Amendments to existing measures

This Federal Budget contains changes the Government proposes to make to existing announced measures.

Tax integrity

In the 2023-24 Federal Budget, the Government proposed to expand the scope of the general anti-avoidance rule for income tax (Part IVA of the Income Tax Assessment Act 1936) so that it would apply to:

• Schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents
• Schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.

This year's Federal Budget further delays the start date of the 2023-24 Budget measure Tax Integrity - expanding the general anti-avoidance rule in the income tax law from income years commencing on or after 1 July 2024 to income years commencing on or after the day the amending legislation receives Royal Assent, regardless of whether the scheme was entered into before that date.

Streamlining excise administration for fuel and alcohol package

In the March 2022-23 Budget, the former Government announced a package of measures to streamline the administration of fuel and alcohol excise with a 1 July 2023 start date. While some measures have been legislated, others were either delayed or abandoned in the 2023-24 Budget and 2023-24 MYEFO. This year's Budget further delays the start date of the two remaining measures:

• Streamlining of applications and renewal requirements for licences to manufacture or store alcohol and fuel will now start on the later date of 1 July 2024 or following Royal Assent. The ATO will also establish a public register on its website containing the name and ABN of excise and customs warehouse licence holders
• Removal of regulatory barriers applying to bunker fuels for commercial shipping industries will now start on 1 January 2025.

2019-20 Budget ABN proposals dropped

The 2019-20 Budget proposed imposing new compliance obligations for ABN holders to retain their ABN. Currently, ABN holders can retain their ABN regardless of whether they are meeting their income tax return lodgement obligation or the obligation to update their ABN details. The measure proposed that ABN holders:

• From 1 July 2021, with an income tax return obligation will need to lodge their income tax return; and
• From 1 July 2022, confirm the accuracy of their details on the Australian Business Register annually.

In this Federal Budget, the Government has announced that it will no longer proceed with this measure, and states that "integrity issues are being addressed through enhanced administrative processes implemented by the ATO".

Tax incentives to World Rugby

As an extension of the eight-year funding announced in the 2022-23 March Budget to support Australia’s successful bid for the Rugby World Cup (2027 and 2029), the Government has announced additional tax incentives to World Rugby and related entities. Income tax exemptions will apply to income derived by World Rugby and related entities in relation to Rugby World Cup events, specifically Rugby World Cup 2027 (men’s) and Rugby World Cup 2029 (women’s) for the 2024 to 2031 income years. Interest, dividend and royalty withholding tax liabilities will also be exempt for payments relating to these Rugby World Cup events.

The support for the global sports event aligns with the Government’s continued boost to improve tourism and infrastructure and create employment opportunities. 

Agricultural levy

At the request of Australian Sweetpotato Growers Inc, the marketing component of the agricultural levy on sweet potatoes will be reduced from 1% of sale value to nil. The sweet potato marketing levy is a cost imposed on growers and has historically been applied to a range of activities to boost purchase and consumption of sweet potatoes.

Multinational Tax Integrity Package

The 2022-23 October Budget measure Multinational Tax Integrity Package - amending Australia’s interest limitation (thin capitalisation) rules proposed changes to Australia’s thin capitalisation rules for years starting on or after 1 July 2023 to bring Australian in line with the Organisation for Economic Cooperation and Development’s recommended approach. The measure proposed changes to replace the safe harbour and worldwide gearing tests with an earnings-based test.

The Government has proposed to amend the previously announced budget measure to exempt Australian plantation forestry entities from the new earnings-based rules and allow these entities to continue to apply the former asset-based thin capitalisation rules.

Denying deductions for payments relating to intangibles held in low or no tax jurisdictions

The 2022-23 October Budget announced the adoption of rules preventing significant global entities (SGE) with annual global income in excess of $1 billion from claiming tax deductions made for payments made directly or indirectly to related parties in relation to intangible assets held in low or no tax jurisdictions.

These measures have been discontinued in the 2024-25 Budget on the basis that the implementation of Global Minimum Tax and Domestic Minimum Tax measures in line with Pillar Two of the international corporate tax reforms announced in the 2023-24 Budget will address these issues.

However, the Government also announced its intention to introduce penalties for SGEs that are found to have mischaracterised or undervalued royalty payments to which withholding tax would otherwise apply. This new additional penalty will only apply from 1 July 2026.

ATO's discretion to apply tax refunds against old tax debts

Historically, taxpayer debts that are considered uneconomical to pursue have been placed on hold. Despite this, the ATO is required to use future tax credits and refunds to offset the debt owed. The ATO has historically had no discretion under tax law to waive these amounts.

Following community concerns raised in relation to debts placed on hold prior to 2017, the Government has announced amendments to the tax law that allow the Commissioner of Taxation the discretion to not use tax credits and refunds of individuals, small businesses, and not-for-profits to repay debt amounts placed on hold prior to 1 January 2017.

BDO comment

These amendments to previously announced amendments highlight the poor state of tax reform in this country. The failure of successive governments to do more than propose measures with extremely limited details leads to a need to change the proposals as circumstances change.

Unfortunately, these announced measures are no different - being so light on detail as to be unusable by businesses for planning purposes.

In BDO’s view, a bipartisan commitment to holistic tax reform, coupled with a body to make non-partisan public recommendations for administrative improvements to the tax system, is becoming ever more necessary.