With the next Federal Election expected in May, there are currently several pending bills in the Parliament introduced by the Coalition Government (Coalition). The current bills could have a significant impact across a number of areas of tax. We look at several of these pieces of legislation and the potential affect the pending election may have on them.
The 2019 Federal Budget was released on 2 April. Read our key summary here. Whilst the much-anticipated changes to Division 7A continue to be deferred, the Budget addressed the instant write-off for small business entities. As a result of the Budget, the Senate amended the instant asset write-off and this morning, 4 April 2019, it was approved by House of Representatives. However, the instant write-off is not yet law as it awaits Royal Assent.
This is not the only proposed tax legislation introduced by the Coalition which remains before the House of Representatives or the Senate for debate or awaiting Royal Assent. A number of proposed laws currently sit in this legal limbo.
By way of background, prior to becoming law, bills must be considered by both the House of Representatives and the Senate. Once the two houses have passed a bill it is provided to the Governor-General for Royal Assent. At this time, it becomes law. The issue facing these pieces of tax legislation is that when a House is dissolved or prorogued, such as by an election, all proceedings come to an end and all bills lapse. If it is desired to proceed with a bill that has lapsed following a dissolution, a new bill must be introduced, as there is no provision for proceedings to be carried over from Parliament to Parliament.
Both houses sat on 2 and 3 April 2019. However not all pending tax legislation was debated. With the Senate not expected to sit again until mid-May this may be after the next election. Therefore, where do we stand with this legislation?
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AIM |
STATUS |
PREDICTION |
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Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 |
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Amends the Income Tax Assessment Act 1997 to remove the entitlement to the capital gains tax (CGT) main residence exemption for foreign residents and clarifies that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property under the foreign resident CGT regime, the principal asset test is applied on an associate inclusive basis. The bill also amends the Income Tax (Transitional Provisions) Act 1997 to provide for transitional arrangements in relation to the main residence exemption and further amends the Foreign Acquisitions and Takeovers Act 1975 to require a reconciliation payment to be made by developers who sell dwellings to foreign persons under a near-new dwelling exemption certificate. |
Before Senate |
This bill was not included in the Legislation Programme for the Senate. With a further debate before the next election unlikely, we predict that it the Bill will therefore lapse. As we previously reported , there has been a great deal of criticism around this measure and whether in fact the Coalition are serious about the legislation. Shadow Treasurer Chris Bowen has stated that whilst they support the principles of the measure, Labor is concerned by the unintended consequences it could cause for expatriates. Nevertheless, we predict that, post the election irrespective of the party with power in the Senate, an amended measure will be introduced as, whilst this one had some unintended consequences the underlying aim is one both parties support. |
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Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 |
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The bill amends the Income Tax Assessment Act 1997 and Income Tax (Transitional Provisions) Act 1997 to extend by 12 months to 30 June 2020 the period during which small business entities can access expanded accelerated depreciation rules ( instant asset write-off); and increase the threshold below which amounts can be immediately deducted under the rules from $20,000 to $25,000 from 29 January 2019 until 30 June 2020.
