11 March 1996 - 3 December 2007
As part of the 2006-07 Budget, I am announcing a number of measures designed to improve the tax system by streamlining definitions, providing greater flexibility and reducing complexity and compliance costs. These changes will benefit a wide range of taxpayers, including businesses, individuals, trusts, employees and employers.
The key changes are:
- A package of measures to assist small businesses by improving the alignment of eligibility thresholds for small business concessions and increasing access to the simplified tax system (STS) and small business capital gains tax (CGT) concessions.
- More flexible arrangements for employees and employers, including an increase in the in-house fringe benefit threshold from $500 to $1000; extending employee share scheme concessions to stapled securities; and removal of the requirement to apportion the tax-free threshold for students entering the work force for the first time.
- A range of simplified tax arrangements, including for family trust elections, ultimate beneficiary reporting and distributions to non-residents by trusts and managed funds.
I am also announcing further modifications to assist small businesses as part of the Government’s response to the Board of Taxation’s report on the post-implementation review of the small business CGT concessions (see related press release ‘Capital gains tax (CGT): Government response to the Board of Taxation’s report on the post-implementation review of the small business CGT concessions and other improvements’ of 9 May 2006).
Further information on the measures and commencement details are provided in the following attachments.
9 May 2006
Contact: David Alexander
(02) 6277 7340
Attachment A — Reducing compliance costs for small business
The Australian Government will make changes to taxation rules affecting small business which will reduce taxes on small business by $435million over four years and improve the alignment of the eligibility thresholds for the small business tax relief arrangements. See also the related Treasurer’s press release ‘Capital gains tax (CGT): Government response to the Board of Taxation’s report on the post-implementation review of the small business CGT concessions and other improvements’ of 9 May 2006.
This package improves alignment across the main small business regimes of the STS, CGT and GST and will simplify the tax affairs of over two million small businesses, including 65,000 businesses that will become eligible for the STS.
The Government has announced these changes in response to concerns that the different eligibility requirements for the various concessions have added to compliance costs of small business taxpayers.
The measures include changes to:
- increase the simplified tax system (STS) average annual turnover threshold from $1 million to $2million and remove the $3 million depreciating assets test from the STS eligibility requirements. Depreciating asset roll over relief will also be extended to STS taxpayers to ensure businesses can be restructured without triggering a taxing point;
- increase the net assets threshold from $5 million to $6 million for the CGT small business concessions and allow STS taxpayers to be eligible for the concessions without having to satisfy the net assets threshold;
- increase the cash accounting turnover threshold from $1 million to $2 million for the goods and services tax (GST) concessions for small businesses and align certain GST definitions of turnover with the STS definition. The Government will also discuss the simplified GST accounting method with the Commissioner of Taxation and suggest that the threshold be aligned with the other thresholds at $2 million; and
- allow STS taxpayers to pay quarterly pay as you go instalments on the basis of GDP-adjusted notional tax.
The Government has a long history of providing targeted assistance to small businesses in recognition of the important contribution they make to employment and economic growth and in 2001 introduced the STS to reduce the tax compliance burden falling on small businesses by reducing the effective tax burden on small business and simplify record keeping and reporting requirements.
In 2004, the Government announced further enhancements to the STS to foster the entrepreneurial spirit of small business operators – namely, the introduction of the entrepreneur’s tax offset and the removal of the requirement for taxpayers in the STS to use a cash basis of accounting which provided businesses the flexibility to calculate their taxable income using the accounting method most appropriate to their circumstances.
The Government will consult on the development of the legislation to implement these changes to ensure that some taxpayers are not inadvertently excluded from accessing these broaden tax relief arrangements. The changes to certain GST thresholds and to the definition of turnover for the GST will be subject to the approval of the States and Territories as per the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations.
Attachment B — Reducing compliance costs and increasing flexibility in the tax system for employees and employers
Tax changes to reduce compliance costs for employees and employers include:
- increasing the in-house fringe benefits tax-free threshold from $500 to $1000. This will reduce compliance and record keeping costs for employers who provide goods or services to their employees that are identical or similar to goods or services supplied to the public in the ordinary course of the employer’s business;
- extending the fringe benefits tax (FBT) concessions for remote areas by broadening the definition of remote where the shortest practicable route involves travel over water. The current definition fails to recognise the special circumstances of employers isolated from urban areas by a body of water. This measure recognises that it is generally more difficult and inconvenient to travel over water than to travel over land and the required distance between a location and the nearest population centre will be halved where the shortest practicable route involves travel over water. Where the shortest practicable route involves travel over both land and water, the broadened definition will allow for apportionment.
