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Federal Budget Insights

Important changes announced in the 2019 Budget

Ellen Thomas

Partner, PwC


Transcript, 4 April 2019: Comments on the Federal Budget 2019-20 

This Budget has taken place in an election year, and as you’d expect, there are not many significant structural changes for business in this Budget. 

However, there are still some things which are really important, and will have an impact on an ongoing basis. 

The first one is that the ATO has been allocated an extra $1 billion dollars for its Tax Avoidance Taskforce. To put that in context, the ACCC, ASIC, and APRA have all been allocated less in increased funding. In return, the ATO is supposed to collect an extra $3.6 billion. It’s not entirely clear where that is supposed to come from, so we’ll wait and see.   

Also, in relation to the task force, they’re expanding this scope, so now it is not just multinationals, large groups, trusts, and high net worth individuals – it is also going to be tax advisers and promoters of schemes. 

The second set of changes is in relation to the Hybrid rules, and I would put those really in two categories. 

The first is, a set of changes that we were anticipating in general terms. They relate to anomalies in the legislation, they’re just being understood now the rules have been put in place. In that anomalies category there is, how the rules interact with MEC groups; how the rules interact with trusts; and also, the definition of foreign tax which is a key plank of how the rules work. 

In relation to foreign tax, it seems that all taxes are covered. So not just taxes at a Federal level, but also at a State level. So, for example, if you are looking at the US, you have to understand not just what Federal taxes are being imposed but also the taxes in each of the different states in the US. 

The UK has limited its definition of foreign tax, to just Federal tax, and I think we’ll be taking the same approach. 

The second category of change in the Hybrid rules is that the tax integrity measure, the FIZLR is going to be expanded in scope a bit. 

It’s an election year. How those changes look will probably take quite a lot of time to develop, that leads to a lot of uncertainty, so we’re hoping that the details of those reforms come through pretty quickly. 

The third change that comes through the Budget is something that was actually announced last week, which is that there is now a double tax agreement between Australia and Israel. This is the first double-tax agreement between Australia and Israel. At the moment, there is about $1 billion of trade and about $300 million of foreign investment from Israel into Australia. So, having a double tax agreement will really make trade a lot easier. 

The double tax agreement contains the BEPS measures that we’ve been seeing coming through. That includes a principal purpose test and that should be coming into force, at least in relation to withholding tax rates, from 1 January 2020. 

The fourth announcement was really part of the Israel announcement, but it is a separate announcement, and that is that the International Tax Agreements Act will be amended to include a new deemed source aspect. 

We understand that to be along the lines of trying to make sure that the principles that were talked about in the Tech Mahindra case apply across every single treaty. There is not an announcement date for that - we’re not sure what time the rules will start from. So that’s a watch this space. 

Finally, there have been eight new countries added to the exchange of information list. That means that those countries will be able to access the concessional MIT withholding rules from 1 January 2020. There are already 114 tax exchange information countries, so now the list is getting pretty big.   

I think it’s important to remember that for the exchange information countries, it’s not just the MIT withholding rules that count, but it also means that Australia has a binding agreement with that country to exchange information. 

And that’s a wrap for Budget 2019!

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