The New Business Tax System is a reality, with key legislation passed by Parliament receiving Royal Assent today. Australia will now have a modern, fair and internationally competitive business taxation system.
The Governments capital gains tax reforms and company tax cuts will be of major benefit to Australian investors and businesses and will encourage economic growth and job creation.
- Only 50 per cent of net capital gains will be taxed in the hands of individuals, and two-thirds in the case of superannuation funds, where the assets sold have been held for more than one year. This measure is effective from 11.45am AEST, 21 September 1999.
- The freezing of indexation from 30 September 1999 and the removal of averaging from 21 September 1999 will vastly simplify the capital gains tax provisions.
- For many small business taxpayers, tax will be payable on a maximum of 25 per cent of a capital gain on the sale of active small business assets from 21 September 1999. A capital gains tax exemption will apply in certain circumstances where small business taxpayers have held an active asset continuously for 15 years.
- Australias company tax rate will also become one of the lowest in the region. It will be cut from 36 per cent to 34 per cent for the 2000-01 income tax year and to 30 per cent thereafter.
The replacement (except for small business taxpayers) of accelerated depreciation arrangements with an effective life system, and the removal of the general balancing charge offset, will help to meet the cost of the company tax rate cut. At the same time, expenditure on indefeasible rights of use will now be eligible for write-off over their effective life. These changes have effect from 21 September 1999.
The following measures apply from today and will particularly boost investment in venture capital.
- Scrip-for-scrip rollover relief is available where interests in one entity (company or fixed trust) are exchanged for interests in another entity, as would typically occur as a result of a takeover.
- Foreign pension funds from specified jurisdictions that are exempt from tax at home will be freed from tax in respect of income (including capital gains) earned on the disposal of eligible venture capital investments in Australia.
- Complementing this measure, and included in legislation introduced into the Parliament on 9 December 1999, Australian widely-held superannuation funds (and like entities) will be able to receive effectively tax-free venture capital gains derived through a Pooled Development Fund.
A number of integrity measures which address tax minimisation and avoidance opportunities have also been legislated. The new arrangements include preventing loss duplication, preventing value shifting through debt forgiveness, and the taxation of consideration received from assigning leases. These measures apply from 22 February 1999, when the Government foreshadowed them. In addition, the tightening of the 13 month prepayment rule and the repeal of the excess deductions provisions in respect of mining operations apply from 21 September 1999. Further loss measures involving linked company groups apply from 21 October 1999 (the date of introduction of the relevant legislation into the Parliament).
During 2000, the Government will introduce further legislation implementing the New Business Tax System.