Australia: A New Year, A New Government And More Tax Changes

Following the election of the Rudd Labor Government, the focus now turns to tax changes under the new regime.

At the forefront of the Labor policy announcements were their proposed personal tax rate reductions. However they also announced a large number of other proposed changes and we will have to await their approach to legislative changes that remained ''unfinished'' when the previous Parliament was prorogued.

But the Labor Tax Policy goes far beyond the tax reductions and in a few instances may include reversal of recent changes to the law. In particular Labor has targeted the recent amendments to expand the application of family trust elections in foreshadowing that they would reverse some of the amendments passed prior to the election.

Other proposals announced either during the election campaign or previously include (this is by no means an exhaustive list):

• Halving the withholding tax on distributions from Australian managed funds to non-residents from 30% to 15%, to be offset by the abolition of claiming debt as a deduction from 1 July 2008
• Abolishing the need for overseas investors paying withholding tax to lodge a tax return
• Small businesses choosing BAS Easy could opt for either of 2 methods: the business norms method or the snapshot method
• A 50% Education Tax Refund for those families eligible for Family Tax Benefit
• Increasing the child care tax rebate to 50%
• Directing the Board of Taxation to examine options to introduce a managed investments tax regime, including the potential of a specific tax regime for REIT's, to effectively replace the current Div 6C
• A proposed National Rental Affordability Scheme would offer institutional investors annual tax incentives and financial support for building homes and renting them out at 20% below market rents. It would include an annual $6,000 rental tax incentive (or credit) to investors per dwelling per year
• Labor says super funds face a potential double taxation of earnings as they invest in international equities and other financial instruments. As a consequence, Labor suggests that a foreign source income tax credit paid at a lower rate than the domestic imputation credit could help address this bias
• Abolishing the role of the Inspector-General of Taxation
• Establishing an optional Superannuation Clearing House for all businesses that want to use it: businesses would make their superannuation payments into one central clearing house at which point their legal responsibility would be discharged
• Ensuring the 9% Super Guarantee contribution is based on pre-salary-sacrifice salary and wages
• Considering expanding the super co-contribution scheme, either through lifting the $1,500 cap or relaxing the means test.
  
  Treasurer Wayne Swan has said he considers it desirable, over time, for someone on average earnings to achieve a 15% total contribution to super with a 3% contribution of their own
• Developing a more effective R&D tax concession scheme. Labor proposes to amend the current $1m cap on expenditure for the R&D Tax Offset
• Halving the HECS fees for new maths and science students while they are studying, and also halve the repayments of maths and science graduates if they take up work in a relevant maths/science occupation.

These proposals, the long list of lapsed Bills and a changing economic climate guarantee that tax will remain as active an area over the next few years as it was under the previous Government. Federal Parliament will resume in early 2008 and the pace of change is likely to be dramatic.

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