By a staff reporter
The Gillard government will look to shore up the corporate tax base, after declining tax receipts took a $17 billion hit out of government revenues in the 2012-13 financial year.
Treasurer Wayne Swan has unveiled a $4 billion package of tax reforms aimed at stamping out loopholes in corporate tax exploited by multinational enterprises and large domestic companies.
The heart of the measures will be a targeted approach to address “aggressive tax structures” also known as thin capitalisation, that seek to shift profits by artificially loading debts into Australia.
In addition the government committed to closing loopholes in the Offshore Banking Unit and the consolidation of business entities regime.
A $1.1 billion program will also target the resources sector, removing depreciation concessions available to large resource companies that purchase junior miners and claiming their exploration costs and mining rights for immediate depreciation.
The package of measures is set to be implemented from July 1, 2014.
The government will also inject an additional $109.1 million into the Australian Tax Office for targeted compliance activities in the corporate sector and $69.7 million to investigate trust structures used by the wealthy to avoid tax.
Mr Swan also announced two Board of Taxation reviews; the first into the arm’s length test as it applies to the thin capitalization rules; and the second into Australia’s debt and equities rules in the context of enabling tax arbitrage opportunities.
The terms of reference for both reviews will be released in the coming weeks.
Company taxes have been revised down by approximately $5.2 billion in fiscal 2013 and $7.2 billion in fiscal 2014.
Mr Swan said tax receipts as a share of GDP were expected to remain below pre-GFC levels.
Super, PAYG changes to offset resources tax writedowns
Significant reductions in expected revenue from resource rent taxes, including further writedowns beyond the Mid-Year Economic Forecast, forced the government to look to alternative sources of income.
Mr Swan said revenue from the minerals resources rent taxes (MRRT) and petroleum resources rent tax (PRRT) were expected to collectively be $3.6 billion lower in fiscal 2013 and $3.2 billion in fiscal 2014.
In a bid to offset the shortfall, pay-as-you-go (PAYG) income tax instalments will shift from quarterly payments to monthly and will be extended to include all large entities in the PAYG system including trusts, superannuation funds, sole traders and large investors. The government expects the measure to net $1.4 billion in tax receipts over the forward estimates period (BUDGET 2013: Fiddles play a two-part tune, May 14).
Mr Swan reiterated the already released changes to the superannuation system, targeting taxes on paid on superannuation profits.
Mr Swan said he was expecting receipts from super funds to grow by 1.6 per cent or $1.2 billion, in fiscal 2013 and 8.6 per cent, or $660 million, in fiscal 2014.
As previously announced, a series of personal income tax cuts tied to the carbon price have been deferred, at a saving of $1.5 billion over the forward estimates.
Capital gains tax reforms
The government is also set to clamp down on Australia’s foreign resident capital gains tax regime.
Under the updated regime, the government will implement a withholding policy for foreign residents disposing of assets that incur an Australian tax liability. From July 1 2016, when a taxable Australian property is sold by a non-resident, 10 per cent of the proceeds will be remitted to the Australian Taxation Office.
The regime will not apply to residential house sales under $2.5 million.
Mr Swan said part of the reason for the reforms were recent incidences in the mining sector where foreign investors disposed of interests in Australian mining operations without being subject to capital gains tax.
The measures will also set out to clarify Australia’s taxing rights over indirect Australian real estate properties, including preventing intercompany transfers of property that dilute asset values.
Mr Swan also announced work-related self-education expense deductions would be capped at $2,000 from July 2014.
The budget documents estimate the savings from the measure will total $514.3 million over the forward estimates period, which will be funneled into government’s school improvements agenda.