With the Coalition Government returned to office following last Saturday's Federal Election, the following report outlines the key elements of the tax reform and other tax related Coalition proposals that can be expected to be considered by Parliament in the forthcoming years.
GST
From 1 July 2000, a 10 % broad based GST will be imposed on the consumption of most goods and services in Australia, including those that are imported, but it will not apply to exports of goods or services consumed outside Australia.
The following nine types of taxes to be abolished:
- wholesale sales tax;
- financial Institutions Duty;
- debits tax;
- stamp duty on marketable securities;
- conveyancing duties on business property;
- stamp duties on credit arrangements, instalment purchase
- arrangements and rental (hiring) agreements;
- stamp duties on leases;
- stamp duties on mortgages, bonds, debentures and other loan
- securities;
- stamp duties on cheques, bills of exchange and promissory notes;
- and bed taxes
GST - more detail
Registration with the tax authorities will be compulsory where businesses and non profit organisations are involved in supplying goods and services with sales exceeding $50,000 per annum ($100,000 for non profit bodies).
Returns will be required on a quarterly basis for most taxpayers with annual turnovers of less than $20 million per annum. All others must lodge on a monthly basis. (Payment is required 21 days after the due date for lodgment.)
Registered persons will be able to claim input tax credits for the GST paid on purchases of business inputs.
Displayed prices will include any GST payable.
Most businesses will account for the GST on an accruals basis.
Registered persons with total sales less than $250,000 per annum will have the option of accounting on a cash basis.
Second hand goods will be taxed in the same way as new goods. Where second hand goods are sold by a business it is expected that GST will be payable on the margin added by the business.
Building and construction will be taxed. This includes the construction and sale of new homes, and repairs and renovations to existing homes. To maintain home affordability at its present high levels, the Federal Government will require the States to assist home buyers through a First Home Owners Scheme. People who qualify for assistance will receive a lump sum payment of $7,000 from 1 July 2000. Payment will not be means tested.
Residential land will be treated like second hand goods. The construction, sale and leasing of all non-residential land and buildings, whether new or used, will be subject to the tax.
Some financial services will be input taxed (exempt) as in most other countries.
Residential rents will be input taxed to ensure comparable treatment for renters with owner-occupiers.
Activities to be GST-free (zero-rated) include:
- exports of goods and services;
- international air and sea travel, and domestic air travel, purchased overseas by non residents;
- virtually all health, education and childcare services (provided at recognised facilities);
- charitable activities;
- religious services; and
- taxes and charges leveled at all levels of government (including local government rates and water and sewerage rates and charges).
Sales from private individuals to other private individuals would generally be out of the GST tax base.
Supplies of short-term accommodation in hotels and similar establishments will be taxable. Long-term stays (for 28 days or more) will be input taxed.
Gambling and lottery activities will be included in the tax base. The GST will apply to the operators margin of these activities, not to the prizes paid out.
Input tax credits will not be allowed for GST paid on goods and services for the personal use of sole proprietors and partners. Personal use tests will be similar to the current tests for non-deductibility under the income tax law.
Where fringe benefits are supplied to employees, the GST credit will be allowed, but Fringe Benefits Tax will be adjusted to ensure that there is no advantage for the employer in providing benefits rather than providing salary.
The Government will spend up to $500 million to defray start up costs of small and medium businesses implementing the GST.
Legislation to provide the ACCC with special transitional powers to formally monitor retail prices and Commonwealth-State consultations to give the ACCC the power to take action, including imposing penalties up to $10 million against businesses that adjust prices in a way that is inconsistent with changes in tax rates.
Any request for a change to the GST rate would need to be made to the Commonwealth unanimously by all State Governments. It would need to be endorsed by the Commonwealth Government of the day; and relevant legislation would need to be passed by both Houses of Federal Parliament.
GST transitional arrangements
Credit for wholesale sales tax on tax-paid stock - Businesses holding inventories of new goods for sale (wholesale sales tax paid) at 1 July 2000 will be entitled to claim a credit of the wholesale sales tax included in stock on hand at 30 June 2000 against their GST liability.
Harmonising wholesale sales tax rates - To counteract the impact on buying patterns, goods currently taxable at the 32% wholesale sales tax rate (eg photographic goods, sound systems, TVs and other so called luxury goods other than furs and jewellery) will be reduced to the 22% rate immediately following the passage of the GST legislation.
Phase in of input tax credits for motor vehicles - For the year ended 30 June 2001, no input tax credits will be allowed to registered businesses for motor vehicle purchases. In the year ended 30 June 2002, half the value of the full input tax credit will be allowed. Full input tax credits will be available from 1 July 2002. Non-luxury vehicles currently taxable at 22% on their wholesale value will be cheaper with a 10% GST and the Government anticipates that this phasing in of input tax credits will stop any adverse impacts on demand for motor vehicles for use for business purposes.
Some contracts and agreements will span 1 July 2000. Where this occurs, the general principle will be that GST applies to all goods delivered and all services performed after that date.
Company and trust tax changes
From 1 July 2000, the Government proposes to tax trusts and companies under the same rules. There will be a simplified imputation system under which distributed profits, if they have not already been taxed, will be taxed in the hands of the company or trust at the time of distribution.
