The government response to John Ralph’s Review of Business Taxation has been encouraging to say the least.
The government response to John Ralph’s Review of Business Taxation has been encouraging to say the least.
Federal Treasurer Peter Costello has indicated that the government accepted the bulk of the recommendations of the review.
Concurrently, Treasury spokes-man for the ALP Simon Crean indicated the willingness of their party to co-operate with reforms that would have the net effect of improving the economy’s overall position.
The recommendations of the review that have been agreed to by government are as follows:
• Assets held for longer than a year by individuals will only be subjected to a tax on 50 per cent of the gains made
• Superannuation funds will only be subject to tax on two-thirds of the capital gain realised
• Indexation will be abolished for all new assets. For current assets, indexation will be frozen
• Retiring small business owners who have held a business asset for longer than fifteen years will not be subject to capital gains tax
• Active assets sold by small business will only be subject to CGT on half the gain
• Scrip for scrip takeovers will be exempted from CGT
• Overseas pension funds that are exempt from taxation in their home country will be free of CGT on investments in small and medium businesses (except real estate)
• Plant and equipment sales will be exempt from CGT
• The CGT rules are to apply from 1 October 1999. For assets acquired prior to that date and held for one year, investors will be able to choose between being taxed on half the gain or the whole gain calculated on the difference between the sale price and the frozen indexed value as at 30 September 1999
• The company tax rate will be cut from 36 per cent to 34 per cent in 2000/01
• In 2001/02 the rate will be further cut to 30 per cent
• Imputation credits will apply at the rate of company tax for that year
• These measures will be implemented in accordance with the dates above and will be incorporated into the soon to be implemented ‘pay-as-you-go’ system.
• Accelerated depreciation will be abolished immediately on all new equipment acquired
• Depreciation will be allowed on new acquisitions on an ‘effective life’ basis
• Small businesses with turnovers of less than $1 million a year will be able to write off equipment worth less than $1000
• Other small business equipment will be depreciated at 30 per cent without the need for asset registers to be maintained
• The accelerated depreciation rules will cease to apply to any equipment purchased after 11:45am AEST 21 September 1999
• Cash accounting will be allowed for tax returns
• New trading stock rules will mean there will be no need for annual stock valuations
• The definition of small business will be a business with a three-year annual average turnover of less than $1 million
• New tax entity rules are to be implemented which will mean all vehicles, such as trusts and partnerships, will be taxed as companies
• Life office superannuation will be taxed at 15 per cent
• New anti-avoidance measures to cover leasing and artificial losses will apply from 22 February 1999
• Overall impact on the Budget is designed to be neutral.
The changes that will be implemented will achieve the aim of simplifying the taxation system in so far as it applies to business.
Ralph has also achieved the enviable record of achieving the changes whilst keeping the impact on the budget neutral.
The most pleasing aspect of the government’s response is the degree to which it has embraced the recommendations.
There were few commentators who seriously expected the government take up many of the review’s recommendations.
However, the government of Howard and Costello is to be commended on indicating their acceptance of most of the reforms.
The complexity of the undertaking cannot be emphasised enough.
There are still certain issues on which clarification is awaited.
For example, it is not yet known whether capital gains achieved by a trust will retain their character in the hands of the beneficiaries of that trust and therefore be assessable only to 50 per cent.
Federal Treasurer Peter Costello has indicated that the government accepted the bulk of the recommendations of the review.
Concurrently, Treasury spokes-man for the ALP Simon Crean indicated the willingness of their party to co-operate with reforms that would have the net effect of improving the economy’s overall position.
The recommendations of the review that have been agreed to by government are as follows:
• Assets held for longer than a year by individuals will only be subjected to a tax on 50 per cent of the gains made
• Superannuation funds will only be subject to tax on two-thirds of the capital gain realised
• Indexation will be abolished for all new assets. For current assets, indexation will be frozen
• Retiring small business owners who have held a business asset for longer than fifteen years will not be subject to capital gains tax
• Active assets sold by small business will only be subject to CGT on half the gain
• Scrip for scrip takeovers will be exempted from CGT
• Overseas pension funds that are exempt from taxation in their home country will be free of CGT on investments in small and medium businesses (except real estate)
• Plant and equipment sales will be exempt from CGT
• The CGT rules are to apply from 1 October 1999. For assets acquired prior to that date and held for one year, investors will be able to choose between being taxed on half the gain or the whole gain calculated on the difference between the sale price and the frozen indexed value as at 30 September 1999
• The company tax rate will be cut from 36 per cent to 34 per cent in 2000/01
• In 2001/02 the rate will be further cut to 30 per cent
• Imputation credits will apply at the rate of company tax for that year
• These measures will be implemented in accordance with the dates above and will be incorporated into the soon to be implemented ‘pay-as-you-go’ system.
• Accelerated depreciation will be abolished immediately on all new equipment acquired
• Depreciation will be allowed on new acquisitions on an ‘effective life’ basis
• Small businesses with turnovers of less than $1 million a year will be able to write off equipment worth less than $1000
• Other small business equipment will be depreciated at 30 per cent without the need for asset registers to be maintained
• The accelerated depreciation rules will cease to apply to any equipment purchased after 11:45am AEST 21 September 1999
• Cash accounting will be allowed for tax returns
• New trading stock rules will mean there will be no need for annual stock valuations
• The definition of small business will be a business with a three-year annual average turnover of less than $1 million
• New tax entity rules are to be implemented which will mean all vehicles, such as trusts and partnerships, will be taxed as companies
• Life office superannuation will be taxed at 15 per cent
• New anti-avoidance measures to cover leasing and artificial losses will apply from 22 February 1999
• Overall impact on the Budget is designed to be neutral.
The changes that will be implemented will achieve the aim of simplifying the taxation system in so far as it applies to business.
Ralph has also achieved the enviable record of achieving the changes whilst keeping the impact on the budget neutral.
The most pleasing aspect of the government’s response is the degree to which it has embraced the recommendations.
There were few commentators who seriously expected the government take up many of the review’s recommendations.
However, the government of Howard and Costello is to be commended on indicating their acceptance of most of the reforms.
The complexity of the undertaking cannot be emphasised enough.
There are still certain issues on which clarification is awaited.
For example, it is not yet known whether capital gains achieved by a trust will retain their character in the hands of the beneficiaries of that trust and therefore be assessable only to 50 per cent.
