (for taxable

income above the $18,200 tax-free threshold up to $37,000).

by Terry Hayes

[email protected]

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MULTINATIONAL TAX MEASURES

[551] Diverted profits tax ("Google tax") at 40% to be introduced

The Government announced that it would introduce a 40% diverted profits tax (DPT), dubbed a "Google tax"

when it was introduced in the UK in 2015. There are however, significant differences from the UK's DPT. At the

same time as the announcement, the Government released a consultation paper for comment about the DPT -

see below.

The new tax is aimed at multinational corporations that artificially divert profits from Australia. The tax is



proposed to apply to income years commencing on or after 1 July 2017. The Government estimates this

measure will have a gain to revenue of $200 million over the forward estimates period.

The new tax will target companies that shift profits offshore through arrangements involving related parties:

that result in less than 80% tax being paid overseas than would otherwise have been paid in Australia;

where it is reasonable to conclude that the arrangement is designed to secure a tax reduction; and

that do not have sufficient economic substance.

Where such arrangements are entered into, the DPT will apply a 40% tax on diverted profits to ensure

that large multinationals are paying sufficient tax in Australia.

This measure will apply to large companies with global revenue of $1 billion or more.

Companies with Australian revenue of less than $25 million will be exempt, unless they are artificially booking

their revenue offshore.

Consultation paper issued for comment

In the Budget, the Government released a paper for consultation about implementing a DPT. The purpose of the

paper is to outline how the DPT would apply in the Australian context. Comments are due by 17 June 2016.

The DPT is part of a package of measures in the 2016-17 Budget designed to ensure MNEs pay the appropriate

amount of tax on profits they make in Australia. Other key measures include:

eliminating hybrid mismatch arrangements where corporates take advantage of differences in the tax

treatment of financial instruments or entities in different countries to avoid paying tax – see para [552] of

this Bulletin;

implementing the OECD's recently updated Transfer Pricing Guidelines to ensure that Australia

continues to have best practice transfer pricing rules to help prevent multinationals from using excessive

related party payments to shift profits overseas – see para [554] of this Bulletin; and

establishing a new Tax Avoidance Taskforce within the ATO to enhance its audit activity for large

corporates and high wealth individuals – see para [553] of this Bulletin.

Following the introduction of the UK's DPT, Australia introduced the Multinational Anti-Avoidance Law (MAAL)

which broadly replicates the first limb of the UK's DPT. The MAAL is designed to counter the erosion of the

Australian tax base by multinational entities using artificial or contrived arrangements to avoid a taxable presence

in Australia.

The DPT will be based on the second limb of the UK's DPT and will help ensure that large multinational

corporations pay an appropriate amount of tax on profits made in Australia.

Main features of the DPT


Australia's DPT will broadly adopt the main features of the second limb of the UK's DPT. It will:

impose a penalty tax rate of 40% on profits transferred offshore through related party transactions with

insufficient economic substance that reduce the tax paid on the profits generated in Australia by more

than 20%;

apply where it is reasonable to conclude based on the information available at the time to the ATO that

the arrangement is designed to secure a tax reduction;

provide the ATO with more options to reconstruct the alternative arrangement on which to assess the

diverted profits where a related party transaction is assessed to be artificial or contrived;

impose a liability when an assessment is issued by the ATO (ie it will not operate on a self-

assessment basis);

require upfront payment of any DPT liability, which can only be adjusted following a successful review of

the assessment; and

put the onus on taxpayers to provide relevant and timely information on offshore related party

transactions to the ATO to prove why the DPT should not apply.

If a taxpayer falls within the scope requirements, an arrangement with a related party may be subject to the DPT

if:

the transaction has given rise to an effective tax mismatch; and

the transaction has insufficient economic substance.

An effective tax mismatch will exist where an Australian taxpayer (Company A) has a cross-border transaction,

or series of cross-border transactions, with a related party (Company B), and as a result, the increased tax

liability of Company B attributable to the transaction is less than 80% of the corresponding reduction in Company

A's tax liability.

Example: Operation of the effective tax mismatch requirement

Company A has a $100 reduction to its Australian tax liability as a result of a deductible payment, but due to the

lower tax rate in Company B's jurisdiction, Company B only has a $60 increase in its tax liability from the

corresponding receipt.

As the tax liability for Company B in its home jurisdiction is less than $80, an effective tax mismatch will arise.

The second requirement for the DPT to apply is whether the transaction, or series of transactions, or an entity's

involvement in that transaction has insufficient economic substance.

Determination of whether there is insufficient economic substance will be based upon whether it is reasonable to

conclude based on the information available at the time to the ATO that the transaction(s) was designed to

secure the tax reduction.

Similar to the UK approach, where the non-tax financial benefits of the arrangement exceed the financial benefit


of the tax reduction, the arrangement will be taken to have sufficient economic substance.

De minimis threshold

The DPT is not intended to target entities that do not pose a significant compliance risk, including significant

global entities with small operations in Australia. To help provide certainty for lower risk entities

which may otherwise potentially be subject to the DPT, a de minimis threshold will exempt entities with Australian

turnover of less than $25 million.

The de minimis test will not apply where income is artificially booked offshore rather than in Australia. Where the

significant global entity has multiple related Australian entities, the $25 million de minimis will be calculated based

on the total Australian turnover of the entities.

The de minimis threshold aligns with a number of existing thresholds, including the threshold for small taxpayers

applying simplified transfer pricing record-keeping requirements and the threshold exempting small proprietary

companies from certain financial reporting obligations under Corporations Act 2001.

Diverted Profits Amount

For the purposes of determining the DPT assessment, where the deduction claimed is considered to exceed an

arm's length amount ("inflated expenditure" cases), the provisional Diverted Profits Amount will be 30% of the

transaction expense.

For all other cases, the provisional Diverted Profits Amount will be based on the best estimate of the diverted

taxable profit that can reasonably be made by the ATO at the time.

Where the debt levels of a significant global entity fall within the thin capitalisation safe harbour, only the pricing

of the debt and not the amount of the debt will be taken into account in determining any DPT liability.

DPT assessment

In calculating the DPT due and payable, an offset will be allowed for any Australian taxes paid on the diverted

profits.

For example, Australian withholding taxes and Australian tax paid on income attributed under the CFC regime

could be credited.

The DPT due and payable will not be reduced by the amount of tax paid in a foreign jurisdiction on the diverted

profits, consistent with the application of penalties under Australia's existing transfer pricing rules.

The DPT assessment will also include an interest charge calculated by reference to the period from the date any

amount would have been payable on the relevant income tax assessment to the issue of the provisional DPT

assessment.

Income tax treatment of a DPT liability

As in the UK, the DPT will not be deductible or creditable for income tax (or petroleum resource rent tax)


purposes. A franking credit will be allowed for any DPT paid, but will be limited to the company tax rate applying

to the entity.

Administrative processes

Unlike income tax, the DPT will not be a self-assessed tax - a DPT liability will only arise when the ATO issues

a DPT assessment. The ATO will notify taxpayers if it considers that they may be subject to the DPT.

That is, unlike the UK DPT, taxpayers will not be required to disclose up front that they may have transactions

that could give rise to a DPT liability. This will help reduce unnecessary compliance costs on businesses.

The process

Initially, a provisional DPT assessment will be issued by the ATO. That assessment will be issued as

soon as practicable after the end of an income year and no later than seven years after the taxpayer has

lodged its income tax return for the relevant year (consistent with the current review period for transfer

pricing matters).

The taxpayer will then have 60 days to make representations to correct factual matters set out in the

provisional DPT assessment (but not on transfer pricing matters).

Following this, the ATO will issue a final DPT assessment within 30 days of the end of the

representation period. The taxpayer will have 21 days in which to pay the amount of the assessment.

The ATO will have 12 months to review the final DPT assessment, during which time the

taxpayer may provide information to the ATO to support an amendment to the DPT assessment,

which may include an adjustment on transfer pricing grounds.

During the review period, if the ATO considers the amount of DPT charged to be insufficient, the

ATO may issue a supplementary DPT assessment up to 30 days prior to the end of the review period to

impose an additional charge of DPT.

At the completion of this review period, the taxpayer has 30 days to lodge an appeal (through the court

process).

Date of effect

The DPT will apply to income years commencing on or after 1 July 2017 and apply whether or not a relevant

transaction (or series of transactions) was entered into before that date. The Government said this

commencement date is designed to enable the required legislation and administrative guidance to be in place to

provide certainty to affected taxpayers before the DPT becomes operative.


When the UK DPT was announced, the Australian Government at that time indicated it would watch carefully how

it progressed. It is understood that officials have since liaised with HMRC to understand the operation and

administration of the UK tax. No doubt this played a role in forming the Government's move to introduce such a

tax in Australia.


The UK DPT is designed to counter large multinational enterprises (MNEs) with business activities in the UK who

enter into contrived arrangements to divert profits from the UK by avoiding a UK taxable presence and/or by other

contrived arrangements between connected entities. It is set at a rate of 25% of diverted profits relating to UK

activity. It was introduced by the Finance Bill 2015. The DPT has applied in respect of profits arising on after

1 April 2015.

The UK DPT operates through 2 basic rules. The first rule counteracts arrangements by which foreign companies

exploit the permanent establishment rules. The second rule prevents companies from creating tax advantages by

using transactions or entities that lack economic substance.

The UK DPT is designed to change companies' behaviour so they pay more corporation tax on their UK profits

rather than risk paying a higher rate of DPT. The UK Government anticipates the DPT will yield £1.35 billion

between 2015 and 2019.