In this way, all distributed profits will be fully franked and carry imputation credits. Special grandfathering arrangements will apply to trusts to avoid an inappropriate impact on existing trusts.
Excess imputation credits for resident individual taxpayers and complying superannuation funds will be refunded.
Consolidated group taxation of group companies and trusts would be developed in consultation with the business community so that groups will be treated as a single entity for tax and dividend imputation purposes. Consolidation would be an irrevocable choice for the entire group.
Existing group concessions would be repealed. Much of the existing complexity regarding taxation groups would disappear and would be replaced by a new complexity.
The Government will consult after the election on taxing trusts like companies, including transitional and implementation issues.
CGT reform
CGT roll-over relief and retirement exemption will be extended to include land and buildings integral to a business when those assets are owned separately but where the taxpayers owning and controlling the land and buildings are substantially identical to those controlling the business - applicable to disposals effective from 13 August 1998
The Government will consider capping the tax rate for capital gains of individuals at 30%, introducing a $1,000 per annum CGT tax-free threshold for individuals and extending the CGT roll-over provisions to scrip-for-scrip transactions (subject to further consultation).
The Government will examine capital write-off allowances, trading stock valuations, CGT indexation and averaging and would aim to rationalise these in the context of brining tax value and commercial value closer together (subject to further consultation).
Fringe Benefits Tax
From the 1999-00 FBT year of income, employers will have to identify on group certificates the grossed-up taxable value of an employee's fringe benefits where this exceeds $1,000.
The value of such benefits will be included as income for determining tax surcharges on the employee, such as the Medicare levy and the superannuation contribution surcharge and income related obligations such as child support.
From 1 April 2000, the following changes would take effect:
- the concessional FBT rebate applying to public benevolent institutions and some not-for-profit organisations would be limited for each employee to $17,000 of grossed-up taxable value
- FBT would be extended to benefits in excess of $1,000 per year provided by companies to shareholders or trustees to beneficiaries, where currently not taxed
- an FBT exemption for remote area housing provided by mining industry employers.
Business payment and reporting
Each business to have only one number (the Australian Business Number) to identify a business for all Commonwealth purposes.
Each business to be able to deal with all Commonwealth agencies and obtain information and assistance through one, or as few as possible, entry points.
The Pay As You Earn, Prescribed Payments System, Reportable Payments Scheme, provisional tax and company tax instalments system are to be replaced by one new comprehensive pay as you go system - effective 1 July 2000.
More certainty to be provided about which payments made by businesses for work are subject to withholding arrangements.
Life insurers
From the 2000-01 income year, the company tax rate would apply to a life insurer's income and deductions generated in relation to ordinary life insurance business, policies held by superannuation funds and contractual obligations on annuity contracts.
The treatment of life insurance policy holders will also change. Bonuses (including terminal bonuses) assigned to individual investment policies would carry imputation credits for tax paid by the life insurer. Similar treatment will apply to returns from investment-linked policies as income is distributed to policy holders. There will be some transitional measures.
Friendly society tax rate would remain at 33% until 2000-01.
Anti-avoidance measures
With effect from 13 August 1998, Part IVA will be amended to attack schemes entered into after that date, which are designed to acquire or generate foreign tax credits that can be used to shelter low-taxed foreign sourced income from Australian tax. The Commissioner of Taxation will challenge existing schemes under the present law in the courts.
A special anti-avoidance rule will be introduced with effect from 13 August 1998 to apply to distributions made through chains of trust. Trustees of discretionary and closely held fixed trusts will have to identify individual and corporate beneficiaries that are ultimately entitled to distributions and must provide their tax file numbers if they are residents. Failure to comply will cause the distribution to be taxed at the highest marginal rate plus the Medicare levy.
Part IVA is proposed to be modernised to include avoidance schemes involving the use of rebates, credits and losses.
Tax administration measures
The period in which the Tax Office can amend assessments of wage and salary earners to be reduced from four to two years. An unlimited amendment period will continue to apply in cases of fraud or evasion.
Oral advice on simple tax issues to be binding on the Tax Commissioner.
The Tax Office rulings system will be made more comprehensive and its scope more certain, eg application to procedural, administrative or collection matters.
The tax laws to be brought together in a code that supports a more cohesive approach to compliance and administration.
The Government will examine a system of user charges for private rulings and other binding advice given to large business taxpayers in complex cases.
Other Indirect tax reform
Petroleum fuels
Excises on petrol and diesel to be reduced at the time the GST is introduced.
A new comprehensive diesel fuel credit delivered through the GST system to be introduced for registered businesses, removing the need for the Diesel Fuel Rebate Scheme, with the effect that: effective excise payable on diesel fuel used in heavy transport and rail to be reduced from around 43 cents per litre to 18 cents per litre; and all other off-road use of diesel (including marine business use) to qualify for a full credit of all diesel excise. Alternative fuels to remain excise free on the introduction of the GST.
