02 April 2019

Australian Federal Budget 2019-2020: Corporate Tax

This article was written by John Boyagi and Angus Moore

The main focus of the Government for large corporates has been increasing the ATO’s funding for the purposes of ensuring the integrity of the tax system and making minor amendments to hybrid mismatch rules, both described below.

There have been no major changes in corporate tax reform announced in the Budget. Instead, it appears intended that the relatively large infrastructure spend will provide a stimulus to the corporate sector.

Regulatory

In addition to the regulatory measures discussed at Part 4, the Government will provide:

  • $6.9 million over 4 years from 2019 – 20 for improving the Treasury and other agencies’ analytical capabilities;
  • $28.4 million to AUSTRAC over 4 years to expand Fintel Alliance, a public private partnership directed at strengthening the financial system and combatting money laundering, terrorism financing and other serious crime; and
  • $800,000 to the AASB to improve audit quality.

Delay to Division 7A Changes

In the 2016 and 2018 Federal Budgets, the Government announced proposed changes to improve the integrity and operation of Division 7A.  These changes which were due to commence on 1 July 2019 have been delayed by 12 months to allow for further consultation following the October 2018 Consultation Paper.  The Consultation Paper put forward a number of changes, including simplified Division 7A loan rules and a self-correction mechanism which seeks to assist taxpayers to promptly rectify breaches of Division 7A.

From 1 July 2020, where a related private company becomes entitled to a share of trust income as a beneficiary, but has not been paid that amount, that “unpaid present entitlement” will come within Division 7A of the Income Tax Assessment Act 1936 (Cth).

Division 7A operates as an integrity rule – benefits provided by private companies to related taxpayers will be taxed as dividends unless they are structured as Division 7A complying loans or another exception applies.  Accordingly, an unpaid present entitlement will either be required to be repaid to the private company over time as a complying loan or subject to tax as a dividend.


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