Tax
Alia Lum, KPMG Tax Policy Partner, assesses the tax issues in the Budget
The Budget this year was reasonably light on new tax announcements for large business. This isn’t necessarily a bad thing, as there are still a number of tax announcements from previous budgets, that are yet to be consulted on or legislated – so Treasury could probably do with some breathing room to catch up on the backlog of announced but unenacted measures.
For small businesses there was the extension of the instant asset write-offs but not much for mid-tier companies. There was also very little in terms of tax reform. Even though there was no expectation of large scale tax reform in this year’s budget – it would have been good to see some modest tax reforms such as settings to encourage foreign investment – something that Australia needs as a medium-sized capital-importing country.
Clearly the critical minerals production tax initiative and hydrogen production tax incentives were the big announcement of the night for those in these sectors. The Future Made in Australia initiative emphasises clean energy and critical minerals and includes more than $13 billion over the period to 2034 (weighted towards the years beyond the current inflation challenge) to fund tax incentives for their production.
Even though there was no expectation of large scale tax reform in this year’s budget – it would have been good to see some modest tax reforms such as settings to encourage foreign investment.
Intangibles
But in terms of other announcements of interest to the broader business, international groups will welcome the Government’s decision to discontinue the multinational integrity measure it had previously announced to deal with payments related to intangibles made to no-or low tax jurisdictions. This was part of a pre-election announcement which had been formulated quite a number of years ago to tackle concerns about profit shifting to low tax jurisdictions.
However, since that time, Australia and many other countries have introduced the OECD’s Base Erosion Profit Shifting (BEPS) measures to apply a global minimum tax of 15 percent to each jurisdiction that a large multinational group operates. So the concept of a low or no tax jurisdiction won’t really exist anymore when you look at it holistically, and the OECD measures now largely deal with the integrity concern that the original intangibles proposal was seeking to address.
However, it is clear there remains a focus on payments relating to offshore intangibles –the Government announced last night increased penalties on mischaracterised or undervalued royalty payments, to which royalty withholding tax would otherwise apply.
Foreign residency – CGT
One announcement of note was an extension of the existing rules that apply capital gains tax (CGT) to foreign residents who invest in things like property in Australia – the types of assets that will now be subject to CGT will be extended. We don’t have details yet of what sort of assets will be covered, and whether it will include things that can be removed from land such as certain renewables and transmission infrastructure. It looks like the new measures could be triggered for disposals after 1 July 2025, but this could impact assets that have already been invested into. If this is intended, it will likely receive some pushback from investors that wouldn’t have priced in a tax charge when making an investment in the extended class of in-scope assets.
There are also new notification requirements that will require foreign residents who dispose of shares or units exceeding a value of $20m to notify the ATO of the disposal – this is intended to give the ATO better visibility on assessing if the foreign resident CGT rules apply or not. We expect it will be challenging for the ATO to have sufficient resources to assess these notifications as they come in.
Compliance and ATO funding
In other announcements, the ATO has been given more money in the budget for enforcement activities:
- The tax avoidance taskforce has been extended for a further two years, and has signalled a focus on multinationals, large public and private businesses and high net worth individuals – with more a lot revenue expected to be collected than the cost of providing the additional funding. This is a trend that we have seen in a number of recent budgets – with increasing budget allocations towards compliance activities recognised as revenue accretive to the Budget due to the high estimates of additional tax revenue to be collected.
Production tax incentives
We look forward to seeing further detail on the design of the critical minerals and renewable hydrogen tax incentives. One aspect we would highlight is that any new tax incentive is designed, the overlay of the OECD’s BEPS Pillar Two measure – which, as mentioned above, imposes a global minimum tax of 15% in each country that a large multinational group operates in.
Countries around the world have been grappling with how to design tax credits, particularly those that support the energy transition to renewables, in a way that does not reduce income taxes, only to have the benefit of the incentive neutralised by a minimum top up tax. There was an indication in some of the materials released last night suggesting the incentive will be in the form of a refundable tax credit – so providing it is refundable in cash within four years it is likely to be counted as a “good credit” under the BEPS rules.
Superannuation
Damian Ryan, KPMG Superannuation Tax Partner, comments on the Budget
In a refreshing turn of events, the Budget brought about stability for those of us in superannuation amidst a constantly changing tax landscape. Stability in policy settings is a crucial attribute of a mature tax system.
However, it's important to note two significant measures.
Firstly, the welcome initiative of paying superannuation on Commonwealth paid parental leave, a long-standing advocacy by KPMG, is a crucial step towards closing the super gender equity gap. This ensures that people on parental leave don't miss out on super contributions, which contributes to the gender equity gap in superannuation balance entitlements.
Secondly, the proposed changes to increase the tax burden on higher balance superannuation – those over $3M – whereby movements in unrealised gains would be subject to additional tax, seems unfair and inconsistent with a tax system that normally taxes on realisation.
While limiting tax concessions within superannuation has merit from a policy perspective, exploring other options, including forced withdrawals or drawdowns of excess balances over an agreed cap, would be a better approach.
This issue was one of the questions in our KPMG Enterprise pre-budget poll recently (p8 in link below). Forty-six percent did not like the $3m proposal – and another 48 percent did not support the principle of taxing unrealised gains.
In a refreshing turn of events, the Budget brought about stability for those of us in superannuation amidst a constantly changing tax landscape.