Alcoholic beverages
Wine, and beverages consisting primarily of wine, to become subject to a Wine Equalisation Tax to replace the difference between the current 41% wholesale sales tax and the proposed GST, with the concessional taxation treatment of the alcohol content of cask wine to be preserved.
Changes in the excise on beer to be limited so that the retail price of a carton of full strength beer need only increase by the estimated general price increase associated with indirect tax reform.
Tobacco
From 1 July 1999, a per stick excise on cigarettes to apply without reduction in tobacco excise.
Luxury car tax
A retail tax of 25 per cent on luxury cars (above a GST inclusive $60,000 threshold) to be applied after the introduction of the GST to ensure that luxury cars fall in price only by the same amount as a car just below the luxury threshold.
Individuals
Personal income tax cuts
The tax free threshold for all taxpayers to be increased from $5,400 to $6,000.
A doubling of the tax free thresholds under the Family Tax Initiative to result in:
The new individual resident tax rates will be:
- all single income families (including sole parents) with a child under 5 years having an effective tax free threshold of $13,000;
- and dual income families with one child (and single income families with no children aged under 5 years) having an increase in family tax assistance of $140 a year; for those with two children an increase of $280 a year;
- and for those with three children an increase of $420 a year.
- Reduction in the family benefits withdrawal rate from 50 per cent to 30 per cent and increasing the income threshold for family payments from $24,350 to $28,200.
- A new simpler Child Care Benefit worth up to $390 per year more than current benefits.
- The savings rebate is to be repealed.
|----------------------------------------------------------------| | Taxable income | Tax rate (%) | |-----------------------------------+----------------------------| | 0 - 6,000 | 0 | | 6,001 - 20,000 | 17 | | 20,001 - 50,000 | 30 | | 50,001 - 75,000 | 40 | | 75,000 + | 47 | |----------------------------------------------------------------|NB: the $150 low income rebate applies to the current rate.
Family assistance
From 1 July 2000, the structure of assistance for families to be simplified with the aim of consolidating the types of assistance for families through the tax and social security systems from twelve to three.
The delivery of family assistance to be simplified and integrated through a new Family Assistance Office within the Tax Office - a joint venture between Centrelink and the Tax Office.
Private health insurance
From 1 January 1999, a 30% tax rebate/benefit for the cost of private health insurance premiums.
Pensions and benefits
A one-off untaxed Aged Persons Savings Bonus of up to $1,000 per person (available to retired people over 60 years of age and subject to an income test).
An additional untaxed and upfront lump sum Self-Funded Retirees Supplementary Bonus of up to $2,000 for retirees not in receipt of government benefits (available to retirees of age pension age and subject to an income test).
The Pensioner and Aged Persons Tax Rebates to be increased by $250 for singles and $175 per person for couples.
Transformation of Commonwealth-State financial relations
From 1 July 2000, the Commonwealth to provide States with a stable and growing source of revenue by giving them all the revenue from the GST, conditional on the States abolishing inefficient taxes such as FID, debits tax and various stamp duty and conveyancing duties, and not re-introducing them, with Financial Assistance Grants to be abolished.
The States to take responsibility for the payments of general purpose assistance to local government currently made by the Commonwealth.
Timetable and process for reform
Post Election - Consultation on outstanding design and implementation issues will commence immediately. A Special Premiers' Conference will be held to discuss Commonwealth State issues.
January 1999 - Commencement of private health insurance initiative.
31 March 1999 - Last day for Ralph report on consultation on reform of business taxation measures, including the redesign of company tax arrangements proposed to apply to companies, trusts and life insurers, business investments and CGT.
First Half 1999 - Legislation to enact the GST and remove/reform other Commonwealth indirect taxes.
Mid 1999 - ATO to begin to assist entities with registration for GST and set-up advice on obligations
July 1999 - Introduction of a per stick excise on tobacco to replace the existing weight based excise.
Second Half 1999 - Legislation for the consistent treatment of different business entities including taxing trusts under the proposed redesigned company tax arrangements.
May 2000 - Final day for GST registration and allocation of an Australian Business Number for existing entities.
July 2000 - Wholesale sales tax ceases and GST commences with GST revenue going to the States.
Introduction of the new entity tax regime to apply to companies, trusts, life insurers, limited partnerships and cooperatives.
New personal income tax rates take effect.
Luxury car tax commences.
Financial Assistance Grants abolished.
State bed taxes abolished.
ATO sends out electronic returns to monthly GST remitters (ie those firms with sales greater than $20 million).
Temporary arrangements which replaced the previous State business franchise fees on petrol, alcohol and tobacco cease.
Additional assistance to families through extending the Family Tax Initiative and easing the income test for Family Allowance.
Reduction in the number of different types of family assistance from 12 to 3.
Payment of the Aged Persons Savings Bonus and Self-Funded Retirees Supplementary Bonus to eligible people.
August 2000 - Earliest date for first lodgment of electronic GST monthly returns.
September 2000 - ATO sends out paper and electronic GST returns to quarterly payers.
October 2000 - Earliest date for lodgment of first quarterly GST returns.
January 2001 - State abolition of Financial Institutions Duty and debits tax.
July 2001 - Selected State stamp duties removed.
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