Source: Budget Paper No 2 [p 31]; Treasurer's press release, 3 May 2016

by Terry Hayes

[email protected]

Return to Top

[552] Govt to implement OECD BEPS hybrid mismatch arrangement rules

The Government announced in the Budget that it would implement the OECD's rules in BEPS Action 2 to

eliminate hybrid mismatch arrangements, taking into account the recommendations made by the Board of

Taxation in its report on the Australian implementation of the OECD hybrid mismatch rules. The Government has

asked the Board of Taxation to undertake further work on how best to implement these rules in relation to

regulatory capital as part of this measure. [Board of Taxation consultation on this issue commenced

in August 2015 and the Board was due to report in March 2016.]

This measure is aimed at multinational corporations that exploit differences in the tax treatment of an entity or

instrument under the laws of 2 or more tax jurisdictions.

This measure targets instances where tax is either deferred or not paid at all. For example, a loan from a parent

company to its subsidiary may be treated as equity in one country's tax law and debt in another. Without the

Government's changes, the subsidiary of the multinational may have been allowed to claim a deduction for

interest payments made to its parent but the parent company would not pay tax on those payments.

It will apply broadly to related parties, members of a control group and structured arrangements.

Date of effect

This measure will apply from the later of 1 January 2018 or 6 months following the date of Royal Assent of the



enabling legislation and is estimated to have an unquantifiable gain to revenue over the forward estimates period.


The BEPS Action 2 measures against hybrid mismatches have had a slow take up in many jurisdictions. The

UK's 2016 Budget announced measures to address hybrid mismatches – see 2016 WTB 11 [328] - and now

Australia has moved on this.


by Terry Hayes

[email protected]

Return to Top

[553] Tax Avoidance Taskforce on MNEs to be established within the ATO

The Government announced in the Budget that it would provide $678.9 million to the ATO over the forward

estimates period to establish a new Tax Avoidance Taskforce. This is designed to enable the ATO to undertake

enhanced compliance activities targeting multinationals (MNEs), large public and private groups and high wealth

individuals. The Taskforce, with a team of over 1,000 experts, will pursue tax avoidance by multinationals and

high wealth individuals.

The Tax Avoidance Taskforce will conduct operations to improve tax compliance in high tax risk sectors. The

Taskforce will also directly target compliance cases against those exposed by the Panama Papers.

This initiative enhances and extends current compliance activities targeting large multinationals, private groups

and high-wealth individuals to 30 June 2020, and will feature the collective efforts of over 1,000 experts, including

390 new specialised officers.

The Taskforce draws together the ATO's current work addressing the tax affairs of multinationals, large public

and private groups and high wealth individuals into a single, targeted program overseen by the Tax

Commissioner and assisted by a panel of eminent former Judges. External experts will be appointed to play a

critical role in supporting the Taskforce, including the formation of a panel of eminent former Judges. The panel

will review proposed settlements with the ATO to ensure they are fair and appropriate.

The Taskforce will have a critical role in delivering on the OECD/G20 BEPS recommendations released

in October 2015.

As part of the work of the Taskforce, the ATO will be testing the law through Court cases where there is

deliberate tax avoidance.

This measure provides the ATO with a 55% increase in funding for compliance programs targeting multinationals

and high wealth individuals, with a 43% increase in resources devoted to tackling multinationals (including



ramping up to an additional 390 average staffing level per year). The Government said these changes are

designed to result in better targeted audits and higher collections.

The Government said it will also ensure the ATO has access to the information it needs by enhancing information

sharing between the ATO and ASIC. This supports the operation of the Taskforce through improved risk analysis

and detection.

The Government expects the Taskforce to generate $3.7 billion of additional revenue over the next 4 years.

Source: Budget Paper No 2 [p 33]; Budget Tax Fact Sheet 03

by Terry Hayes

[email protected]

Return to Top

[554] Transfer pricing rules to be strengthened to implement 2015 OECD recommendations

The Government announced that it will amend Australia's transfer pricing law to give effect to the 2015 OECD

transfer pricing recommendations.

Australia's transfer pricing legislation currently specifies that it is to be interpreted so as to best achieve

consistency with the OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

as last updated in 2010. On 5 October 2015, the OECD released the report Aligning Transfer Pricing Outcomes

with Value Creation to update the Guidelines – see 2015 WTB 43 [1587].

The changes to the 2010 OECD Guidelines enhance guidance on intellectual property and hard-to-value-

intangibles, and ensure that transfer pricing analysis reflects the economic substance of the transaction. The

Government says that applying these changes to Australia's transfer pricing rules will keep them in line with

international best practice so that profits made in Australia are properly taxed in Australia.

Date of effect

The amendment will apply from 1 July 2016.


by Terry Hayes

[email protected]

Return to Top




[555] Administrative penalties to be significantly increased for significant global entities

The Government will increase administrative penalties imposed on companies with global revenue of $1 billion or

more who fail to adhere to tax disclosure obligations.

Penalties relating to the lodgment of tax documents to the ATO will be increased by a factor of 100. This

will raise the maximum penalty from $4,500 to $450,000, which will help to ensure that multinational

companies do not opt out of their reporting obligations.

Penalties relating to making false and misleading statements to the ATO will be doubled, to increase the

penalties imposed on multinational companies that are being reckless or careless in their tax affairs.

Date of effect

This measure will apply from 1 July 2017.


by Terry Hayes

[email protected]

Return to Top

SMALL BUSINESS

[556] Small business threshold to increase to $10m

The Budget announced that the small business entity threshold will increase from $2m to $10m from 1 July 2016.

As a result, a business with an aggregated annual turnover of less than $10m will be able to access a number of

small business tax concessions from 1 July 2016, including:

the simplified depreciation rules, including immediate tax deductibility for asset purchases costing less

than $20,000 until 30 June 2017 and then less than $1,000;

the simplified trading stock rules, which give businesses the option to avoid an end of year stocktake if

the value of the stock has changed by less than $5,000;

a simplified method of paying PAYG instalments calculated by the ATO, which removes the risk of under

or over estimating PAYG instalments and the resulting penalties that may be applied;

the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO;

immediate deductibility for various start-up costs (eg professional fees and government charges);



a 12-month prepayment rule; and

the more generous FBT exemption for work-related portable electronic devices (eg mobile phones,

laptops and tablets) – the FBT car parking exemption for small business already applies to entities with

"annual gross income" of less than $10m.

The Government estimates that between 90,000 and 100,000 businesses will benefit from this measure.

[At a business leaders' summit in August 2015, the Treasurer indicated that "the next logical step" concerning

small businesses and taxation would be to increase the threshold of what constitutes a small business for tax

purposes beyond the current $2m threshold, but this would need to be done "within the constraints of the

Budget". He acknowledged there was a "compelling case" for increasing the threshold. See 2015 WTB 36

[1332].]

The Budget papers contained the following examples of how a small business will benefit from the measures

discussed above and at para [558] of this Bulletin.

Example - incorporated business

Edna owns a company, Edna Pty Ltd, through which she operates 3 cafes across Queensland. Edna Pty Ltd has

an aggregated turnover of $3.6m and a taxable income of $180,000 for the 2016-17 income year.

Half way through the year, Edna purchases 3 new freezer units at a cost of $4,000 each and 3 new coffee

machines at a cost of $11,000 each, exclusive of GST, for her cafes.

Current law

Edna Pty Ltd would not be classified as a small business. Therefore, Edna Pty Ltd must depreciate the coffee

machines and freezer units using an effective life of 5 and 10 years respectively. Assuming a diminishing value

method of depreciation, Edna Pty Ltd can claim a tax deduction for the freezer units of $1,200 and the coffee

machines of $6,600 in the first year.

The depreciation deduction of $7,800 for the asset purchases would reduce the taxable income of Edna Pty Ltd

to $172,200 for the 2016-17 income year, giving rise to a tax liability of $51,660 for that year, with a company tax

rate of 30%.

New law

Under the new law, Edna Pty Ltd would be classified as a small business and would receive the new small

business company tax rate of 27.5% from 1 July 2016.

Edna Pty Ltd would also be able to claim an immediate deduction for each freezer and coffee machine

purchased, giving an immediate deduction of $45,000 in the 2016-17 income year. With the new small business

company tax rate, Edna Pty Ltd would have a taxable income of $135,000 and tax liability of $37,125 for the

2016-17 income year, after the immediate deductions for the new asset purchases.

Edna Pty Ltd is able to adopt a simplified method of paying PAYG instalments using calculations prepared by the


ATO. This removes the risk of under or over estimating PAYG instalments and the resulting penalties that may be

applied.

Benefit

Having access to the small business tax concessions will result in Edna Pty Ltd receiving a cash flow benefit of

over $14,000.

In addition, Edna Pty Ltd will have access to a range of other small business tax concessions.

Example - unincorporated business

Antony is a sole trader that runs a construction business. Antony's business has an annual turnover of $2.5m and

taxable income of $150,000. This is his only income.

Current law

Under the current law Antony pays tax at his marginal tax rates and pays $46,447 in tax (including the Medicare

levy).

New law

Under the new laws Antony gains access to the unincorporated tax discount and the increase in the personal

income tax threshold from $80,000 to $87,000.

Antony will pay $45,132 in tax (including the Medicare levy).

Benefit

Antony is $1,315 better off under the new laws. The unincorporated discount accounts for $1,000 of this.

In addition, Antony will also have access to a range of other small business tax concessions, including immediate

deductibility.

