Businesses are now able to act with certainty as the fog over Australia’s taxation landscape clears.
Treasurer Joe Hockey yesterday made clear the Coalition’s intentions with the 92 unlegislated tax changes.
He announced several major taxation changes would be dumped, including the proposed cap on self-education tax deductions, the change to the treatment of fringe benefits tax on cars and a tax on super earnings above $100,000.
Hockey and assistant treasurer Arthur Sinodinos also confirmed the government will alter Labor’s proposed international profit shifting package, opting not to proceed with the so-called “25-90 deductions”, which will effectively make it easier for Australian businesses to expand offshore.
Sinodinos has set a December 1 deadline to resolve the remaining unlegislated changes.
Business groups Australia-wide were pleased with the announcement, despite the cutting of the unlegislated changes resulting in a further $2.4 billion loss to the federal budget.
To overcome this loss, hefty spending cuts are expected to be announced in May next year.
Business Council of Australia chief executive Jennifer Westacott said in a statement the announcement would boost business certainty and confidence, “by clearing the decks of a number of recent piecemeal changes.”
“The backlog of tax measures announced but not legislated in recent years underscores the consequences of pursuing ad hoc tax measures across a number of fronts without comprehensive processes and a coherent framework for tax reform,” she says.
“In particular, the BCA is pleased that the government will not proceed with the repeal of section 25-90 of the Income Tax Assessment Act 1997 under the thin capitalisation changes announced in the budget earlier this year. This would have generated significant compliance costs for many companies.”
EY tax policy leader Alf Capito agreed, saying in a statement the decision is “good news” for Australian businesses seeking foreign investment.
“It will have a significant positive impact on the competitiveness of Australia’s tax regime and attractiveness as a destination for global investment,” he says.
“The decision will also reduce compliance costs and red tape for businesses.”
The proposed cap on self-education tax deductions was one of Labor’s more controversial policies, and its scrapping has been warmly greeted by business, individuals and education groups.
The General Practice Registrars of Australia, the group behind the popular Scrap the Tax campaign, welcomed the announcement.
“The $2000 cap on self-education expenses was an ill-conceived and hastily put together tax on learning that had broader implications for Australia’s productivity. We commend the Coalition for reviewing this policy swiftly and abolishing it within their first 100 days,” GPRA chief executive Amit Vohra said in a statement.
The campaign attracted an alliance of 90 peak industry bodies and associations representing over 1.6 million professionals.
GPRA board director David Townsend said in a statement the campaign demonstrated the power of social media for “developing a groundswell of support within the Australian community.”
However, University of New South Wales Business School associate professor Dale Boccabella was critical of the decision.
“The government’s justification for dumping the former government’s cap proposal was in part based on there being ‘no credible evidence of substantial abuse of this deduction’,” he said in a statement.
“This may be true, but the former government claimed some tax payers are deriving a significant benefit from their self-education expenditure, and that the general body of taxpayers should not have to carry this. Travel on first class air fares and taxpayers staying in five star accommodation was expressly mentioned by the previous government.”
Boccabella says the former government had a sound basis for arguing for the cap, given the “steady stream of tax cases involving claims for overseas and interstate travel…”
While the changes have been broadly applauded, Industry Super Australia is urging the government to retain the low income-earners super contribution which was ditched.
In an attempt to sway the government, the super body has proposed an alternative solution which would allow it to be kept.
ISA’s proposal would see the Paid Parental Leave Scheme adjusted and the super co-contribution scheme removed.
The low income-earners super contribution rebates up to $500 into the super accounts of all Australians earning less than $37,000 whose marginal tax rate is 15% or less, benefiting approximately 3.6 million Australians.
The ISA estimates the removal of the rebate will diminish the savings of those affected by $27,000.