The much anticipated 2009-2010 federal budget has introduced some significant changes that should have a mostly positive impact on the Property Industry.
Treasurer Wayne Swan stated that the Government had a strong aim to provide a nation building budget that will boost employment through major spending on infrastructure to capitalise on the economic recovery when the time comes.
In light of the Rudd Government's efforts to boost the economy, we welcome some of the announcements made in the Federal Budget:
1. MAJOR SPENDING INITIATIVES
1.1 Infrastructure
Unemployment is to be tackled with major infrastructure spending which is proposed to support jobs and the economy during the global recession. Investment includes:
- The Government will invest $8.5 billion to expand Australia's land transport networks – targeting roads, rail and ports.
- The Government will also invest $4.5 Billion in a Clean Energy initiative to assist Australia's transition to a low pollution producing economy.
- Focus on universities and research by the Government will see 2.6 billion pumped from the Education Investment Fund into projects.
- For hospital infrastructure, translational medical research infrastructure and a national cancer statement, the Government will invest $3.2 billion from the Health and Hospitals Fund.
Major expenditure on the infrastructure area shows the Government's commitment in keeping unemployment low during these difficult times and the infrastructure set in place so Australia's economy is better prepared when the global recession ceases
For further details, please refer to the Treasurer's Media Release: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/068.htm&pageID=003&min=wms&Year=&DocType=0
1.2 Small Business Tax Break increase
This is a fantastic outcome for most small businesses with an annual turnover of less than $2 million. The Tax Break has been expanded to allow a bonus deduction of 50% (from 30%) with an extended time period until 31 December 2009 (instead of 30 June 2009) to acquire an asset.
However, all other businesses (i.e. annual turnover of more than $2 million) do not get the benefit of the increased deduction and extended time period that applies to small businesses.
For further details, please refer to the following the Treasurer's Media Release: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/061.htm&pageID=003&min=wms&Year=&DocType=0
1.3 First Home Owners Boost
The First Home Owners Boost has been extended in full until 1 October 2009. All grant amounts currently in place will remain until 30 December 2009 (inclusive). From 1 October 2009 to 31 December 2009 the grant will be halved.
The extension of the grant for the purchase of new homes should help stimulate housing activity and construction.
For further details, please refer to the Treasurer's Media Release: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/047.htm&pageID=003&min=wms&Year=&DocType=0
2. TAX TECHNICAL AMENDMENTS
The Government has introduced what looks like promising proposed amendments to Australia's tax system. However, history has shown that announcements made in the past Budgets have not lived up to their expectations and the detailed legislation can often prove to not look as promising. The Government should ensure that the tax changes discussed below are more than just rhetoric and close attention should be given to the detail when drafting the legislation.
2.1 Managed Investment Trust
From 1 July 2008, managed investment trusts ("MITs") are able to make an irrevocable election to apply the capital gains tax regime as the primary code for taxing certain disposals of eligible assets, such as shares in a company, units in a unit trust and real property.
Although at this point in time, the Government is unable to quantify the ongoing revenue impact of this measure, the disposals of investments by MITs are to be aligned with the taxation treatment of disposal of similar investments in complying superannuation funds.
Currently, the treatment of gains and losses on the disposals of investments in the MIT may be classified as capital or revenue income depending upon the characterisation of the investment activities. With the introduction of the irrevocable election into the CGT regime, this will provide a more consistent approach in taxing the disposals of assets for MITs.
For further detail, please refer to the 2009-10 Federal Budget: http://www.aph.gov.au/budget/2009-10/content/bp2/html/bp2_revenue-05.htm
2.2 CGT Limited Roll-Over For Fixed Trusts
The Government is introducing a limited capital gains tax ("CGT") roll-over which is designed to allow the restructuring of fixed trusts (trusts with the same beneficiaries and same entitlements with no material discretionary elements) without any immediate CGT consequence. The roll-over is available for assets transferred between fixed trusts effective from 1 November 2008 to defer CGT arising from a transfer until the receiving trust ultimately disposes the asset. Integrity measures will also be released to accompany these new rules.
It is believed that by providing this limited roll-over, it will enable business and investment trusts to improve their attractiveness for further investment.
For details, refer to the following Assistant Treasurer's Media Release: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/048.htm&pageID=003&min=ceb&Year=&DocType=0
2.3 Foreign Source Income Attribution Regimes
Based on the recommendations of the Board of Taxation, substantial changes are proposed to change the Controlled Foreign Company ("CFC"), Foreign Investment Fund ("FIF"), transferor trust and deemed present entitlement rules. The CFC provisions will remain the primary set of rules to counter tax deferral arrangements, but will be rewritten to be included in the Income Tax Assessment Act 1997. The FIF and deemed present entitlement rules will be repealed with the FIF rules to be replaced with targeted anti-avoidance provisions. Amendments will also be made to the transferor trust rules to improve their integrity.
These changes are expected to reduce compliance costs for businesses and ensure Australia's competitiveness in the managed funds market.
The Government has not yet stated when these amendments will take effect. They will consult on the implementation of these changes so it would be recommended to keep an eye out for further updates in the upcoming months.
For discussions in relation to these changes, refer to the Assistant Treasurer's Media Release: http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/049.htm&pageID=003&min=ceb&Year=&DocType=0
2.4 Uniform Capital Allowance ("UCA") Regime Changes
A number of minor technical amendments have been proposed to the UCA regime. The changes are intended to apply in most cases from 1 July 2009 with the exception of certain changes applying from 1 July 2001.
The amendments are aimed at increasing certainty for taxpayers in several areas by covering situations not covered in the current legislation such as the interaction of the UCA rules and the hire purchase arrangements amongst others. With the retrospective application of some of the measures, taxpayers may be required to review their current treatment of assets subject to the UCA regime.
For further details, please refer to the following Assistant Treasurer's Media Release: http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/048.htm&pageID=003&min=ceb&Year=&DocType=0
2.5 GST Margin Scheme And Application Of GST To Financial Supplies
The Treasury will undertake a review of the GST margin scheme with the aim to simplify the operation of the legislation and to reduce both compliance and administration costs.
3. RECONSIDERING EMPLOYEE SHARE SCHEMES
Employers will now need to reconsider whether they will offer employee share schemes in their current form as most are unlikely to remain tax effective. The measures will maintain the incentives for low and middle-income earners to access such schemes and will not affect shares or options already held by employees (before 12 May 7:30pm).
Employee share policies should be revaluated to determine whether they are worthwhile continuing. In all likelihood new alternative policies will be required to be put in place to incentivise employees.
For further details, please refer to the following Treasurer's Media Release: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/065.htm&pageID=003&min=wms&Year=&DocType=0
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