Tax insights | 2016/17 Federal Budget Papers

This blog is intended as a humorous supplement to the plethora of other publications freely available from the Big 4 Accounting Firms and other mid-tier firms.

We will preface this blog post with an obligatory remark that Budgetary tax announcements are exactly that – mere announcements; they do not have force of law unless and until the Senate votes in favour of the applicable Parliamentary bill and said bill receives Royal Assent (i.e. our Governor General approves it).

Now, turning to some of the key tax measures announced this year.

Superannuation

It came as no surprise to most punters that superannuation is a cornerstone of the current Federal Government’s tax reform platform – the super regime is fraught with complexity but also rife with financial and tax planning opportunities for those with sufficient disposable income and assets to take advantage of the various concessions.  It will continue to be an area which requires on-going fine tuning from a budgetary perspective as the Australian population grows and ages and with the endless rivers of SGC gold flowing into the coffers of retail funds and SMSFs.

In certain instances, superannuation can be an inefficient estate tax planning device.

Rather than dispensing generic comments about how everyone should be rushing to transition their clients (or themselves) to retirement phase and pumping all their spare cash/assets into non-concessional contributions before 1 July, readers are cautioned to seek professional advice on their circumstances and look (and to think twice) before you leap.  

Anti-avoidance tax measures

From an international tax policy and diplomatic perspective, slugging a multinational with punitive rates is a great way to raise local tax revenue because it circumvents the need to renegotiate and ratify Australia’s bilateral tax treaties, and by the time the multinationals go about litigating the penalty assessments, the revenue has nicely plugged a budget hole and will probably be only partially reversed on confidential settlements with the ATO (because nobody likes being in the news for tax avoidance).

Anti-hybrid rules

A hybrid instrument is one which is classifed as “debt” in one jurisdiction (usually the profit-making and higher tax rate country) and “equity” in another (usually the holder is based in a country which is in a low or nil tax environment, or exempts dividends or foreign income).

We suspect that removing them will materially change the investment landscape on offshore funding arrangements, including for long term infrastructure projects and domestic subsidiaries, as tax-effected IRRs will be falling and falling and…let’s just say it’s probably wise the Federal Government is building a Government Bond task force and spruiking start-ups because quite a few projects are going to need public underwriting with a potential funding deficit from the private sector.

The new measures are slated to take effect by 1 January 2018 or six months following Royal Assent.  We expect quite a few tax advisors and in-house tax counsel will be busy unwinding hybrid funding structures and planning the next efficient funding model over the next two years.

Stratos Lawyers


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