A key focus of the Federal Budget was on personal income tax cuts, and measures aimed at large companies and the black economy. Tucked away in the Budget papers are several other tax measures that will specifically impact upon private groups, high-net-wealth individuals, and small and medium enterprises. These include:
- Deductions for expenses associated with holding vacant land, whether the land is for residential or commercial purposes, will be denied from 1 July 2019 (although such expenses will still be included in CGT cost base of the land).
- From 8 May 2018, partners who alienate income by creating, assigning, or otherwise dealing in rights to the future income of a partnership (including Everett assignments) will no longer be able to access the small business CGT concessions in relation to those transactions. In December 2017 the ATO withdrew its guidelines on income splitting by professional firms and on Everett assignments. The ATO is consulting to release reformulated guidelines.
- The research and development tax incentive is being redesigned to implement changes from a 2016 review of the incentive and ‘to better target the program and improve its integrity and fiscal affordability.’ The changes will apply for income years starting on or after 1 July 2018.
- From 1 July 2019, the CGT discount for capital gains by managed investment trusts (‘MITs’) will apply at the unitholder rather than the trust level. The changes will mean that unitholders in MITs will pay more tax on distributions that include capital gains than what would currently be the case.
- From 1 July 2019, the Government will extend to family trusts ‘a specific anti-avoidance rule that applies to other closely held trusts that engage in circular trust distributions’. The Budget did not detail what anti-avoidance rule, although a contender is Division 6D of the Income Tax Assessment Act 1936 that requires the disclosure of the ultimate beneficiaries of a trust which has as one of its beneficiaries another trust.
- The Government will change the taxation of the unearned income received by child beneficiarie of a testamentary trust. Income from testamentary trusts is currently subject to tax at ordinary rates (rather than the higher rates that apply to unearned income of minors). From 1 July 2019, marginal income tax rates will only apply to income from other assets transferred from the deceased estate or the proceeds of the disposal or investment of those assets (rather than also to income from other assets injected into the testamentary trust).
- From 1 July 2019, an unpaid present entitlement to a company beneficiary of a trust will be treated as a dividend under Division 7A unless a Division 7A compliant loan agreement has been entered into (although this measure was already contemplated in the 2014 Board of Taxation Report).
- There will be a deferred start date of 1 July 2019 (from 1 July 2018) for amendments to Division 7A that were announced in the 2017 Budget (and following the 2014 Board of Taxation review).
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