CGT concessions

The threshold changes will not affect eligibility for the small business CGT concessions, which will only remain

available for businesses with annual turnover of less than $2m or that satisfy the maximum net asset value test

(and other relevant conditions such as the active asset test).

Source: Budget Paper No 2 [p 40]; Budget Tax Fact Sheet No 1

by Trevor Snape

[email protected]

Return to Top



[557] Reduced tax rates for small business

The company tax rate for small business entities will reduce to 27.5% (from 28.5%) from the 2016-17 income

year. The rate is set to reduce further to 27% in 2024-25 and then by 1 percentage point per year until it reaches

25% in 2026-27. These company tax rate changes are explained at para [558] of this Bulletin.

Unincorporated businesses

To complement the company tax rate reductions, the tax discount (or tax offset) for unincorporated small

businesses (eg sole traders and partners in a partnership) will increase over a 10-year period from 5% to 10%.

The tax discount will increase to 8% on 1 July 2016, remain constant at 8% for 8 years, then increase to 10% in

2024-25, 13% in 2025-26 and reach a new permanent discount of 16% in 2026-27. The maximum value of the

discount will remain at $1,000.

The Government also announced that more taxpayers will be able to access the tax discount. From 1 July 2016,

access to the discount will be extended to individual taxpayers with business income from an unincorporated

business that has an aggregated annual turnover of less than $5m (the current threshold is $2m).


by Trevor Snape

[email protected]

Return to Top

BROADER BUSINESS TAXATION

[558] Company tax rate to reduce to 25% by 2026-27

The Government intends to reduce the company tax rate to 25% over the next 11 income years.

The measure will be phased in, depending on the company's size (ie its aggregated annual turnover). Small

businesses will benefit sooner. The phase-in for all companies will be completed in the 2026-27 income year. The

timetable is summarised in the table below.

Income year Threshold (< $) Rate (%)

2015-16 (current year) 2m 28.5

2016-17 10m 27.5

2017-18 25m 27.5

2018-19 50m 27.5



2019-20 100m 27.5

2020-21 250m 27.5

2021-22 500m 27.5

2022-23 1bn 27.5

2023-24 all companies 27.5

2024-25 all companies 27



Note that the reduction only applies where the turnover is less than the amount specified in the second column.

For example, companies with a turnover of $10m or more will not get any reduction in tax until 2017-18.

Conversely, those companies with a turnover of $9,999,999 or less will get it in 2016-17 (ie, from 1 July 2016)

Franking credits will continue to be calculated in the usual manner, ie by reference to the amount of tax paid by

the company making the distribution.

The measure is expected to cost $2.7 billion in revenue over the next 4 years. In conjunction with this, the tax

discount for unincorporated small businesses will also be reduced over the same period: see para [557] of this

Bulletin.

Date of effect

The measure will phase-in from 1 July 2016.


by Ian Murray-Jones and Lisa Lynch

[email protected]

Return to Top

[559] Changes to Div 7A flagged

The Government will consult with stakeholders to make targeted amendments to improve the operation and

administration of Div 7A. The changes are intended to provide clearer rules for taxpayers and assist in easing

their compliance burden, while maintaining the overall integrity and policy intent of Div7A.

Subject to the outcomes of the consultation process, the Government will amend the Div 7A rules to include:

a self-correction mechanism providing taxpayers whose arrangements have inadvertently triggered

Div 7A with the opportunity to voluntarily correct their arrangements without penalty;

new safe harbour rules, such as for use of assets, to provide certainty and simplify compliance for



taxpayers;

amended rules, with appropriate transitional arrangements, regarding complying Div 7A loans, including

having a single compliant loan duration of 10 years and better aligning calculation of the minimum

interest rate with commercial transactions; and

technical amendments to improve the overall operation of Div 7A.

These changes draw on a number of recommendations from the Board of Taxation's Post-implementation

Review into Div 7A (released on 4 June 2015: see 2015 WTB 25 [910])

Date of effect

These changes will apply from 1 July 2018.


by Trevor Snape

[email protected]

Return to Top

[560] Asset backed financing arrangements

The Government will remove key barriers to the use of asset backed financing arrangements, such as deferred

payment arrangements and hire purchase arrangements.

The reforms will ensure that asset backed financing arrangements are treated in the same way as financing

arrangements based on interest bearing loans or investments. The Government said that this measure will

improve access to more diverse sources of capital in Australia. Asset backed financing arrangements can be

used to support infrastructure investment as they are well suited to large and longer-term projects.

Date of effect



by Trevor Snape

[email protected]

Return to Top

[561] Consolidation measures




The Budget contained a number of measures intended to improve integrity for the consolidation regime.

Securitised assets

The Government will extend the application of the 2014-15 Budget measure "Closing loopholes in the

consolidation regime — securitised assets" to non-financial institutions with securitisation arrangements.

The 2014-15 Budget measure was originally targeted at securitisation arrangements within financial institutions

because the distortions in the consolidation tax cost setting rules had been first identified in relation to those

institutions. The extension of this measure will ensure that the same treatment applies to liabilities arising from

securitisation arrangements within both financial and non-financial institutions. These liabilities will be

disregarded if the relevant securitised asset is not recognised for tax purposes.

This change will apply to arrangements that commence on or after 7:30 pm (AEST) on 3 May 2016. Transitional

rules will apply to arrangements that commence before this time.

Deferred tax liabilities

The consolidation regime's treatment of deferred tax liabilities is to be amended, by removing adjustments

relating to deferred tax liabilities from the consolidation entry and exit tax cost-setting rules.

Currently there is a commercial/tax mismatch under the consolidation entry and exit tax cost-setting processes

for deferred tax liabilities. This gives rise to integrity risks and uncertainty. This measure will more closely align

the commercial and tax outcomes, reduce complexity and improve the integrity of the consolidation regime.

This change will apply to joining and leaving events under transactions that commence after the date amending

legislation is introduced in Parliament.

Deductible liabilities

The Government will modify an integrity measure that prevents a consolidated group from obtaining a double tax

benefit when an entity joins the group.

The original measure, which was announced in the 2013-14 Budget ("Closing loopholes in the consolidation

regime - deductible liabilities of a joining entity"), addresses the double counting of deductible liabilities under the

consolidation regime. The modifications mean that a consolidated group that acquires a subsidiary with

deductible liabilities will no longer include those liabilities in the consolidation entry tax cost setting process, thus

removing a double tax benefit.

Whereas the 2013-14 Budget measure required the consolidated group to recognise an additional income

amount over the first 4 years after acquiring an entity with deductible liabilities, the modified approach of denying

an increase in the consolidated entry cost setting process will result in lower depreciation allowances over a

longer period of time.

This measure removes inequitable consequences for taxpayers identified during consultation on the 2013-14

Budget measure. If introduced as originally announced, the measure would have applied even where no double


tax benefit arose in practice. It will also provide a less complex approach than the original 2013-14 Budget

measure.

This measure also defers the start date from 14 May 2013 to 1 July 2016. This will address difficulties caused by

the implementation delay for taxpayers who have undertaken commercial transactions based on the current law.

Source: Budget Paper No 2 [pp 32, 33, 36]; Budget Tax Fact Sheet No 6

by Trevor Snape

[email protected]

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[562] Collective investment vehicles – proposed new types

The Government will introduce a new tax and regulatory framework for 2 new types of collective investment

vehicles (CIVs). CIVs allow investors to pool their funds and have them managed by a professional funds

manager.

A corporate CIV will be introduced for income years starting on or after 1 July 2017. This vehicle will allow

Australian funds managers to offer investments through a company structure, which the Government said is well

suited for offering retail investment products. A limited partnership CIV will be introduced for income years

starting on or after 1 July 2018. The Government said this type of vehicle is commonly used overseas to facilitate

wholesale investment by large investors, such as pension funds.

To implement this proposal, the Government will provide $2m to the ATO and $7.8m to ASIC, which will be

partially offset by $0.7m in registration fees. The Government said the proposals will enhance the international

competitiveness of the Australian managed funds industry and maximise the effectiveness of related Government

initiatives aimed at increasing access to overseas markets, including the Asia Region Funds Passport.

The proposed new CIVs will be required to meet similar eligibility criteria as managed investment trusts, such as

being widely held and engaging in primarily passive investment. Investors in these proposed new CIVs will

generally be taxed as if they had invested directly.

Source: Budget Paper No 2 [p 39]; Budget tax fact sheet 5

by Lisa Lynch

[email protected]

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[563] TOFA reforms

The taxation of financial arrangements (TOFA) rules are to be reformed, to reduce the scope, decrease

compliance costs and increase certainty through the redesign of the TOFA framework.

The current TOFA rules calculate the amount and timing of gains and losses on financial arrangements, and

were designed for the largest taxpayers. However, in practice, these rules apply to a significant group of smaller

taxpayers and TOFA has not delivered the envisaged compliance cost savings and simplification benefits to

these taxpayers.

The measure contains 4 key components:

A "closer link to accounting" which will strengthen and simplify the existing link between tax and

accounting in the TOFA rules.

Simplified accruals and realisation rules, which will significantly reduce the number of taxpayers in the

TOFA rules, will reduce the arrangements where spreading of gains and losses is required under TOFA

and simplify the required calculations.

A new tax hedging regime which is easier to access, encompasses more types of risk management

arrangements (including risk management of a portfolio of assets) and removes the direct link to

financial accounting.

Simplified rules for the taxation of gains and losses on foreign currency to preserve the current tax

outcomes but streamline the legislation.

