11 March 1996 - 3 December 2007
THE NEW BUSINESS TAX SYSTEM
The New Business Tax System I am announcing today and the tax reforms now being implemented will take Australia into the next century with a modern, competitive and fair taxation system. The Government's decisions are based on the landmark Review of Business Taxation which was chaired by Mr John Ralph AO.
I am also releasing today the Review's report 'A Tax System Redesigned'.
The New Business Tax System will provide Australia with internationally competitive business tax arrangements, which will create the environment for achieving higher economic growth, more jobs, and improved saving as well as providing a sustainable revenue base so that the Government can continue to deliver services for the community.
The key changes to business tax are:
- Lowering the company tax rate from 36 per cent to 34 per cent for the 2000-01 income tax
year and to 30 per cent thereafter - this will be among the
lowest company tax rates in our region. In part this will be funded by moving to effective
life depreciation with the removal of balancing charge rollover relief. A separate system
for small business (see below) will be introduced.
- Recognising the potential impact of removing accelerated depreciation on large capital intensive projects with long lives, the Government will be prepared to consider such projects in the context of an expanded strategic investment coordination process, including consideration of the option of targeted investment allowances.
- Improving incentives to save and invest by introducing an internationally competitive
capital gains tax regime, including:
- For individuals, only 50 per cent of capital gains being taxed, with the result that the highest rate of tax for individuals will effectively be 24.25 per cent.
- For superannuation funds, only two thirds of capital gains being taxed, effectively meaning a concessional tax rate of 10 per cent.
- Reducing complexity through the freezing of indexation and the removal of averaging provisions.
- Improving the current small business concessions by replacing the existing 50 per cent capital gains tax goodwill exemption with a 50 per cent general capital gains tax exemption for all active assets (with an increased threshold). When combined with the general 50 per cent exclusion, this means individuals owning small business will be liable to tax on a maximum of 25 per cent of their capital gains when they sell business assets.
- Further extending the concession for small business by introducing a full exemption from capital gains tax on the disposal of a business asset which has been held continuously for 15 years and where the taxpayer is at least 55 years of age and intends to retire, or is incapacitated.
- Introducing rollover relief for scrip-for-scrip takeovers between companies and between trusts (whether widely-held or private entities).
- Promoting venture capital investments in Australia by exempting capital gains earned through Pooled Development Funds by Australian superannuation funds, and exempting from capital gains tax investments in venture capital projects in Australia by non-resident tax exempt pension funds, such as US and UK pension funds.
- Reducing the compliance burden for 95 per cent of businesses and about 99 per cent of
primary producers (that is, businesses with an annual turnover of less than $1 million) by
the introduction of a Simplified Tax System involving:
- A straight forward and less costly cash accounting regime. That is, for income tax purposes, income and expense will need to be recognised only when they are received and paid.
- A simplified depreciation scheme where assets costing less than $1,000 will be written off immediately and all other depreciable assets with an effective life of less than 25 years will be pooled and depreciated at the rate of 30 per cent. This will not only dramatically reduce the paper work for small businesses by removing the need to maintain asset schedules, but will also effectively maintain their access to accelerated depreciation.
- A simplified treatment of trading stock which will mean that over 75 per cent of small businesses will not have to undertake stock takes in order to value stock for tax purposes.
- Tightening the current 13 month 'prepayment' rule.
- Implementing the entity tax arrangements outlined in A New Tax System (including the taxation of trusts like companies, but with the removal of the inter-corporate dividend rebate rather than the introduction of a deferred company tax). The entity tax arrangements will not impact on commercially justifiable shareholder loyalty schemes such as those currently operated by some widely-held public companies.
- Modifying the proposed arrangements for life insurers and policyholders in A New Tax System, to continue to tax superannuation business of life offices at 15 per cent and to tax existing policyholders on the current basis.
The New Business Tax System will make a significant contribution to reducing tax avoidance through the removal of complexities and anomalies and improved anti-avoidance measures. The Government will also be introducing a number of integrity measures which will commence from 22 February 1999, consistent with my statement of that date. These will cover such matters as preventing the use of lease assignments and the use of multiple and artificial losses to avoid tax.
Details of all the measures being announced are attached.
The Government has accepted the Review's recommendation not to proceed with minimum tax arrangements for companies, recognising that the reforms announced will significantly improve the integrity of the business tax arrangements.
