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What does the new Government mean for corporate taxpayers?

23 May 2022

In Brief

With confirmation that the Australian Labor Party will form Government following the 2022 Federal Election, in this Tax Alert we unpack what this means for corporate taxpayers. Whilst tax was not a key part of the policy platform for either of the major parties during this election, there are some important changes coming that corporate taxpayers should note. 

The fate of some of the previous Government’s announced but unenacted tax measures, including the Patent Box regime and small business “boosts” announced in the recent 2022-23 Federal Budget, remain uncertain. 

In Detail

From a tax perspective, there were two key announcements from the incoming Government during this election campaign - a package of measures to “ensure multinationals pay their fair share of tax”, and some tax concessions to increase the uptake of electric vehicles in Australia. The key components of these two packages are set out in the table below.

Multinational tax package
  • Support for the OECD’s Two-Pillar Solution to address the tax challenges of digitalisation of the economy. This includes implementing the proposals for a global 15 per cent minimum tax, and ensuring some of the profits of the largest multinationals - particularly digital firms - are taxed where the products or services are sold. These proposals are expected to begin in 2023, and this position is consistent with that of the former Government.
  • From 1 July 2023, replace the thin capitalisation safe harbour method with a new test to limit debt-related deductions to 30 per cent of profits (EBITDA), consistent with the OECD’s recommended approach, while maintaining the arm’s length test and the worldwide gearing method. 
  • From 1 July 2023, limiting the ability for multinationals to abuse Australia’s tax treaties when holding intellectual property in tax havens. This will involve denying a tax deduction for payments made by Significant Global Entities (SGEs) for the use of intellectual property to certain jurisdictions, unless the payer can substantiate to the Commissioner of Taxation that the royalty payments are not for the dominant purpose of tax avoidance. 
  • Introducing transparency measures including:
    • public reporting requirements on tax information on a country-by-country basis
    • establishing a public register of beneficial ownership of companies and legal vehicles
    • mandatory reporting of tax haven exposure to shareholders, and
    • requiring all businesses that tender for Australian government contracts worth more than $200,000 to disclose their country of domicile for tax purposes.
Electric vehicle tax concessions

From 1 July 2022, low-emission vehicles below the luxury car tax threshold for fuel efficient vehicles ($79,659 in 2021-22) will be exempt from:

  • Import tariffs; and
  • Fringe benefits tax.

More recently, as part of its election commitment costings, the incoming Government has proposed to extend and boost existing ATO enforcement programs. This measure is proposed to bring in an additional $3.1 billion over the forward estimates, in addition to almost $1.9 billion in extra revenue from the multinational tax package outlined above. 

As always, the devil will be in the detail, and it is difficult to determine exactly how far-reaching the consequences of these proposals may be without seeing that detail. The thin capitalisation changes likely will be of particular concern to taxpayers in a number of industries where profitability is low during the early phases of the business life cycle. On the positive side, tax concessions for electric vehicles should help move the dial on electric vehicle uptake in Australia. 

What happens with previously announced but unenacted measures?

In the past, incoming Governments have often conducted a stock-take of unenacted measures announced by previous Governments. Whilst it is not yet known if the incoming Government intends to do so, this would be a welcome move to give taxpayers certainty in relation to these measures. Some of the key unenacted measures include:

  • Sharing economy reporting regime,
  • Patent Box regime,
  • Reform of tax residency rules for both individuals and companies, and
  • Small business training and technology investment “boosts”.

We expect the incoming Government will support the sharing economy reporting regime and small business boosts, however it is unclear whether they will proceed with implementation of the Patent Box regime and tax residency reforms.

It also remains to be seen whether the incoming Government will ask the Board of Taxation to continue with its review of the tax treatment of digital assets.

The Takeaway

A change in Government can mark a major shift in the tax policy landscape. This time, however, it would seem that the proposed changes are very much limited in scope, although they could have a significant impact on some corporate taxpayers. It is likely to be some time before we see further details of these changes, as the Treasury gets up to speed with the proposals and is able to undertake consultation on these measures. In the meantime, corporate taxpayers should follow the progress of these measures. There are both risks and opportunities amongst these changes, and with a 1 July 2023 start date on the thin capitalisation proposals, there is unlikely to be a long lead time between enactment of these measures and their effective date. 

Contact us

Chris Morris

Tax Business Leader, PwC Australia

Tel: +61 2 8266 3040

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