The new framework will remove the majority of taxpayers from the TOFA rules, result in lower compliance costs,

provide simpler rules and more certainty and maintain the objectives of reducing costs and minimizing distortions

in decision making.

In addition, the Government will incorporate the policy reflected in a number of measures which have previously

been announced but are not yet legislated:

Taxation of financial arrangements — amendments to tax hedging rules; first announced in the 2011-12

Budget.

Functional currency rules — extending the range of entities that can use a functional currency; first

announced in the 2011-12 Budget.

Taxation of financial arrangements — foreign currency regulations — technical and compliance cost

savings amendments; first announced in the Mid-Year Economic and Fiscal Outlook 2004-05.

Date of effect

The new simplified rules will apply to income years commencing on or after 1 January 2018.


Source: Budget Paper No 2 [pp 37-38]

by Trevor Snape

[email protected]

Return to Top

SUPERANNUATION

[564] Superannuation pension phase - $1.6m transfer balance cap for retirement accounts

From 1 July 2017, the Government has proposed to introduce a transfer balance cap of $1.6m on the total

amount of accumulated superannuation an individual can transfer into a tax-free "retirement account" (also

known as retirement phase or pension phase). Subsequent earnings on these pension transfer balances will not

be restricted.

According to the Government, this $1.6m transfer balance cap for amounts transferred into pension phase will

limit the extent to which the tax-free benefits of retirement phase accounts can be used for tax and estate

planning. The measure is estimated to have a gain to revenue of $2bn over the forward estimates.

Retirement account cap - $1.6m

Where an individual accumulates amounts in excess of $1.6m, they will be able to maintain this excess amount in

an accumulation phase account (where earnings will be taxed at the existing concessional rate of 15%). The

$1.6m cap will be indexed in $100,000 increments in line with CPI (the same as the Age Pension assets

threshold does).

The amount of cap space remaining for a member seeking to make more than one transfer into a retirement

phase account will be determined by apportionment. The proportionate method will measure the percentage of

the cap previously utilised to determine how much cap space an individual has available at any single point in

time. For example, if an individual has previously used up 75% of their cap they will have access to 25% of the

current (indexed) cap.

Subsequent fluctuations in retirement accounts due to earnings growth or pension payments will not be

considered when calculating cap space.

Individuals who breach the cap will be subject to a tax on both the amount in excess of the cap and the earnings

on the excess amount.

Existing pension balances

Members already in the retirement phase as at 1 July 2017 with balances in excess of $1.6m will be required to



either:

transfer the excess back into an accumulation superannuation account to reduce their retirement

account balance to $1.6m by 1 July 2017; or

withdraw the excess amount from their superannuation.

Excess balances for these members may be converted to superannuation accumulation phase accounts. A tax

on amounts that are transferred in excess of the $1.6m cap (including earnings on these excess transferred

amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.

Example

Agnes, 62, retires on 1 November 2017. Her accumulated superannuation balance is $2m. Agnes can transfer

$1.6m into a retirement income account. The remaining $400,000 can remain in an accumulation account where

earnings will be taxed at 15%. Alternatively, Agnes may choose to remove this excess amount from

superannuation. While Agnes will not have the ability to make additional contributions into her retirement account,

her balance will be allowed to fluctuate due to earnings growth or drawdown of pension payments.

Defined benefit schemes

Commensurate treatment for members of defined benefit schemes will be achieved through changes to the tax

arrangements for pension amounts over $100,000 from 1 July 2017. See also Budget Superannuation Fact

Sheet 5. Consultation will be undertaken on the implementation of this measure for members of both

accumulation and defined benefits schemes. The Government said it will provide funding for required systems

changes to its defined benefits superannuation schemes.

Date of effect


Source: Budget Paper No 2 [pp 25-26]; Treasurer's press release, 3 May 2016; Budget Superannuation Fact

Sheet 2

by Stuart Jones

[email protected]

Return to Top

[565] Transition to retirement pensions - tax concessions to be reduced

The Government said it will remove the tax exemption on earnings for pension assets supporting Transition to

Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs). Under the

changes, earnings from assets supporting TRISs will be taxed at 15% (instead of the current 0%). The change



will apply from 1 July 2017 irrespective of when the TRIS commenced.

The Government believes that reducing the tax concessions for TRISs will help to ensure that they are "fit for

purpose" (ie for the purpose of substituting work income) and not primarily accessed for tax purposes.

No election to treat as lump sum

In additional, the Government said individuals will no longer be able to make an election under reg 995-1.03 of

the ITA Regs to treat certain TRIS payments as lump sums for tax purposes, which currently makes them tax-

free up to the low rate cap ($195,000).

Example

Sebastian is 57 years old, earns $80,000 and has $500,000 in his super account. He pays income tax on his

salary and his fund pays $4,500 tax on his $30,000 earnings. Sebastian decides to reduce his work hours to

spend more time with his grandchildren. He reduces his working hours by 25% and has a corresponding

reduction in his earnings to $60,000.

He commences a TRIS worth $20,000 per year so that he can maintain his lifestyle while working reduced hours.

Currently, Sebastian pays income tax but his fund pays nothing on the earnings from his pool of super savings.

Under the Government's changes, while the earnings on Sebastian's super assets will no longer be tax-free they

will still be taxed concessionally (at 15%). He will still have more disposable income than without a TRIS. This

ensures he has sufficient money to maintain his lifestyle, even with reduced work hours.

Date of effect

These measures will apply from 1 July 2017 (irrespective of when the TRIS commenced).


Transition to retirement income streams can be a valuable strategy for certain taxpayers who have reached their

preservation age and can draw down on their superannuation via an income stream while, at the same time,

salary sacrificing employment income back into retirement savings. The preservation age is currently 56 (up from

55) for those born after 30 June 1960 (and before 1 July 1961) and will gradually increase until it reaches age 60

(for those born after 30 June 1964).

In a recent edition of the ATO's SMSF News (see 2016 WTB 14 [422]), the Commissioner accepted that a

transition to retirement pensioner could make an election under reg 995-1.03 of the ITA Regs to treat a pension

payment as a lump sum (which would generally be subject to less tax under the low rate cap for a taxpayer under

age 60). This followed an ATO private binding ruling to that effect – PBR No 1012925066548. However, the Tax

Office warned that such an election for income tax purposes did not change the nature of the payment for SIS Act

purposes and may give rise to other issues. As noted above, the Government announced in the Budget that

individuals will no longer be able to make an election to treat certain TRIS payments as lump sums from

1 July 2017.


Source: Budget Paper No 2 [p 30]; Superannuation fact sheet 12

by Lisa Lynch and Stuart Jones

[email protected]

Return to Top

[566] Non-concessional contributions: $500,000 lifetime cap from Budget night

The Government has introduced a lifetime non-concessional contributions cap $500,000 effective from Budget

night, ie 7.30 pm (AEST) on 3 May 2016. The lifetime non-concessional cap (indexed) will replace the existing

annual non-concessional contributions cap of up to $180,000 per year (or $540,000 every 3-years under the

bring-forward rule for individuals aged under 65).

Non-concessional contributions include contributions which are not included in the assessable income of the

receiving superannuation fund, eg non-deductible personal contributions made from the member's after-tax

income (formerly known as undeducted contributions).

The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.

Contributions made before commencement (ie 7.30 pm AEST on 3 May 2016) cannot result in an excess of the

lifetime cap. However, excess non-concessional contributions made after 7.30 pm AEST on 3 May 2016 will need

to be removed or subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings

(AWOTE).

The Government believes that this measure will provide people with flexibility around when they choose to

contribute to their superannuation and will be available to all Australians up to age 74. It is estimated to have a

gain to revenue of $550m over the forward estimates period.

Example

Anne, aged 61, is planning for her retirement. Five years ago, Anne received an inheritance of $200,000 which

she put into her superannuation. Anne now intends to sell her home and buy a smaller property. She is hoping to

put the proceeds into her superannuation. Anne can contribute up to $300,000 more into her superannuation

before she reaches her non-concessional cap.

Anne's non-concessional contributions are in addition to the compulsory superannuation payments her employer

makes and the additional salary sacrificed contributions she elects to make from her salary.


After-tax contributions made into defined benefit accounts and constitutionally protected funds will be included in

an individual's lifetime non-concessional cap. If a member of a defined benefit fund exceeds their lifetime cap,

ongoing contributions to the defined benefit account can continue but the member will be required to remove, on



an annual basis, an equivalent amount (including proxy earnings) from any accumulation account they hold.

The amount that could be removed from any accumulation accounts will be limited to the amount of non-

concessional contributions made into those accounts since 1 July 2007. Contributions made to a defined benefit

account will not be required to be removed. The Government will consult to ensure broadly commensurate and

equitable treatment of individuals for whom no amount of post-1 July 2007 non-concessional contributions are

available to be removed. See also Budget Superannuation Fact Sheet 5.

Date of effect

The lifetime non-concessional contributions cap will commence from 7.30 pm (AEST) on 3 May 2016. The

$500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.

Contributions made before 7.30 pm AEST on 3 May 2016 cannot result in an excess of the lifetime cap.

However, excess non-concessional contributions made after 7.30 pm AEST on 3 May 2016 will need to be

removed or subject to penalty tax.

Source: Budget Paper No 2 [p 27]; Treasurer's press release, 3 May 2016; Budget Superannuation Fact Sheet 4

Thomson Reuters comment - impact on recontribution strategies

The introduction of a $500,000 lifetime cap on non-concessional contributions will effectively limit the ability of

some taxpayers to implement withdrawal and re-contribution strategies for tax and estate planning purposes.