The Government has not accepted the Review's recommendations covering changes to the current treatment of fringe benefits. Nor has the Government accepted the Review's recommendation to remove the immediate deductibility for expenditure on mining overburden, which would impose significant cash flow and compliance costs on some mining ventures.
The Government's response to the Review will be in two stages, with a phased implementation. Some of the measures I am announcing will have effect from today, some capital gains tax measures will commence from 1 October 1999, some measures will have effect from the date of Royal Assent of legislation and, as noted above, a number of the anti-avoidance measures will begin from 22 February 1999. The measures being announced today are revenue neutral in 2000-01.
In recognition of the current demand on businesses associated with the need to address Y2K compliance issues and the introduction of the GST on 1 July 2000, the Government will defer until 1 July 2001 the commencement of some major elements of the package, notably most of the redesigned company tax arrangements including consistent treatment of entities (although the removal of the inter-corporate dividend rebate and the changes to the taxation treatment of life insurers will begin from 1 July 2000) and the Simplified Tax System for small business.
The Government will consider the remaining recommendations contained in the report in more detail over the coming months and will announce its response in a second stage. It is expected that the second stage measures recommended by the Report (and not ruled out today) will be adopted to reduce the cost of the package in the outyears in accordance with the goal of revenue neutrality.
Second stage measures will include the Review's recommendation for a fundamental change in the method of determining taxable income for business. The new approach recommended by the Review would replace the existing law based on legal definitions of income, which is complex and inconsistent, with a more structured framework for the treatment of expenditure and assets. The Government sees the merits of this approach and will be considering it further with a view to any new arrangements not commencing until 1 July 2001.
The Government will also be looking at the Review's recommendation to provide imputation credits for foreign dividend withholding tax up to 15 per cent, from 1 July 2001. This would be of benefit to those Australian companies now earning revenue overseas.
The Government will give close consideration to other issues raised in the Review, such as the recommendations dealing with the alienation of personal services income and non-commercial losses.
The Government will also maintain the more integrated and consultative arrangements which have been central to the Review of Business Taxation. In particular the Government will establish an on-going, non-statutory Advisory Board which would allow access to private sector expertise on a regular basis, not only on business tax but on all aspects of tax law. Details will be announced in due course.
Ralph Report - Draft Legislation
I am releasing today draft legislation and explanatory notes as part of the Report which illustrates the type of legislative product achievable from more integrated design processes and a more principle-based legislative framework.
This draft legislation does not relate to the measures having effect from either 22 February, today, 1 October or from Royal Assent. Legislation in respect of these measures will be introduced into the Parliament as soon as possible. The draft legislation is designed to illustrate what is achievable in terms of simplicity under high level reform.
On behalf of the Government, I would like to thank Mr John Ralph, AO, Mr Rick Allert, AM and Mr Bob Joss for their excellent work in providing a landmark report on the way forward for Australia's business tax system.
21 September 1999
|A||Reducing the company tax rate||8KB||610KB|
|B||Reforming the capital allowances system||38KB||76KB|
|C||Allowing a write-off for indefeasible rights of use||19KB||47KB|
|D||Introducing an internationally competitive CGT system||22KB||49KB|
|E||Improving and streamlining small business CGT provisions||26KB||56KB|
|F||Providing a new small business 15-year CGT exemption||19KB||44KB|
|G||Removing impediments to scrip-for-scrip takeovers||24KB||51KB|
|H||Improving incentives for venture capital investment||24KB||69KB|
|I||Introducing a simplified tax system for small business||32KB||80KB|
|J||Tightening the 13 month rule for advance expenditure||35KB||74KB|
|K||Deferring implementation of the unified entity regime||14KB||51KB|
|L||Removing the intercorporate dividend rebate on unfranked distributions||11KB||47KB|
|M||Refunding excess imputation credits||6KB||47KB|
|N||Broadening the taxation base of life insurers||31KB||77KB|
|O||Applying the imputation system to new life insurance policies||18KB||44KB|
|P||Reinforcing tax system integrity - treating non-commercial loans from members to closely-held entities as equity||21KB||53KB|
|Q||Reinforcing tax system integrity - preventing loss duplication and value shifting||30KB||61KB|
|R||Reinforcing tax system integrity - addressing the taxation of lease assignments||31KB||80KB|
|S||Tax reform's beneficial impact on Australian industry||13KB||68KB|
|T||Fiscal impact of Announced Measures||9KB||52KB|