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House of Representatives
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This legislation was included in the Draft Legislation Programme for both Houses to be debated on the morning of 2 April. A third reading was agreed to on 2 April and it was introduced to the Senate on 3 April. This bill passed the Senate yesterday with amendments. The amendments were a result of announcements made by Treasurer Josh Frydenberg in the 2019 Budget. As reported in our Budget 2019 update , the Treasurer announced an increase in the deduction to $30,000. Further the write-off now applies to businesses with aggregated turnover of less than $50 million (up from $10 million). The changes apply from Budget night (7.30pm on 2 April) until 30 June 2020. [1] As the bill was amended, it will need to return back to the House of Representatives to be accepted. We predict that it will be passed by the House of Representatives who will sit next week. Shadow Treasurer Chris Bowen has stated that, should the ALP come into power, they will look to introduce further these benefits with the introduction of a 20 per cent instant write-off for all capital expenditure above $20,000. The write-off will be available to all sized businesses. |
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Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2018 |
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This bill proposes to amend the Income Tax (Managed Investment Trust Withholding Tax) Act 2008 ensure that fund payments which are attributable to non-concessional managed investment trust (MIT) income will be subject to MIT tax at the top corporate tax rate. |
Passed both Houses |
The bill was introduced to the Senate on 14 February 2019 and moved to a second reading. This legislation was included in the Draft Legislation Programme for the Senate to be debated on 2 April. Debates continued on 3 April and the bill finally passed both Houses. |
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Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019 |
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The bill amends the Income Tax Assessment Act 1997 and Taxation Administration Act 1953 to: - Limits access to tax concessions for foreign investors by increasing the MIT withholding rate on fund payments that are attributable to non-concessional MIT income to 30% - Modifies the thin capitalization rules to prevent double gearing. - Limits access to tax concessions for foreign investors by limiting the withholding tax exemption for superannuation funds for foreign residents and by codifying and limiting the scope of the sovereign immunity tax exemption. |
Passed both Houses |
The bill was introduced and read for the first time on 20 September 2018. It was referred to the Senate Economics Legislation Committee. The second reading debate then occurred from 12 to 14 February. The third reading was greed to on 14 February 2019. The bill was agreed to by the Senate on 3 April and has now passed both Houses. It is noted that the Labor Senators support the broad intent of this legislation. Including that it will prevent MITs from investing in houses, units and apartments to hold for long term rent (other than affordable housing). [1] ALP noted some concerns in relation to the effect on student accommodation, agriculture, sovereign immunity and the general effectiveness of the bill. [2] Therefore, we predict that we will may see some amendments should the ALP come into power, however it is questionable as to whether this will be a priority. |
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Legislation to assist in funding the National Disability Insurance Scheme (NDIS) |
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The following acts increase various tax rates in order to fund the NDIS. |
It is predicted that there will be no further Senate debate before the next election, and as such we predict the following bills will lapse. The purpose of the bills is to fund the NDIS, which the ALP have been vocal in doing it. It is therefore likely that similar bills would be introduce to fund the program, should the ALP come into power. |
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Family Trust Distribution Tax (Primary Liability) Amendment (National Disability Insurance Scheme Funding) Bill 2017 - The bill increases the family trust distribution tax rate from 47% to 47.5% Income Tax (TFN Withholding Tax (ESS)) Amendment (National Disability Insurance Scheme Funding) Bill 2017 - The bill increases the rate of tax-imposed employees who receive an employee share scheme (ESS) interest under an ESS and have not provided an Australian Business Number or tax file number from 47% to 47.5% Income Tax Rates Amendment (National Disability Insurance Scheme Funding) Bill 2017 - The bill increases the rate of tax imposed on superannuation contributions when no tax file number has been provided from 2% to 2.5%. Taxation (Trustee Beneficiary Non-disclosure Tax) (No. 1) Amendment (National Disability Insurance Scheme Funding) bill 2017 - The bill increases the rate of trustee beneficiary non-disclosure tax where a share of the net income of a trust is distributed to the trustee of a closely held trust from 47% to 47.5%. Taxation (Trustee Beneficiary Non-disclosure Tax) (No. 2) Amendment (National Disability Insurance - The bill increases the rate of trustee beneficiary non-disclosure tax where a share of the net income of a trust is distributed to the trustee of a closely held trust from 47% to 47.5%. 2017 |
Before Senate |
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[2] The Hon Scott Morrison MP & The Hon Michael Sukkar MP, Increasing the supply of affordable housing, 14 September 2017.
[3] Economics Legislation Committee, 2018, Report onTreasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill2018 [Provisions] and related bills.
Laura Spencer
Senior Associate
T +61 3 9611 0110
lspencer@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au
Annabell Rehmer
Law Clerk
T +61 3 9611 0196
E: arehmer@sladen.com.au
