Recent Government announcement on tax and superannuation measures

On Wednesday 6 November 2013, Federal Treasurer Joe Hockey and Assistant Treasurer Arthur Sinodinos announced the Government’s decision to abandon $3.1 billion worth of Labor’s unlegislated proposals in relation to tax and superannuation.

A key measure affecting superannuation that was abandoned was the proposal to tax earnings on super assets supporting retirement income streams. We released an alert on our website on this measure back in April 2013 when it was first announced (click here to access the alert) but to summarise, this measure would have taxed earnings on assets supporting pensions that were over $100,000 per person in a year.

It was expected to raise $313 million over four years, but the measure has been ditched, with Mr Hockey describing it as ‘undeliverable’ due to the complexity involved in its administration.

Industry bodies have welcomed this move. The former Government estimated that the tax would apply to about 16,000 funds (being those with more than $2 million of assets) however industry bodies were concerned that it would apply to a much greater number.

The Government also confirmed that it will repeal the Low Income Superannuation Contribution (LISC). The LISC was a government contribution to people earning under $37,000 per year that ensured that they would not pay more tax on their compulsory superannuation contributions than they do on their income. This contribution will no longer be available from the 2013-14 income year and onwards.

Other proposals to have been scrapped include:

• $2,000 cap on self-education expenses;
• fringe benefits tax on motor vehicles; and
• the proposed repeal of section 25-90 interest tax deductions related to foreign earnings.

Proceeding tax measures

The Government will be proceeding with 18 un-enacted measures that are expected to bring in $10.9 billion of revenue, including:

• thin capitalisation changes designed to reduce the general safe harbour percentages and the worldwide gearing ratio, extend the worldwide gearing test to inbound investors, and increase the de minimis threshold;
• denying access to the research and development (R&D) tax incentive for companies with income of $20 billion or more;
• introducing a withholding regime for foreign residents who are disposing of taxable Australian property and amendments to clarify the operation of Australia’s taxing rights over indirect interests in Australian real property;
• introducing a new regime for managed investment trusts;
• preventing dividend washing;
• phasing out of the net medical expenses tax offset;
• increasing excise on tobacco and tobacco-related products; and
• closing loopholes in the consolidation regime, including in relation to ‘entities claiming double deductions’.

Under consideration

The Government is also still considering whether or not to implement 64 other tax and superannuation initiatives, including:

• new rules for the acquisition and disposal of certain assets between SMSFs and related parties;
• new administrative penalties framework giving the ATO flexible and cost-effective penalty options when dealing with SMSFs that breach the law;
• reform of the debt/equity integrity rule in section 974-80;
• proposed modernisation of the Controlled Foreign Company (CFC) rules;
• codification and clarification of the sovereign immunity rules; and
• clarification of the earn out rules.

It is expected that the future of these remaining 64 initiatives will be determined by 1 December 2013.