05 May 2015

The Budget: Businesses

Prime Minister Tony Abbott recently announced the planned 1.5% company tax rate reduction would be scrapped for all but small business.

Small business is expected to be a focus in the upcoming Budget with a small business package.

It’s also likely that research and development to foster “innovative” start-up initiatives will receive a boost.

Treasurer Joe Hockey said:  “There are a number of things we can do to help start-ups and we’ll be saying more about that in the upcoming Budget.”

GST on online purchases and services

To increase GST revenue, the Federal Government has the option of trying to force through a GST rate increase with State and Territory approval OR broaden the base.

High on this list is applying GST to revenue earned from online and digital businesses.

Treasurer Joe Hockey said: “GST should be charged at the source, so a company providing intangible services into Australia, such as media services or so on, wherever they are located they should charge GST on those services”.

That is, if you are an Australian resident and purchase a good or service then tax should apply in Australia as opposed to where the business is domiciled.

This issue is likely to be broader than just the $1,000 threshold for goods purchased from overseas and Netflix but a review of how tax applies to intangibles.

It’s a question of when these measures will apply – either in the Budget or as part of the broader tax review.

‘Googletax’ or Multinational tax crackdown

Treasurer Joe Hockey says it is vitally important that a business, wherever it is located, pay tax in the jurisdiction where it earns the income.

His statement comes after the UK introduced a 25% tax on diverted profits created by activity in the UK.

The intent is to “target large multinational enterprises with business activities in the UK who enter into contrived arrangements to divert profits from the UK by avoiding a UK taxable presence and/or by other contrived arrangements between connected entities”.

The new tax rules apply to entities with sales revenue in the UK greater than £10m.

If the Government acts on this issue in the Budget instead of waiting for the tax review, it’s likely we will see this UK style of tax apply.

Tax on bank deposits

The Assistant Treasurer has indicated that a bank deposits insurance tax will be introduced to create a fund to protect against a collapse of the banking industry.

The concept was previously announced by Labor prior to the 2013 election.

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