General business announcements include: expansion of tax concessions for Employee Share Schemes; changes to the R&D tax incentive; a new tax system for managed investment trusts; streamlined business registration; and facilitation of crowd sourced equity funding. For tax administration: establishment of a Serious Financial Crime taskforce; the value of penalty units will increase; GST will apply to imported digital products and services; and salary sacrificed meal entertainment and entertainment facility leasing expenses will be capped.
Employee share schemes
In early 2015, the government released draft legislation to implement changes to the taxation of shares and rights acquired under an employee share scheme (ESS). Consultations on the draft legislation identified some minor technical changes that could be made to the legislation.
As part of the federal budget, the government announced a measure to address these issues by:
- excluding eligible venture capital investments from the aggregated turnover test and grouping rules (for the start-up concession)
- providing the CGT discount to ESS interests that are subject to the start-up concession, where options are converted into shares and the resulting shares are sold within 12 months of exercise, and
- allowing the Taxation Commissioner to exercise discretion in relation to the minimum three-year holding period where there are circumstances outside the employee’s control that make it impossible for them to meet this criterion.
There will also be a number of other amendments to the ESS rules. These changes will take effect with the remainder of the enabling legislation from July 1, 2015.
Research and development tax incentive
The government intends to introduce a $100 million cap on the amount of eligible research and development (R&D) expenditure for which companies can claim a tax offset at a concessional rate under the R&D tax incentive. Under the R&D tax incentive, companies with turnover of less than $20 million can claim a refundable tax offset of 43.5% and other companies can claim a non-refundable tax offset of 38.5%.
Expenditure beyond the $100 million cap will receive a lower offset at the company tax rate.
This measure replaces the measure announced by the previous government in the 2013-14 federal budget.
Managed investment trusts
The government announced its intention to introduce a 12 month transition period in the implementation of a new tax system for managed investment trusts (MITs). The provision of a transition period is a result of stakeholder feedback that many MITs require additional time to make amendments to their trust deeds and IT systems.
The new MIT rules will now apply from July 1, 2016. MITs will continue to be allowed to disregard the trust streaming provisions for the 2015-16 income year. However, MITs can choose to apply the new rules from July 1, 2015.
Streamlining business registration
The government will provide $32.4 million over five years from 2014-15 (including capital of $13.5 million over three years from 2014-15) for the Tax Office, Australian Securities and Investments Commission (ASIC) and the Department of Industry and Science, to:
- develop a single online portal for business and company registration
- publish new computer code to enable developers to build new registration software, and
- reduce the number of business identifiers.
Funding for this proposal is contingent on a second pass business case.
Crowd sourced equity funding for public companies
The government will provide $7.8 million over four years from 2015-16 to ASIC to implement and monitor a regulatory framework to facilitate the use of crowd sourced equity funding (CSEF), including simplified reporting and disclosure requirements.
According to the government, CSEF is an emerging form of funding that allows entrepreneurs to raise funds online from a large number of small investors and has the potential to increase funding options available for entrepreneurs to assist in the development of their business.
The proposed law will also remove the costly elements of transitioning to a public company, enabling proprietors of private companies to more easily raise funds from a large number of small investors.
Serious Financial Crime taskforce
The government announced that it will provide $127.6 million over four years to a “serious financial crime taskforce” for investigations and prosecutions that will address superannuation and investment fraud, identity crime and tax evasion.
The aim of the taskforce is to maintain integrity and community confidence in Australian financial markets and regulatory systems. The taskforce includes eight federal agencies, including the Tax Office.
Increase in value of penalty unit
The value of all Commonwealth penalty units will increase from $170 to $180 from July 31, 2015. The government will also introduce ongoing indexation of penalty units based on the CPI. Indexation will occur on July 1 every three years, with the first indexation occurring in 2018.
Goods and services tax
GST on imported digital products and services
The government intends to extend the application of the GST to cross-border supplies of digital products and services imported by Australian consumers (such as a Netflix Australia subscription).
Under the current GST law, these imports are not subject to the GST. According to the government this places domestic businesses, which generally have to remit GST on the digital products and services they provide, at a tax disadvantage compared to foreign businesses.
This measure will result in Australia being an early adopter of guidelines for business-to-consumer supplies of digital products and services being developed by the OECD as part of the OECD/G20 base erosion and profit shifting project. The proposed measure will apply from 1 July, 2017.
Note: This change will require the unanimous agreement of the states and territories prior to the enactment of legislation.
Fringe benefits tax
Cap for salary sacrificed meal entertainment and entertainment facility leasing expenses
The government will introduce a separate single grossed up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees. Meal entertainment benefits exceeding the separate grossed up cap of $5,000 can also be counted in calculating whether an employee exceeds their existing FBT exemption or rebate cap. All use of meal entertainment benefits will become reportable.
Currently, employees of public benevolent institutions and health promotion charities have a standard $30,000 FBT exemption cap (this will be $31,177 for the first year of the measure, due to the Temporary Budget Repair Levy) and employees of public and not-for-profit hospitals and public ambulance services have a standard $17,000 FBT exemption cap (this will be $17,667 for the first year).
In addition to these FBT exemptions, these employees can salary sacrifice meal entertainment benefits with no FBT payable by the employer and without it being reported. Employees of rebatable not-for-profit organisations can also salary sacrifice meal entertainment benefits, but the employers only receive a partial FBT rebate, up to a standard $30,000 cap ($31,177 for the first year). This measure will apply from April 1, 2016.