On 15 December 2014, the Treasurer, Joe Hockey, released the Government's 2014-15 Mid-Year Economic and Fiscal Outlook (MYEFO). An underlying cash deficit of $40.4 billion is now expected in 2014-15 (2.5% of GDP), narrowing to a deficit of $11.5 billion (0.6% of GDP) by 2017-18.
A number of taxation and superannuation changes were announced and a number of proposals were confirmed in MYEFO, including the following:
Common Reporting Standard for the Automatic Exchange of Financial Account Information
The Government will implement the OECD Common Reporting Standard for the automatic exchange of financial account information from 1 January 2017, with the first exchange of information in 2018.
The Standard will require banks and other financial institutions to collect and report to the Australian Taxation Office (ATO) financial account information on non-residents. The ATO will exchange this information with the foreign tax authorities of the non-residents. In parallel, the ATO will receive financial account information on Australian residents from other countries' tax authorities. This will help ensure that Australian residents with financial accounts in other countries are complying with Australian tax law and act as a deterrent to tax evasion.
International Tax: Investment Manager Regime - element 3
The Government will introduce the third and final tranche of the Investment Manager Regime (IMR), which will provide a tax exemption on the gains of widely held foreign funds that have invested in certain financial arrangements in Australia.
Under this measure, the Government will introduce a regime that exempts from tax the returns or gains made from the disposal of interests in certain Australian assets (notably those not related to land). In doing so, the measure addresses the uncertainty faced by foreign funds with respect to certain types of passive investment in Australia.
The measure facilitates the broader goal of the IMR, which is to attract mobile capital, encourage foreign investment and promote Australia as a financial services centre in the Asia Pacific region.
The measure will apply from the 2015-16 income year but with an option for investors to apply the legislation from the 2011-12 income year and is estimated to have an unquantifiable cost to revenue over the forward estimates period.
New tax system for managed investment trusts - minor adjustments
The Government will clarify aspects of the new tax system for managed investment trusts (MITs) to provide greater certainty and reduce compliance costs for investors.
The measure will make the following minor changes to the new tax system for MITs:
- better target the arm's length rule to transactions most likely to give rise to tax integrity risks; and
- better target the circumstances in which an administrative penalty for a breach of the new 'unders and overs' rules may apply and reduce the compliance costs of remedying the breach.
These changes will take effect from the start of the new tax system for MITs (1 July 2015).
The measure will also clarify the treatment of tax deferred distributions paid by MITs and treat foreign life insurance companies as a specified entity for the purposes of the MIT widely held test.
The tax deferred distribution change will have effect from 1 July 2011, with the Commissioner of Taxation being prevented from making related amendments to assessments for earlier periods. The retrospective application will benefit taxpayers by providing certainty that the longstanding industry treatment of tax deferred distributions will continue.
The inclusion of foreign life insurance companies in the specified entity list will have effect from 1 July 2014.
Depreciation of in-house computer software - extension of statutory effective life
The Government will increase the period over which capital expenditure on in-house computer software is depreciated from four years to five years, with associated changes to the software development pool rules.
The change to the statutory effective life applies prospectively to in-house software assets that are installed ready for use on or after 1 July 2015, while the change to the deductions allowed for software development pools applies prospectively to expenditure incurred on in-house software that is allocated to a pool in an income year commencing on or after 1 July 2015.
In-house software is computer software, or the right to use computer software, that is acquired or developed for use by the taxpayer and that is not for resale. This includes off-the-shelf software acquired for use by a taxpayer.
This one year increase follows a one and a half year increase to the statutory effective life in the 2008-09 Budget.
Research and Development tax incentive - amending the start date of the targeting access measure
The start date of the previous Government's 2013-14 Budget measure, A Plan for Australian Jobs - Research and Development tax incentive - better targeting, will be delayed. This measure will remove access to the R&D tax incentive for companies with annual aggregated assessable income of $20 billion or more.
The start date of the measure will be delayed from income years commencing on or after 1 July 2013 to income years commencing on or after 1 July 2014.
Superannuation - Superannuation Guarantee Charge
The Government will provide $2.2 million over four years to the Australian Taxation Office to implement changes, to apply from 1 July 2016, that will simplify the application of the current Superannuation Guarantee (SG) Charge for the late or short payment of superannuation contributions.
The current SG Charge arrangements will be amended to:
- align the nominal interest on unpaid SG contributions with the period over which SG contributions are outstanding;
- replace the current earnings base for calculating the SG charge (total salary and wages) with the base used to calculate SG contributions (ordinary time earnings); and
- align the penalties imposed under the SG legislation with the general tax penalty provisions.
Targeted anti-avoidance provision to address certain 'conduit' arrangements
The Government will not proceed with a targeted anti-avoidance provision to address certain 'conduit' arrangements involving foreign multinational enterprises, first announced in the 2013-14 MYEFO.
For the Treasurer's media release, dated 15 December 2014, go here