Broadly, the aim of a recontribution strategy is to convert a superannuation interest from a taxable component to

a tax-free component. Re-contributed personal superannuation contributions are classified as non-concessional

contributions. As such, they will be limited to the $500,000 lifetime cap for non-concessional contributions from

3 May 2016. Currently, a recontribution strategy is only restricted by the annual cap of $180,000 (or $540,000

every 3 years for those under age 65).

While a person is alive and aged 60 and over, the respective components of any superannuation benefits do not

matter as all benefits are received totally tax-free. However, the underlying tax components become relevant

again upon death when the remaining superannuation benefits are paid to a non-dependant (15% tax rate plus

Medicare levy on the taxable component).

by Stuart Jones

[email protected]

Return to Top

[567] Concessional contributions cap cut to $25,000 from 1 July 2017

The annual concessional contributions cap will be reduced to $25,000 for all individuals regardless of age from

1 July 2017. The cap will be indexed in line with wages growth.



The concessional concessional cap is currently set at $30,000 for those under age 49 on 30 June for the

previous income year (or $35,000 for those aged 49 or over on 30 June for the previous income year) for the

2015-16 and 2016-17 income years.

Concessional contributions (ie before tax) include all employer contributions, such as superannuation guarantee

and salary sacrifice contributions, and personal contributions for which a deduction has been claimed. Members

of defined benefit schemes will be permitted to make concessional contributions to accumulation schemes.

However, the $25,000 cap will be reduced by the amount of their "notional contributions".

Excess concessional contributions

Existing processes for the administration of the concessional contributions caps and the imposition of the

additional 15% on contributions, including the ability to withdraw the excess from super to pay the additional

liability, will be maintained.

Currently, concessional contributions exceeding an individual's annual concessional cap are automatically

included in an individual's assessable income and taxed at the individual's marginal tax rate (plus an interest

charge). An individual is also entitled to a 15% tax offset for the contributions tax paid by the fund. Individuals can

elect to release up to 85% of their excess concessional contributions from their superannuation fund to the

Commissioner as a "credit" to cover the additional personal tax liability.

Example

In 2017-18, Madeline earns $260,000 in salary and wages. In the same year she has concessional

superannuation contributions of $30,000.

Madeline's fund will pay 15% tax on these contributions. Madeline will pay an additional 15% tax on the $25,000

of concessional contributions resulting in these amounts effectively being taxed at 30%.

The $5,000 of contributions in excess of the $25,000 cap will be included in Madeline's assessable income and

taxed at her marginal rate. Madeline pays $1,600 income tax on her excess contribution.

Date of effect


Source: Budget Paper No 2 [p 28-29]; Treasurer's press release, 3 May 2016; Budget Superannuation Fact

Sheet 3

by Stuart Jones

[email protected]

Return to Top



[568] Concessional contributions catch-up for account balances less than $500,000

From 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make

additional concessional contributions for "unused cap amounts" where they have not reached their concessional

contributions cap in previous years. Unused cap amounts will be carried forward on a rolling basis for a period of

5 consecutive years. Only unused amounts accrued from 1 July 2017 will be available to be carried forward. will

improve flexibility for those with interrupted work arrangements. The measure will also apply to members of

defined benefit schemes. Consultation will be undertaken to minimise additional compliance impacts for these

schemes.

According to the Government, allowing individuals with account balances of $500,000 or less to make catch-up

concessional contributions will make it easier for people with varying capacity to save and for those with

interrupted work patterns, to save for retirement to the same extent as those with regular income.

Example

Cassandra is a 46-year-old earning $100,000 per year. She has a superannuation balance of $400,000. In 2017-

18, Cassandra has total concessional contributions of $10,000. In 2018-19, Cassandra has the ability to

contribute $40,000 into superannuation of which $25,000 is the amount allowed under the annual concessional

cap and $15,000 is her unused amount from 2017-18 which has been carried forward.

The full $40,000 will be taxed at 15% in the superannuation fund. Prior to the changes, her amounts in excess of

the annual cap would have been subject to tax at her marginal rate, resulting in a $3,600 tax liability.

Date of effect


Source: Budget Paper No 2 [p 24]; Treasurer's press release, 3 May 2016; Budget Superannuation Fact Sheet 8

by Stuart Jones

[email protected]

Return to Top

[569] Superannuation contributions tax (extra 15%) for incomes $250,001+

The income threshold above which the additional 15% Division 293 tax cuts in for superannuation concessional

contributions will be reduced from $300,000 to $250,000 from 1 July 2017.

Currently, individuals above the high income threshold of $300,000 are subject to an additional 15% Division 293

tax on their "low tax contributions" (essentially concessional contributions). The Division 293 tax effectively

doubles the contributions tax rate from 15% to 30% for concessional contributions. Note that Labor has also



proposed that, if elected, it would reduce the high income threshold to $250,000.

A taxpayer's "low tax contributions" are essentially their concessional contributions less any excess concessional

contributions for the financial year. Concessional contributions (before tax) include all employer contributions,

such as superannuation guarantee and salary sacrifice contributions, and personal contributions for which a

deduction has been claimed.

Importantly, the extra 15% Division 293 tax does not apply to concessional contributions which exceed an

individual's concessional contributions cap (which is proposed to be set at $25,000 for all taxpayers from

1 July 2017: see para [567] of this Bulletin). Such excess concessional contributions are effectively taxed at the

individual's marginal tax rate in any event. As such, the maximum amount of Division 293 tax payable each year

will be limited to $3,750 (ie 15% of the $25,000 cap) from 1 July 2017.

Division 293 tax - high income threshold

The Division 293 tax high income threshold is currently based on the individual's "income for surcharge

purposes" plus the individual's low tax contributions. Given the broad definition of "income for surcharge

purposes" (which adds back net investment losses to taxable income), negative gearing and many salary

packaging arrangements generally will not assist in bringing a taxpayer under the high income threshold.

If a taxpayer's income for surcharge purposes is less than the high income threshold, but the inclusion of their

low tax contributions pushes them over the threshold, the 15% Division 293 tax only applies to the part of the low

tax contributions that are in excess of the income threshold.

Example - Division 293 tax

Sabina's income for surcharge purposes (other than reportable superannuation contributions) is $230,000 for the

2017-18 income year and her low tax contributions are $25,000 for the corresponding financial year. Sabina's

combined income and low tax contributions are $255,000 (ie $230,000 + $25,000).

The amount of low tax contributions ($25,000) is greater than the excess of the amount of combined income and

low tax contributions over the proposed $250,000 threshold. The excess equals $5,000 ($255,000 less

$250,000). Hence, Sabina's taxable contributions are $5,000 and the extra Div 293 tax payable is $750 (ie 15%

of $15,000) for the 2017-18 income year.


The lower Division 293 income threshold of $250,000 will also apply to members of defined benefit schemes and

constitutionally protected funds currently covered by the tax. Existing exemptions (such as State higher level

office holders and Commonwealth judges) for Division 293 tax will be maintained.

The Government will also include notional (estimated) and actual employer contributions in the concessional

contributions cap for members of unfunded defined benefit schemes and constitutionally protected funds.

Members of these funds will have opportunities to salary sacrifice commensurate with members of accumulation

funds. For individuals who were members of a funded defined benefit scheme as at 12 May 2009, the existing


grandfathering arrangements will continue.

Date of effect

These measures will apply from 1 July 2017.

Source: Budget Paper No 2 [p 28-29]; Treasurer's press release, 3 May 2016; Budget Superannuation Fact

Sheet 3

Thomson Reuters comment

While the high income threshold will be reduced to $250,000, the extra 15% Division 293 tax will potentially apply

to taxpayers with incomes above $225,000 (ie $250,000 less the proposed $25,000 concessional cap from

1 July 2017). This is because the income threshold includes any low tax contributions (up to the concessional

cap) and adds back any net investment losses (eg from negative gearing). Therefore, taxpayers who are within

$25,000 of the high income threshold should also review their superannuation contributions and salary sacrificing

arrangements to take into account any impact of the additional 15% Division 293 tax from the 2017-18 income

year.

Despite the extra 15% Division 293 tax, concessional contributions up to the cap of $25,000 will still receive an

effective tax concession up to 19% (ie the top marginal rate, plus the 2% Medicare levy and 2% temporary

budget deficit levy, less 30%). As noted above, the maximum amount of Division 293 tax payable each year is

effectively limited to 15% of the individual's concessional contributions up to their cap, ie $3,750 (15% of the

$25,000 cap) from 1 July 2017. Nevertheless, affected taxpayers may wish to consider scaling back their

superannuation contributions to only the mandatory 9.5% superannuation guarantee contributions (which are still

subject to the Div 293 tax).

Likewise, taxpayers may need to reconsider making additional superannuation contributions for a financial year if

they are also anticipating a large one-off amount of taxable income during the income year. For example, an

employment termination payment or a large net capital gain (eg from the sale of an investment property) will flow

through into the taxpayer's taxable income and may push them above the $250,000 income threshold and trigger

the Div 293 tax on their concessional contributions for that income year.

by Stuart Jones

[email protected]

Return to Top

[570] Tax deductions for personal super contributions extended

From 1 July 2017, the Government will improve flexibility and choice in super by allowing all individuals up to age

75 to claim an income tax deduction for personal super contributions. This effectively allows all individuals,

regardless of their employment circumstances, to make concessional super contributions up to the concessional

cap. Individuals who are partially self-employed and partially wage and salary earners (eg contractors), and



individuals whose employers do not offer salary sacrifice arrangements will benefit from these proposed changes.

