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Federal Budget 2021 Insights: The tax reform pipeline

With the Government’s focus over the past year firmly on the COVID-19 health crisis and cushioning the economy from the effects of border closures and localised lock-downs, it comes as no surprise that implementing outstanding tax legislation has not been high on the Government's agenda in recent times.

Reflecting on 2020, the Government, with the support of Treasury and the broader public service, were able to respond very quickly to design and implement measures to support businesses and individuals during the unprecedented dual economic and health crises.

But now, in addition to focussing on implementing this 2021-22 Federal Budget blueprint for sustainable and achievable economic growth, it’s time to also turn thoughts back to the growing list of announced but unenacted tax and superannuation measures from the past. It is critical that the Government continues to progress these reforms to increase certainty and reduce complexity for taxpayers.

Table: Key announced but unenacted tax and superannuation measures

Measure

Status

Business tax

Preventing franked distributions funded by capital raisings

Originally announced in the 2016-17 Mid Year Economic and Fiscal Outlook (MYEFO) and proposed to apply to distributions made after 12:00pm (AEDT) on 19 December 2016.

Reforming the integrity provisions in the debt/equity rules

Draft legislation to implement the Board of Taxation’s recommended approach to improve the debt and equity tax rules was released in October 2016. The new rules are proposed to apply in relation to transactions entered into after the commencement of the law, which will be a day to be fixed by proclamation (or if there is no proclamation, six months after Royal Assent). 

Removing barriers to the use of asset backed financing

Originally announced in the 2016-17 Federal Budget, and proposed to apply with effect from 1 July 2018.

Reform of taxation of financial arrangements (TOFA), including taxation of foreign exchange

(Additional changes to TOFA hedging were announced in this year’s Budget)

Originally announced in the 2016-17 Federal Budget. In December 2017, the Government announced that it will defer the commencement of this proposal until income years that begin after Royal Assent.

Fringe benefits tax (FBT) exemption for retraining and reskilling

Announced in the 2020-21 Federal Budget, to apply from 2 October 2020. Draft legislation was released for public consultation in April 2021. 

Reduce FBT record keeping requirements (providing the Commissioner of Taxation with powers to accept existing corporate records instead of requiring employee declarations)

Announced in the 2021-21 Federal Budget. The measure will have effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling legislation.  

Division 7A (private company deemed dividends) reforms

Originally announced in the 2016-17 Federal Budget. The start date has been deferred to income years commencing on or after the date of Royal Assent of the enabling legislation.

Removal of Offshore Banking Unit (OBU) concessions

Announced in March 2021. Legislation currently before Parliament. 

Asset and wealth management

Removal of the capital gains tax (CGT) discount at trust level for Managed Investment Trusts (MITs) and Attribution MITs

Announced in the 2018-19 Federal Budget. The start date has been deferred to income years commencing on or after three months after the date of Royal Assent of the enabling legislation.

Personal tax and superannuation

Taxation of income for use of an individual’s fame and image

Originally announced in the 2018-19 Federal Budget to apply from 1 July 2019. 

CGT exemption for granny flat arrangements

Announced in the 2020-21 Federal Budget, to apply from the first 1 July after Royal Assent of enabling legislation. Draft legislation released for public consultation in April 2021. 

Allowing individuals aged 65 and 66 to make up to three years of non-concessional superannuation contributions under the bring forward rule

Announced in the 2019-20 Federal Budget, and proposed to apply from 1 July 2020. This measure is currently in a Bill before Parliament.

Increase maximum number of allowable members in self-managed superannuation fund (SMSF) from four to six

Originally announced in the 2018-19 Federal Budget, and proposed to apply from the date of Royal Assent of enabling legislation. This measure is currently in a Bill before Parliament.

Your Future, Your Super package

Announced in the 2020-21 Federal Budget, proposed to apply from 1 July 2021. This package of measures is currently in a Bill before Parliament.

Other measures

Sharing economy reporting regime 

Proposed to apply from 1 July 2022 for ride-sharing and accommodation platforms and from 1 July 2023 for asset sharing, food delivery, tasking-based platforms.

In addition to these previously announced measures, the Board of Taxation has identified a number of areas of the tax law that are ripe for reform (including, for example, CGT roll-overs), and the Government remains committed to the work of the Organisation for Economic Co-Operation and Development (OECD) to develop a global and consensus based solution to the tax challenges arising from the digitalisation of the economy, which is expected to be released in mid-2021.

There is clearly no shortage of work to be done on the tax front. Whilst large-scale tax reform might be on the backburner for now, it must feature in post-COVID budgets to ensure a return to a position of sustained economic growth.

PwC Australia believes long-term major tax reform must address the over-reliance on personal and corporate taxes, intergenerational inequities, a reliance on unsustainable tax bases, the misalignment between revenues and responsibilities, and tax avoidance through the cash economy. In a post-COVID Australia, tax reform will become even more important because of the need to generate revenue to support government expenditure, improve equity and support economic growth. We discuss this, and more, in our series Australia Rebooted: Where next for Australia’s tax system.

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Ellen Thomas

Partner, PwC Australia

Tel: +61 488 901 758

Paul Abbey

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Pete Calleja

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Jonathan Malone

Partner, PwC Australia

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