FEDERAL BUDGET 2012: Tax changes – from mining to banks

Federal govt backflips on promise to cut company taxes.

By a staff reporter

The federal government has backflipped on a promise to cut company tax rates in this year’s budget, saying it was unable to secure the necessary Parliamentary support.

The government had previously pledged to cut the tax rate for large and small companies by 1 per cent, using revenue from its minerals resource rent tax, which is due to come into effect on July 1.

But the Opposition has opposed the move, as it has promised to repeal the MRRT if elected. Revenue from the MRRT, combined with the petroleum resources rent tax, is forecast to be $7.16 billion in fiscal 2013, rising to $8.19 billion the following year.

The reversal, set to save $4.8 billion, will see the company tax rate remain at 30 per cent.

Meanwhile, the government expects to raise around $73.5 billion in company tax receipts in 2013.

In lieu of the company tax rate cut, the government will spend $3.6 billion on a ‘Spreading the Benefits of the Boom’ package, which it says will share the benefits of the MRRT with families and small businesses.

"We will not allow this parliamentary gridlock to deny Australians the benefits they deserve,” Treasurer Wayne Swan said in his budget speech. "So in this budget the funds for company tax rates have been redirected to families in a way that helps the economy, including small businesses.”

The resources sector of the economy is expected to grow at around 8.5 per cent from fiscal 2012 to 2014.

In comparison, the non-resources part of the economy is expected to grow at a below-trend average annual rate of 2 per cent over the next two years, with a high Australian dollar and shifts in household spending patterns and attitudes towards debt among factors exacerbating divergence between the sectors.

Loss carry-back for companies

But the government will implement a loss carry-back for businesses, as flagged, from 2012-13, extending this to a two-year carry-back from fiscal 2014.

The measure, which will cost $714 million, will allow businesses making a loss to receive a refund of some of the tax they have previously paid.

Businesses will be able to offset a current year tax loss of up to $1 million, with refunds of up to $300,000 available.

"This will help companies to finance the investments, training and restructuring that is needed to improve competitiveness, which will support productivity and boost employment,” Treasurer Wayne Swan said.

Around 110,000 businesses are expected to take advantage of the measure in its first four years.

Super changes

Meanwhile, the government plans to increase the superannuation guarantee to 12 per cent by 2019-20, a measure it says will boost retirement savings by $500 billion by 2037.

Also among superannuation reforms funded by MRRT revenue, a higher concessional contributions cap will be available for older Australians with super balances below $500,000, from July 1, 2014.

At the same time the government will reduce the super tax break on concessional contributions for the top 1 per cent of earners. Around 128,000 people earning over $300,000 per annum will have the tax break on their super contributions cut from 30 per cent to 15 per cent.

High income earners will also be targeted with a reduction to the tax break on ‘golden handshakes’, which, from July 1, will only apply to payments that do not exceed $180,000 when combined with other income.

Tax receipts from superannuation funds are expected to grow by 10.9 per cent, to $711 million, in fiscal 2012, and by 11.3 per cent, to $820 million, in the following year.

Tax boost for foreign banks

Foreign banks have been given a boost by the government as it seeks to encourage competition to directly target the big four banks.

The rate of interest withholding tax (IWT) paid by foreign bank branches which borrow from their overseas head office will fall from 5 per cent to 2.5 per cent in 2014-15, and then be phased out entirely in 2015-16.

Meanwhile, the IWT for other financial institutions that borrow from foreign financial institutions or offshore retail deposits will fall from 10 per cent to 7.5 per cent in 2014-15, and 5 per cent in 2015-16.

The government says the measure will help local subsidiaries and branches of foreign banks to access cheaper offshore funding from their parents, ultimately putting more competitive pressure on the major banks.

SME tax arrangements

The government has pledged a total of $3.7 billion in tax breaks for small to medium sized enterprises across the forward estimates of the budget.

As flagged previously, from July 1, tax write-offs will be available on the purchase of any business asset costing $6,500 or less.

Simultaneously, $5,000 rebates on the purchase of new and used cars purchased in fiscal 2013 will come into effect.

In addition, the government will spend $27.5 million to extend the Small Business Advisory Service for four years.

"Since it was introduced in the 2008-09 9 budget, SBAS has provided over 354,000 separate advisory services to more than 187,000 small businesses around the country,” Small Business Minister Brendan O’Connor said.

Meanwhile, around 90 per cent of the companies taking advantage of the government’s loss carry-back are expected to be SMEs.

As announced in March, the government will spend $8.3 million over the next four years to establish a federal Small Business Commissioner.