To access the tax deduction, individuals will be required to lodge a notice of their intention to claim the deduction

with their super fund or retirement savings provider. Generally, this notice will need to be lodged before they

lodge their income tax return. Individuals will be able to choose how much of their contributions to deduct.

Individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those

schemes. Prescribed funds will include all untaxed funds, all Commonwealth defined benefit schemes, and any

State, Territory or corporate defined benefit schemes that choose to be prescribed. Instead, if a member wishes

to claim a deduction, they may choose to make their contribution to another eligible super fund.

Example

Chris is 31 and decides to start his own online cricket merchandise business. While he gets his business up and

running he continues working part-time in an accounting firm where he earns $10,000. In his first year his

business earns him $80,000. Of his $90,000 income he would like to contribute $15,000 to his super account.

Under current arrangements, Chris would not be eligible to claim a tax deduction for any personal contributions.

While his employer allows him to salary sacrifice into super, he is limited to the $10,000 he earns in salary and

wages.

Under the proposed new arrangement, Chris will qualify for a tax deduction for any personal contributions that he

makes (up to his concessional cap). Chris makes a $15,000 personal contribution and notifies his super fund that

he intends to claim a deduction. He includes the tax deduction as part of his tax return.


by Lisa Lynch

[email protected]

Return to Top

[571] Superannuation contribution rules - work test to be removed for age 65 to 74

The work test for making superannuation contributions for people aged 65 to 74 will be removed from

1 July 2017. Instead, people under the age of 75 will no longer have to satisfy a work test and will be able to

receive contributions from their spouse.

Date of effect


Source: Budget Paper No 2 [pp 24-25]; ]; Treasurer's press release, 3 May 2016; Budget Superannuation Fact

Sheet 9



by Stuart Jones

[email protected]

Return to Top

[572] Low income super tax offset (LISTO) to be introduced

From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce tax

on super contributions for low income earners. The LISTO will provide a non-refundable tax offset to super funds,

based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500.

The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional

contribution made on their behalf. Note that the proposed LISTO will replace the current Low Income

Superannuation Contributions (LISC). The Government said this will provide continued support for the

accumulation of super for low income earners and ensure they do not pay more tax on their super contributions

than on their take-home pay.

The ATO will determine a person's eligibility for the LISTO and will advise their super fund annually. The fund will

contribute the LISTO to the member's account. The Government said it will consult on the implementation of the

LISTO.

Example

In the 2017-18 financial year Katherine worked part-time as a nurse and earnt $35,000. Her employer made

superannuation contributions of $3,325 on her behalf. Katherine is eligible for the LISTO. She receives $498.75

of LISTO in her account. Katherine would have received the same amount of LISC.


by Lisa Lynch

[email protected]

Return to Top

[573] Low income spouse super tax offset to be extended

From 1 July 2017, the Government will increase access to the low income spouse superannuation tax offset by

raising the income threshold for the low income spouse to $37,000 from $10,800. The offset will gradually reduce

for income above $37,000 and will phase out at income above $40,000.

The low income spouse tax offset provides up to $540pa for the contributing spouse. The Government noted the

proposed changes build on its co-contribution and superannuation splitting policies to boost retirement savings,




particularly of women.

Example

Anne earns $37,500 per year. Her husband Terry wishes to make a superannuation contribution on Anne's

behalf. Under the current arrangements, Terry would not be eligible for a tax offset as Anne's income is too high.

There is no incentive for Terry to make a contribution on behalf of Anne.

Under the proposed new arrangements, Terry would be eligible to receive a tax offset. As Anne earns more than

$37,000 per year, Terry will not receive the maximum tax offset of $540. Instead, the offset is calculated as 18%

of the lesser of:

$3,000 reduced by every dollar over $37,000 that Anne earns; or

the value of spouse contributions.

For example, Terry makes $3,000 of contributions and Anne earns $500 over the $37,000 threshold. Terry

receives a tax offset of $450: 18% of $2,500, as this is less than the value of the spouse contributions ($3,000). If

Anne were to earn more than $40,000 there would be no tax offset.


by Lisa Lynch

[email protected]

Return to Top

[574] Retirement income products - tax exemption extended

The Assistant Treasurer has announced that from 1 July 2017, the Government will remove tax barriers to the

development of new retirement income products by extending the tax exemption on earnings in the retirement

phase to products such as deferred lifetime annuities and group self-annuitisation products.

These products seek to provide individuals with income throughout their retirement regardless of how long they

live. The Government said this will allow providers to offer a wider range of retirement income products which will

provide more flexibility and choice for Australian retirees, and help them to better manage consumption and risk

in retirement, particularly longevity risk, wherein people outlive their savings.

In addition, the Government said it will consult on how these new products are treated under the Age Pension

means test.

Example

Emma is a 65 year old retiree who currently draws down her account-based super pension at the minimum rates



to ensure her super savings do not run out.

Emma is energetic and healthy and would like to have the confidence that her super savings will last throughout

her retirement. However, as deferred and pooled income stream products do not qualify for the retirement phase

earnings tax exemption these products are not widely offered in the market.

According to the Government, extending the retirement phase tax exemption on earnings to a wider range of

products will provide Emma with more choice and flexibility. This will allow her to maintain a higher standard of

living in retirement and give her peace of mind knowing she will always have a guaranteed income stream.

Source: Assistant Treasurer's media release, 3 May 2016; Superannuation fact sheet 11

by Lisa Lynch

[email protected]

Return to Top

[575] Anti-detriment deduction to be removed for super death benefits

The Government will remove the so-called "anti-detriment" provision from 1 July 2017 to prevent complying

superannuation funds from claiming an anti-detriment deduction in respect of certain lump sum death benefits.

An anti-detriment deduction can effectively result in a refund of a member's lifetime superannuation contributions

tax payments into an estate, where the beneficiary is the dependant of the member (spouse, former spouse or

child).

An anti-detriment deduction is currently available under s 295-485 of the ITAA 1997 if a superannuation fund

increases the lump sum, or does not reduce the lump sum, so that the amount of the lump sum is the amount

that the fund could have paid if assessable contributions in respect of a member had not been included in the

assessable income of the fund. In other words, s 295-485 requires the fund to determine the amount that would

have been paid as a superannuation lump sum if contributions were not included in the assessable income of the

fund. To achieve this outcome, the fund can deduct an amount under s 295-485 to ensure that the amount of the

lump sum death benefit paid directly or indirectly is not reduced as a result of contributions being taxed. This is

referred to as the "tax saving amount".

The Government considers that the anti-detriment provision is currently applied inconsistently by superannuation

funds. As such, it believes that removing the provision will better align the treatment of lump sum death benefits

across all superannuation funds and the treatment of bequests outside of superannuation. This measure is

estimated to have a gain to revenue of $350m over the forward estimates period. Lump sum death benefits to

dependants will remain tax free.

Date of effect

The anti-detriment provision will be removed from 1 July 2017.



Source: Budget Paper No 2 [p 29]; Treasurer's press release, 3 May 2016

by Stuart Jones

[email protected]

Return to Top

[576] Objective of superannuation to be enshrined in stand-alone legislation

The Government announced that the Objective of Superannuation, "to provide income in retirement to substitute

or supplement the Age Pension", will be enshrined in a stand-alone Act. This announcement follows a

recommendation by the Murray Financial System Inquiry (FSI) and the Treasury discussion paper previously

released on 9 March 2016: see 2016 WTB 10 [301].

The Government said that the stand-alone Act will include an accountability mechanism to ensure that new

superannuation legislation is considered in the context of the objective of superannuation. The subsidiary

objectives of superannuation will be set out in explanatory material to the Act.

The Treasurer said that the objective of superannuation forms an important anchor for the development of the

superannuation changes proposed in the Budget. The Government will consult on the final form of the legislation.

Source: Treasurer's press release, 3 May 2016

by Stuart Jones

[email protected]

Return to Top

GST MEASURES

[577] GST measures in 2016-17 Federal Budget

There were 3 GST measures announced in the Federal Budget on 3 May 2016. The measure concerning the

imposition of GST on low-value imported goods implements a vendor registration scheme, similar to what has

been adopted as part of the Netflix tax measures: see [577] of this Bulletin.

The other 2 measures affecting GST are directed at small businesses:

extending the option to account for GST on a cash basis and pay instalments calculated by the ATO:

see [578] of this Bulletin; and




the BAS will be simplified to allow small businesses to "easily classify transactions" and thus facilitate an

easier lodgment process: see [579] of this Bulletin.

The definition of a "small business" uses the definition that applies for income tax, ie businesses with an annual

turnover of less than $10m (increased in the Budget from $2m).

GST and digital currencies

A hugely challenging area for the Government is the treatment of digital (or crypto) currency for GST purposes

(such as bitcoin, although there are apparently over 600 other currencies available). Tax Office rulings released

in December 2014 (GSTR 2014/3; TD 2014/25; TD 2014/26; TD 2014/27 and TD 2014/28) set out the Tax Office

view that bitcoin is neither money nor a foreign currency and the supply of bitcoin is not a financial supply for

GST purposes. In its view, transacting with bitcoin is akin to a barter arrangement, with similar GST

consequences. The result is that trading with bitcoin can give rise to double taxation for GST purposes. The

Government has recently addressed this issue in its "Backing Australian FinTech" statement: see 2016 WTB 12

[360]. However as stated by Matthew Cridland, there is still much work to be done on this: see 2016 WTB 12

[348].

