The Australian treasurer, Wayne Swann, has stated that “Australia is facing the largest write down since the Great Depression”; as a result of which Swann has introduced a series of tax measures in the 2013 Budget. In addition to tax measures the Government will intensify its tax compliance program by allocating AUD$109M over the next 4 years. Some tax measures that may have relevance to New Zealand individuals and entities include the following:
Thin Capitalisation Rules
Thin capitalisation rules will be amended to set new safe harbour thresholds. The limit for debt to equity will be reduced from 5:1 to 3:1, debt to total asset ratio will be reduced from 75% to 60%. Different rules will apply to financial institutions and banks. For outbound investment, the gearing ratio will drop from 120% to 100%., It is proposed that the worldwide gearing test be extended to inbound investors and that the de-minimis threshold of debt reduction will rise from AUD$250,000 to AUD$2,000,000.
If you have business interests in Australia which are debt funded you may be affected by this proposal.
Capital Gains Tax (CGT)
Changes are also proposed to the foreign resident CGT regime. This is to ensure that gains from disposals of Australian real property are appropriately taxed. The “principal asset test” that is used to determine whether an indirect interest in Australian Real Property exists will be amended. This will ensure that the asset cannot be counted more than once in order to dilute the group’s true asset value.
A withholding regime will also be introduced to support the foreign CGT regime. This will be effective from 01 July 2016. A withholding under this regime does not represent a final tax. A withholding of 10% by the purchaser will be required from the disposal of certain Australian taxable property. The purchaser will be required to remit the amount withheld to the ATO. The same withholding procedure will apply if the asset is held on revenue account. It is proposed that this withholding be applied to assets over AUD$2.5 Mil
If you have taxable Australian property that is subject to Australian CGT you will be affected by this proposal.
It is proposed that the existing loophole in the consolidation regime be closed. Consolidated groups will no longer be able to access double deductions by shifting the value of the assets between the various members of the group. Likewise non-residents will not be allowed to “churn” assets between the consolidated groups.
A loophole that allows “dividend washing” will be closed. This enables shareholders to claim two sets of franking credits on the same parcel of shares. This happens when the shareholder sells the shares ex-dividend and immediately acquires equivalent shares that carry a right to a dividend. It is proposed that the shareholder will be able to claim franking credits only once.
If you feel that these rules changes are going to have some impact on your business or personal situation please contact Nigel Smith discuss how he can help you respond to these changes.