In this election year, the focus of the Budget was the emphasis on the Budget surplus, cash payments to, and tax cuts for, low to medium income earners, and increasing investment in infrastructure.
Nevertheless, we summarise the key tax proposals that impact on business, particularly small to medium sized businesses, below. We cover changes to superannuation separately.
Proposed Division 7A changes deferred until 1 July 2020
After considerable feedback to Treasury on its October 2018 consultation paper, the Government announced that the start date of the reforms to Division 7A will be 1 July 2020 (rather than 1 July 2019) to allow further consultation on the proposed changes.
While delaying the uncertainty about the nature of the changes for another year, the announcement is a welcome one for taxpayers and their advisers.
We expect the Australian Taxation Office will update their Practical Compliance Guideline on Division 7A again to extend to 7-year year sub-trust arrangements that mature in the 2020 income year. Our earlier document on when the ATO extended arrangements extended to the 2019 income year is available here.
Small business instant asset write-off
The Government announced that it is increasing the instant asset write-off for small businesses from $25,000 to $30,000 per asset and allowing businesses with aggregated turnover of less than $50 million (up from $10 million) to access the write-off. The changes apply from Budget night until 30 June 2020.
ATO enforcement activity
The Government announced an added $1 billion in funding to the “Tax Avoidance Taskforce”. While the Government set up the Taskforce to target tax avoidance by multinationals and high wealth individuals, the Budget announcement says the Taskforce’s focus will extend to include scrutiny of tax advisors and "intermediaries that promote avoidance schemes". The Government expects the measure to raise an extra $4.6 billion in revenue over the Budget cycle.
Changes to the ABN system aimed at black economy behaviour
From 1July 2021, ABN holders will be required to lodge their income tax return and from 1 July 2022 ABN holders will be required to confirm their details annually on the Australian Business Register. If not, the ABN will be cancelled.
Currently, ABN holders can keep their ABN regardless whether they are meeting their income tax return lodgement obligation or the obligation to update their ABN details.
Information exchange countries
Curaçao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar, and the United Arab Emirates join the 114 other jurisdictions with which Australia has signed information exchange agreements. The effect is that under the managed investment trust regime, withholding tax on fund payments to recipients in those countries is 15% instead of 30%.
Hybrid mismatches
“Minor” measures to “clarify” the hybrid mismatch rules introduced as part of the BEPS project. Hybrid mismatches typically occur when different countries treat instruments or entities differently. For example, an instrument gives rise to a tax deduction in one country with the income not being assessable in the other country.