Although not addressed in the Budget papers, the Treasurer announced in a Budget night press release that the

Government had released a discussion paper seeking public submissions on options to address the double

taxation of digital currencies under the current GST rules. Unfortunately, this was not available to Thomson

Reuters' staff at the time of writing (Thomson Reuters was advised by Treasury somewhat unhelpfully that it was

due to be released at the cessation of the Budget lock-up). For those "early bird" readers, please check the

Treasury website. The paper will be reported and analysed in the first Weekly Tax Bulletin report after its

publication.

Netflix and "connected to Australia" measures

The Netflix tax measures announced in last year's Budget are still before Parliament, contained in the TSLA

(2016 Measures No 1): see 2016 WTB 16 [159]. This Bill also contains changes to the "connected to Australia"

test for business-to-business transactions (in an attempt to limit the number of foreign entities who are

unnecessarily drawn into Australia's GST net).

by Ian Murray-Jones

[email protected]

Return to Top

[578] GST and the importation of low-value goods

The Government is to impose GST on goods imported by consumers regardless of value. The new rules will



commence on 1 July 2017.

The liability for the GST will be imposed on overseas suppliers, using a vendor registration model. This means

that those suppliers which have Australian turnover of $75,000 or more will be required to register for, collect and

remit GST for all goods supplied to consumers in Australia, ie regardless of value.

The Budget papers state that the measure will have a gain to GST revenue of $300m over the forward estimates

period (ie the next 4 years). There will be additional funding of $13.8m over the next 4 years to implement the

measure. The arrangements will then be reviewed after 2 years to "ensure they are operating as intended and

take account of any international developments".

Thomson Reuters' comment

Currently, there is a GST threshold exemption of $1,000 that applies to purchases of imported goods (hugely

relevant for online purchases). Various governments have flagged an intention to address this (ie, regardless of

political colour). The challenge in lowering the threshold is to do it in a cost-effective manner that encourages

compliance and is enforceable (see for example 2012 WTB 38 [1541]).

Rather than lower the threshold, the Government proposes to reduce the threshold to zero, ie to remove it. This

means that all goods supplied by registered foreign vendors will be subject to GST. This proposal was previously

raised at the Australian Leaders' Retreat on 22 July 2015: see 2015 WTB 37 [1375]. At that time, the then

Treasurer stated that, as goods would not be stopped at the border, administering a vendor registration model

would have a relatively low cost.

No legislation or draft legislation accompanied the Budget announcement and so there are a number of technical

questions still to be answered. For example, how will the foreign entity's "Australian turnover" be measured? How

will the ATO ensure that it has been properly done? How will the ATO ensure that a foreign entity which should

register has in fact done so and is remitting GST as required? Like many aspects involving international tax,

ensuring that a foreign entity complies with Australian GST law may prove somewhat of a challenge.

The measure will require the unanimous agreement of the States and Territories before the enactment of the

legislation. Presumably this will not be a problem as the measure was agreed to at the Retreat.

Date of effect

The measure will apply from 1 July 2017.


by Ian Murray-Jones

[email protected]

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[579] GST small business taxpayers: election to use cash basis

The Government is proposing to extend the option for taxpayers to use the cash basis of accounting for GST.

Currently there are 4 categories of eligible entities able to choose to use the cash basis:

1. an entity that satisfies the definition of "small business entity" for the purposes of the ITAA 1997, but not

because of the "actual aggregated turnover test";

2. an entity not carrying on a business, provided its GST turnover does not exceed $2m;

3. an entity that for income tax purposes accounts for income using the receipts method; or

4. an entity that carries on an enterprise, or enterprises, of a kind specified by the Commissioner as being

approved for the cash basis.

The Government will extend the option to small businesses with an annual turnover of less than $10m. Such

entities will be able to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

Date of effect


Source: Assistant Treasurer press release, 3 May 2016

by Ian Murray-Jones

[email protected]

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[580] BAS reporting for GST small businesses

The Government is proposing to simplify BAS reporting requirements involving GST for small businesses, ie

entities with less than $10m turnover.

The Treasurer's press release states that the aim is that such entities "will be able to easily classify transactions,

and prepare and lodge their BAS". Unfortunately, there are no details as to how this will be achieved.

The press release does state that a trial of the "new simpler reporting arrangements" will commence on

1 July 2016.

Date of effect


Source: Assistant Treasurer press release, 3 May 2016



by Ian Murray-Jones

[email protected]

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TAX ADMINISTRATION

[581] Protection for tax whistleblowers

The Government will introduce new arrangements to better protect individuals who disclose information to the

ATO on tax avoidance behaviour and other tax issues. Whistleblowers will have their identity protected and will

be protected from victimisation and civil and criminal action for disclosing information to the ATO.

Date of effect

This measure will take effect from 1 July 2018.


by Trevor Snape

[email protected]

Return to Top

[582] ATO guidelines on new tax laws

The ATO is to produce public guidelines on the meaning of new tax laws at the same time as they are being

drafted. These guidelines will then be published as the legislation is introduced in Parliament.

Guidance would only be provided where legislation implements new initiatives or unfamiliar concepts, ie not

where the concepts are straightforward (although is there any such thing left in tax?). The guidelines will not have

the same formal legal status as legislation, but are intended to provide certainty to taxpayers in how they can

comply with new law. Nevertheless, the Fact Sheet states that one of the aims for publishing such guidelines is

"to reduce the need for lengthy provisions in the tax law", so clearly the Government sees a close link between

the proposed guidelines and the legislative drafting process.

Source: Budget Tax Fact Sheet No 8

by Ian Murray-Jones

[email protected]





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[583] Regulatory Reform Bills planned

The Government intends to introduce Regulatory Reform Bills into Parliament on a regular basis. The aim of

these Bills will be to:

update and improve tax laws with a view to reducing taxpayers' compliance burden; and

ensure that existing laws continue to operate as intended.

Reform topics might arise from proposals put by tax practitioners, members of the public, the ATO, the Board of

Tax, Treasury or other interested parties. The Board of Tax has implemented an online "Sounding Board"

intended to make it easier for members of the public and tax experts to provide feedback on regulatory reforms

that could simplify and improve our tax laws. The Sounding Board is available at taxboard.gov.au

The Government also advised that it will continue to involve tax experts in the development of better tax policy

and law design. The Government will draw on the capabilities of these experts by involving them more closely in

selected tax policy and law design projects.

Source: Budget Tax Fact Sheet No 8

by Ian Murray-Jones

[email protected]

Return to Top

OTHER MEASURES

[584] Deductible gift recipients list changes

Since the Mid-Year Economic and Fiscal Outlook 2015-16, the following organizations have been approved as

specifically-listed deductible gift recipients (DGRs) from the following dates:

Australian Science Innovations Incorporated from 1 January 2016;

The Ethics Centre Incorporated from 24 February 2016; and

Cambridge Australia Scholarships Limited from 1 July 2016 to 30 June 2021.

In addition, from Royal Assent the following organisations have been approved as specifically-listed DGRs



provided the gifts are made for education or research in medical knowledge or science:

The Australasian College of Dermatologists;

College of Intensive Care Medicine of Australia and New Zealand; and

The Royal Australian and New Zealand College of Ophthalmologists.

Source: Budget Paper No 2 [pp 23-24]

by Lisa Lynch

[email protected]

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[585] Concessions for diplomats, consulates and international organisations

The Government has granted or extended access to refunds of indirect tax (including for GST, fuel and alcohol

taxes) under the Indirect Tax Concession Scheme. The expanded refunds will apply to:

the diplomatic and consular representation of Cyprus, Estonia and Finland; and

the Organisation for the Prohibition of Chemical Weapons and its officers and representatives in

Australia.

Each of these changes will have effect from a time specified by the Minister for Foreign Affairs. The refunds are

estimated to have a negligible cost to the Budget over the forward estimates period.


by Ian Murray-Jones

[email protected]

Return to Top

[586] Passport fees to rise - again

The Government announced in the Budget that it will raise $172.9 million over 4 years from 2016-17 by

increasing passport fees. From 1 January 2017, the cost of each new passport will increase by $20 for adults and

$10 for children and seniors, and the fee for priority processing of passport applications will increase by $54.

Revenue raised from this measure will be used by the Government to help offset the increased cost of providing

consular services and fund policy priorities.





by Terry Hayes

[email protected]

Return to Top

[587] Agricultural production levies to be increased

The Government announced in the Budget that it will make changes to the following agricultural levies and export

charges "to meet changes in the funding needs of the agricultural industry and the industry organisations they

support":

Export fodder: from 1 July 2016, the Government will introduce a mandatory levy of $0.50 per tonne on

all hay and straw prepared for export. The Government says it will provide a matching contribution of

$400,000 per annum, consistent with its commitment in the Agricultural Competitiveness White Paper.

This new mandatory levy replaces a voluntary levy and was proposed by the export fodder industry. It is

designed to address gaps in fodder industry research, development and extension funding.

Deer levy: from 1 July 2016, the Government will cease the excise levy on domestic production and

sale of deer velvet, the customs charge on exports of deer velvet, and the customs charge on exports of

live deer, as proposed by the Deer Industry Association of Australia.

Forestry: from 1 July 2016, the Government will increase the Emergency Plant Pest Response levy for

growers of private plantation logs by $0.05 per cubic metre of logs, from $0.055 per cubic metre to

$0.105 per cubic metre. The funds raised will be used to repay the Australian Government for costs

incurred as part of the emergency response to giant pine scale that commenced in 2015.

