The accuracy of the content is not guaranteed. Please rely only on the authorised document. This is a Budget tailor-made for the little Aussie battler by a government clearly focused on the election home straight. Fortunately, from a business perspective there does not seem to be any nasty surprises. In fact there is some good news but most of it is not new. Company tax comes down from 36% to 34% but like most of the announcements regarding tax reform, these have already been well publicised. As widely anticipated, 'the bush' scored well, the Timor tax was dropped, welfare loop holes were plugged, healthy allowances have been made for stronger family and community strategies and greater spending allocated to containing illegal immigration and broadening defence systems and capabilities. Conspicuously absent is any real recognition of, and commitment to, the need for ongoing education and training for the 'clever country'. Whilst this absence is across the board business, particularly smaller and medium size businesses need support in terms of education and training, to implement The New Tax System whether it be GST, PAYG or the Ralph reforms. These are major changes with huge short-term implications and complications for which many businesses are simply not prepared. The economic projections appear positive. Yet with 3.75% underlying growth, 2.5% underlying inflation and less than 7% unemployment, there is some nervousness as $2.6 billion of the $2.8 billion surplus comes from the selling of telephone licenses in a market that is still to be properly tested. In a nutshell there is no pain, little gain. It is a 'steady as she goes' Budget that won't rock the election boat. Removal of Timor Levy The only new tax issue announced in the 2000-2001 Federal Budget was the removal of the proposed Timor levy. The Timor levy was to apply for one year from 1 July 2000, it was an increase of between 0.5% to 1% in the Medicare levy. The Treasurer announced that due to the lower than expected costs of the Timor operation and a better than expected Budget position, the Timor levy is not necessary. However, the recent interest rate increases may also have prompted the Government to remove the levy to assist the economy and resist slowing too fast as a result of the interest rate rises. There are some other tax issues mentioned in the Budget papers but they have all been previously announced. Below is a summary of these previously announced tax issues: Deductions for Donations to Environmental and Heritage Organisations Deductions under the Cultural Heritage Program which are apportioned over five years, have been extended to environmental and heritage organisations. Capital Gains Treatment of Assets Disposed of by Trusts Capital Gains made by trustees will be entitled to the 50% Capital Gains Tax (CGT) discount for assets held for more than 12 months. There are transitional issues for assets acquired before 21 September, which allow the trustee the alternative of applying the frozen CGT indexation method instead of the 50% discount. Assets acquired after 23 December 1999 and sold after 1 July 2001 will not be entitled to the 50% discount. This will apply to trusts that will be taxed like companies after that date. Fringe Benefits Tax Capping The Fringe Benefits Tax (FBT) exemption for public benevolent institutions and the FBT rebate for some non-profit organisations have been capped since 1 April 2000. The cap is $17,000 of grossed up benefits for each employee for the year ended 31 March 2001 and increasing to $30,000 for the following years except for public and private hospitals, which have a $17,000 cap per employee. However, to assist public and non-profit hospitals the Government will increase grants to these organisations. In addition, charities and public and non-profit hospitals in regional areas will be entitled to an FBT exemption for housing benefits provided to their employees. Non-Commercial Losses From 1 July 2000 tax losses by individuals (including as partners) will not be allowed unless they meet particular commercial activity tests. The losses will be carried forward until they meet these commercial activity tests. There is an exemption for primary producers where their income from other sources does not exceed $40,000. Tax Shelter Pre-payments Tax shelter payments made after 11 November 1999 involving pre-payments with a service period under 13 months, will be deductable over the period of the service instead of when incurred. However, there will be an exclusion for arrangements that have obtained or applied for a Product Ruling from the Australian Taxation office before 11 November 1999. Refund of Excess Imputation Credits to Charities Registered charitable and gift deductible organisations will be entitled to refunds of excess imputation credits on dividends received by those organisations after 1 July 2000. Inter-entity Loss Duplication When a company changes ownership there has been an opportunity for the same economic loss to be claimed more than once. The inter-entity loss duplication measure applied to deny this loss duplication. However, these measures are now restricted to entities that have a controlling stake in the loss company. Compliance Savings Measures There have been a number of integrity measures introduced recently aimed at removing loss duplication. As a compliance cost savings measure the Government has introduced exemptions from these measures for assets costing less than $10,000. Personal Services Income Income earned by an entity that is from the skills or work of an individual will be assessed to that individual, unless the entity is carrying on a "personal service business" as determined by particular tests. However, the Commissioner of Taxation can make a determination that particular classes of entities that were active in the Prescribed Payments Systems (PPS) as at 13 April 2000 will be exempt from these rules for two years until 1 July 2002.
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