Treasurer Wayne Swan has announced measures to protect the corporate tax base by closing what he dubs “unfair business tax loopholes”. The move will target aggressive tax structures that seek to shift profits by artificially loading debt in Australia and Swan emphasised the focus will be on big business rather than SMEs.
The crackdown is aimed at improving the integrity of Australia’s foreign resident capital gains tax regime and addressing the low levels of voluntary compliance with the regime.
The government will act to close loopholes in the consolidation of business entities regime and improve the efficiency and integrity of the tax system by preventing sophisticated investors from engaging in dividend washing.
Specifically, it will increase the minimal threshold from $250,000 to $2 million of debt deductions which the government says will reduce compliance costs for small business.
The government will also better target the exemption for foreign non-portfolio dividends received by Australian companies and remove the provision allowing a tax deduction for interest expenses incurred in deriving certain exempt foreign income.
In total the savings associated with these changes set out in the budget amount to more than $4 billion.
In his budget speech Swan described the aim of the measures as “to ensure multinationals and big business are not given an unfair advantage”.
The Australian Tax Office will also get an extra $109.1 million over four years for additional resources to target business restructuring practices, including marketing hubs that facilitate profit shifting.
The ATO’s additional surveillance is expected to raise an additional $576 million.
“Protecting the integrity of our corporate tax system will ensure a stable source of revenue to fund vital investments in our economy and community, underpinning a stronger, smarter and fairer Australia,” Swan said in a statement announcing the changes.
“If a few large companies use loopholes to avoid paying their fair share of tax, a greater taxation burden is placed on other taxpayers, like small and medium businesses and individual taxpayers.”
The move to close the tax loopholes follows meetings last month between the Australian government and other G20 countries to discuss how the G20 can address tax base erosion and profit shifting.