Citrus: from 1 July 2016, the Government will increase the citrus levy by $1.50 per tonne. These

increases are being made at the request of industry to address gaps in citrus industry research and

development funding. This consists of:

an increase to the statutory levy and export charge for R&D from $1.97 per tonne to $3.20 per

tonne; and

an increase to the Plant Health Australia levy rate from $0.03 per tonne to $0.30 per tonne.


by Terry Hayes

[email protected]

Return to Top




[588] Excise refund scheme for distillers

The Government will extend the excise refund scheme to domestic spirit producers. The refund scheme currently

provides eligible breweries with a refund of 60% of excise paid up to $30,000 per financial year.

From 1 July 2017, producers of whisky, vodka, gin, liquer and producers of low strength fermented beverages

such as non-traditional cider will be eligible for the excise refund scheme. The scheme will not be extended to

most alcopops producers (ie those that merely purchase the spirits and add the soda and other flavours), nor

wine producers who benefit from the wine equalisation tax (WET) rebate.

Source: Budget Paper No 2 [p 43]; Assistant Minister for Agriculture and Water Resources' media release,

3 May 2016; Budget tax fact sheet 11

by Lisa Lynch

[email protected]

Return to Top

[589] Wine equalisation tax rebate integrity proposals

The Government will address integrity concerns with the wine equalisation tax (WET) rebate.

The Government said the associated producer provisions will be amended to help deter artificial business

structuring and multiple rebate claims. The WET rebate cap will be reduced from $500,000 to $350,000 on

1 July 2017 and to $290,000 on 1 July 2018. Tightened eligibility criteria will be introduced to apply from

1 July 2019.

The Government noted that under the tightened eligibility criteria for the rebate, a wine producer must own a

winery or have a long term lease over a winery and sell packaged, branded wine domestically. It added that final

details on the tightened eligibility criteria, including the definition of winery, will be resolved through further

consultation.

The Government will also provide $50m over 4 years from 1 July 2016 to the Australian Grape and Wine

Authority (AGWA) to promote Australian wine overseas and wine tourism within Australia to benefit regional wine

producing communities.

Source: Budget Paper No 2 [p 43]; Assistant Minister for Agriculture and Water Resources' media release,

3 May 2016; Budget tax fact sheet 10



by Lisa Lynch

[email protected]

Return to Top

[590] Tobacco excise increases and enforcement

The Government will increase tobacco excise and excise equivalent customs duties through 4 annual increases

of 12.5% per year from 2017 until 2020. The increases will take place on 1 September each year and will be in

addition to existing indexation to average weekly ordinary time earnings. In addition, the Government will also

limit, from 1 July 2017, the duty free tobacco allowance to 25 cigarettes or equivalent from the current allowance

of 50 cigarettes.

The Government will strengthen its regulatory and enforcement response to illicit tobacco by providing $7.7m

over 2 years to expand the Department of Immigration and Border Protection's Tobacco Strike Team. The

Government will also reform the Customs Act 1901 and Excise Act 1901 to provide enforcement officers with

access to tiered offences and appropriate penalties, increasing the range of enforcement options available for

illicit tobacco offences.

Source: Budget Paper No 2 [p 16]; Budget tax fact sheet 9

by Lisa Lynch

[email protected]

Return to Top

[591] Tourist visa fees

The Government announced in the Budget that it will raise revenue of $1.5 million over 4 years from 2016-17 by

introducing trial visa arrangements in key markets. This includes a user-pays visa fast-track service for nationals

from India and the United Arab Emirates, and a 3-year multiple entry visa for low immigration risk nationals from

India, Thailand, Vietnam and Chile.


by Terry Hayes

[email protected]

Return to Top





[592] Removal of the Special Duty on Imported Used Vehicles confirmed

The Government confirmed in the Budget that it will remove the $12,000 special tariff on imported used vehicles

from 1 January 2018. This measure is estimated to have negligible cost to revenue over the forward estimates

period, the Government said.

The Government says the special tariff is rarely applied in practice as importers can claim an exemption if they

have a Vehicle Import Approval issued by the vehicle safety standards regulator.

Further information can be found in the press release of 10 February 2016 issued by the Minister for Major

Projects, Territories and Local Government.


by Terry Hayes

[email protected]

Return to Top

[593] Youth Jobs PaTH (Prepare, Trial, Hire) scheme – helping SMEs

The Government announced in the Budget what it said was a new attempt to get vulnerable young people into

jobs called Youth Jobs PaTH – Prepare, Trial, Hire.

The Treasurer said Australian businesses, especially small businesses, had told they want to give young people

a go, "but we need to do more to get young people ready for a job, so businesses don't carry all the risk and

cost".

Mr Morrison said it was also a 2-way street. "Young people have told me how they need people to get alongside

them to help them to develop the confidence, skills, attitudes and behaviours that are expected by employers so

they can get a job and stay in a job, because that is what they want". This is what Youth Jobs PaTH is designed

to do, he said.

From 1 April 2017, young job seekers, who need to boost their job-readiness, will participate in intensive pre-

employment skills training within 5 months of registering with jobactive. The first 3 weeks of training will focus on

skills such as working in a team, presentation, and appropriate IT literacy. A further 3 weeks of training will centre

on advanced job preparation and job hunting skills.

In stage 2, the Government will introduce an internship programme with up to 120,000 placements over 4 years

to help young job seekers who have been in employment services for 6 months or more to gain valuable work

experience within a real business.

Job seekers and businesses, with the help of jobactive providers, will be able to work together to design an



internship placement of 4 to 12 weeks duration, during which the job seeker will work 15 to 25 hours per week.

In addition to gaining valuable hands on experience in a workplace, job seekers will receive $200 per fortnight on

top of their regular income support payment while participating in the internship. "This is real work for the dole",

the Treasurer said.

Businesses that take on interns will receive an upfront payment of $1,000, and will also benefit from the

opportunity to see what a young worker can do and how they fit in to the team before deciding whether to offer

them ongoing employment. [It is unknown at this stage if this payment will be taxable to the business.]

In stage 3, Australian employers will be eligible for a Youth Bonus wage subsidy of between $6,500 and

$10,000, paid over 6 months, depending on the young person's job readiness.

Businesses will have the flexibility to employ young job seekers either directly, through labour hire arrangements,

or combined with an apprenticeship or traineeship.

In addition to these changes, existing wage subsidies including those for parents, Indigenous, mature age, and

the long-term unemployed will be streamlined, making them easier for employers to access.

The Government says that all of these initiatives will cost $751.7 million over the next 4 years.

Source: Treasurer's 2016-17 Budget Speech

by Terry Hayes

[email protected]

Return to Top

[594] Sustainable welfare – DSP eligibility to be reviewed

The Government said that in its 2016-17 Budget, it is committed to a sustainable welfare system. Over the next 3

years, up to 90,000current Disability Support Pension (DSP) recipients will have their DSP eligibility reviewed to

assess their capacity to work. There will also be up to 30,000 Disability Medical Assessments for current DSP

recipients considered to be a high risk of not being eligible for the payment.

Source: Government lives within its means Budget document

by Terry Hayes

[email protected]

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[595] Supporting financial technology – FinTech: regulatory sandbox, etc

The 2016-17 Budget announced a number of measures to further support the growth of Australia's FinTech

industry.

The Treasurer said that in the coming period, ASIC will commence consultation on a "regulatory sandbox" for

FinTech businesses who want to test their early stages ideas with clients.

Mr Morrison said the Government is looking to establish a regulatory sandbox where FinTech start-ups and

businesses can test ideas for up to 6 months with a limited number of retail clients subject to prescribed

investment thresholds and restrictions on the types of services eligible for testing. ASIC will consult on this.

The Treasurer also said the Government is calling for feedback on the best way to ensure investors in FinTech

start-up activities are eligible for the venture capital tax concessions. Submissions can be provided through

[email protected]

In the Budget, the Government committed $200,000 to promote Australia internationally as a FinTech destination.

Source: Treasurer's media statement, 3 May 2016

by Terry Hayes

[email protected]

Return to Top

[596] NDIS – closing carbon tax compensation to help fund NDIS

The Budget announced that the Government will ensure it is able t o meet future NDIS costs through the deposit

of $2.1 billion of Budget savings into the NDIS Savings Fund Special Account once it is established. Savings in

that Fund will be quarantined.

Savings measures committed to the Savings Fund include:

closing carbon tax compensation for new welfare recipients from 20 September 2016;

closing carbon tax compensation for those single income families not already in the welfare system but

who will enter the system from 1 July 2017;

additional reviews for DSP recipients.

The Government said both carbon tax compensation measures will be grandfathered. Existing recipients will

continue to receive the payments, for as long as they remain continuously eligible for an underlying payment or

card that attracts the compensation.



Families on low to middle incomes will continue to be eligible for Family Tax Benefit to help with the cost of

raising children, the Government said.

Source: Media statement by Minister for Social Services, 3 May 2016

by Terry Hayes

[email protected]

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THOMSON REUTERS TAX NEWS DIVISION

Writer-in-Charge (News): T P Hayes BBus CPA CTA - Email: [email protected]

Thomson Reuters Tax News Team: T P Hayes BBus CPA CTA

K A Wilson BA LLB · T Snape MA (Cantab)

J Reilly BA LLB · I Murray-Jones BA BEc CA FTIA · S C Jones BEc LLB

L Lynch BA Grad Cert (EditPubl) · J Tu BComm BSc CA

Thomson Reuters Weekly Tax Bulletin - ISSN 1329-9581

PO Box 3502, Rozelle NSW 2039 · DX 22424 Balmain

Email: [email protected] · Customer Support 1300 304 195

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