- extending the employee share scheme and related capital gains tax provisions to stapled securities that include ordinary shares that are listed on the Australian Stock Exchange. This will increase the accessibility of employee share schemes and assist employers in providing stapled securities to their employees.
- removing the part-year tax-free threshold for resident taxpayers ceasing full-time education for the first time. This will allow immediate access to the full $6,000 tax-free threshold. Taxpayers will no longer be required to apportion between months of study and months of full time work in an income year. This measure will reduce the compliance costs of individuals ceasing full-time study and will assist in their transition into the workforce.
Attachment C — Taxation of trusts
A number of changes to tax arrangements for trusts will clarify obligations and reduce reporting requirements while maintaining the integrity of the system.
The measures include:
- allowing family trust elections to be revoked or varied in certain limited circumstances. As there is currently no provision for familytrustelections to be revoked, this will increase flexibility. The definition of the family group will be broadened to include lineal descendants, and certain changes in family circumstances will be recognised for the purposes of exempting distributions from family trust distribution tax. This measure addresses concerns raised by the Institute of Chartered Accountants in Australia relating to practical difficulties in complying with the trust losses regime and complements the changes made by the Government in the 2004-05 Budget which also increased the flexibility of familytrust elections;
- simplifying the reporting requirements under the ultimate beneficiary rules so that trustees of closely held trusts need only identify and report first-tier trustee beneficiaries in receipt of trust distributions. This will maintain the integrity of the tax rules applying to trusts but will reduce red tape and result in a substantial reduction in compliance costs for taxpayers. Currently, the ultimate beneficiary rules require these trustees to trace through chains of trusts to identify the ultimate beneficiaries of distributions from the trust which is an onerous compliance burden and under the existing provisions, a trustee could be liable to pay ultimate beneficiary non-disclosure tax if a mistake is made by any trust anywhere along the chain. This measure will also result in less duplication in the ultimate beneficiary statements received by the Australian Taxation Office (ATO), making administration of the ultimate beneficiary rules less complicated and will better enable the ATO to trace trust distributions to beneficiaries.
- ensuring that trust distributions to non-residents trustees are taxed in the same way as distributions to other non-resident beneficiaries. This measure will improve integrity relating to trust distributions by introducing a taxing point in Australia on distributions to non-resident trustee beneficiaries and will ensure that these distributions are taxed in a manner consistent with distributions to other non-residents. Under current arrangements, a resident trustee is only liable to pay tax on distributions to non-resident individuals and companies. These arrangements do not currently apply to distributions to non-resident trustees; and
- simplifying the tax collection mechanism for taxable income distributed to non-residents by Australian managed funds (and Australian custodians, which are an integral part of this industry). This measure reduces compliance costs for the managed funds industry by replacing a number of tax collection regimes with multiple rates with a single tax collection regime with a single rate. As a result, Australian managed funds and custodians will collect a non-final withholding tax at a single rate — the company tax rate — on this income regardless of the identity of the non-resident, instead of multiple rates ranging from 29 to 48.5per cent as is currently the case. Current withholding tax arrangements for dividends, interest and royalty income of non-residents will not be changed. This simplified tax collection mechanism subsumes the Government’s Review of International Taxation Arrangements commitment to set the rate of tax on rental income distributed by Australian property trusts to non-residents at the company tax rate. The design of the legislation will be subject to consultation with the business community.
Attachment D — Summary of changes
Further measures to streamline the Tax System
Improving the alignment of the eligibility thresholds for the small business tax relief arrangements
1 July 2007
Extend depreciating asset roll-over relief to taxpayers in the simplified tax system
Income year following RoyalAssent
Increase the in-house fringe benefits tax-free threshold
1 April 2007
Extend the fringe benefits tax concessions for remote areas
1 April 2007
Extend current employee share scheme concessions to stapled securities.
1 July 2006
Remove the part-year tax-free threshold
1 July 2006
Increase flexibility for family trusts
Income year of RoyalAssent
Reduced ultimate beneficiary reporting requirements
Income year following RoyalAssent
1 July 2006
Taxation of taxable income distributed to non-residents by Australian managed funds
1 July following RoyalAssent