Monday, November 28, 2011

MYEFO countdown. Swan's looking for $7 billion, plus

Where Swan will save

. Corporate deductions for acquisitions: $10 billion

. Tax-free “living away from home” allowances for corporate executives

. Vaccination incentives: $209 million

. Teachers performance bonuses: $200 million

Savings over four years on May budget estimates

The European financial crisis has ripped a further $7 billion from budget revenue increasing the pressure on Treasurer Wayne Swan to find big savings in this week’s economic statement.

Forecasts to be released with the statement show capital gains tax takings from companies, superannuation funds and individuals down $7 billion on budget forecasts for the four years ahead which were themselves down $9 billion on the forecasts in last year’s November statement.

Since the May budget the Australian share market has fallen 15 per cent.

“Every self-funded retiree and investor can see the effect on our share market,” Mr Swan said yesterday. “The heightened global volatility is making households more cautious in their spending and businesses more hesitant in their hiring decisions.”

The May budget forecast a jump in company tax revenue this year of 28.9 per cent, a jump in superannuation tax earnings of 29.3 per cent, a jump in income tax takings of 10 per cent and the creation of 200,000 extra jobs. Each of those forecasts will be sharply downgraded.

Finance minister Penny Wong said the revisions would display the “the sort of pattern we saw in the context of the global financial crisis”.

“The European circumstances have worsened,” she told Channel Ten. “Our economy is being affected, our budget is being affected. There are no easy saves left to take. You should anticipate some difficult decisions.”

The government will save around $10 billion over four years by limiting the tax deductions created by corporate mergers... It will save more cutting the tax-free treatment of so-called “living away from home” allowances paid to foreign executives. Claims for tax-free living away from home allowances have jumped from $162 million to $740 million in the past five years. A Tax Office investigation has found the most common occupations escaping tax by using the allowances are managers, directors and chief executives. More than one third claim tax-free allowances for living in Sydney.

Ms Wong said working Australians would be spared the full force of the spending cuts. “We are a Labor Government; our values underpin our economic decisions,” she said.

Mr Swan said while the measures in the statment should ensure a return to surplus in 2012-13 it would “be counterproductive to take an axe to the budget”.

“We will strike a balance between strong fiscal discipline and continuing to support job creation,” he said. “We will help underpin confidence and prosperity for the long term.”

Measures that will touch ordinary Australians include a slug of $2100 for parents who don’t give their children all of the recommended vaccinations. They will lose the three payments of three payments of $726 currently available under family tax benefit A. From July the government will abolish the $258 "maternity immunisation allowance", paid as a reward for fully immunising children. Around $200 million will be taken from the budget commitment to reward top teachers with performance pay bonuses.

Other measures include booking revenue from selling broadcast spectrum not previously included in the budget and bringing forward spending that would normally take place in 2012-13, the year of the forecast return to surplus. The government has already announced it will bring forward $1.5 billion of carbon price compensation payments. It will bring forward a further $1.4 billion in Queensland flood reconstruction spending.

Published in today's SMH and Age

Bill Shorten, Assistant Treasurer November 25, 2011

Changes to the income tax law affecting Consolidated groups

The Government will introduce changes to income tax law affecting consolidated groups as part of its continued commitment to maintaining the integrity, equity and fairness of the tax system.

The changes relate to the way a consolidated group can deduct the costs allocated to some assets following a corporate acquisition.

The changes implement the recommendations of the Board of Taxation for future consolidations and seek to ensure that companies inside corporate groups don’t receive tax benefits, which corporates outside consolidated groups are unable to receive.

“The new laws will help protect potential threats to revenue by putting a limit on the scope of amendments to the consolidation regime made in 2010,” Assistant Treasurer Bill Shorten said.

“This demonstrates the Government’s commitment to maintaining the integrity, equity and fairness of the tax system.”

The changes affecting a corporate acquisition will depend on the time when the acquisition took place. This follows recommendations from the Board of Taxation’s Report on the Review of the Consolidation Rights to Future Income and Residual Tax Cost Setting Rules and extensive consultation with a working group of tax experts and key industry bodies, including the Corporate Tax Association, the Tax Institute, the Institute of Chartered Accountants in Australia and CPA Australia.

The amendments address problems in the policy proposed by the former Government in 2005 (and 2007) and enacted in 2010 that affected corporate acquisitions from 2002. The changes proposed today by the Government will depend on the time when the acquisition took place. That is, different changes are proposed for acquisitions before 12 May 2010 (when the law was passed by both Houses of Parliament), after 30 March 2011 (when the Board of Taxation was asked to review the rules) and the intervening period (the transitional period).

Corporate acquisitions that took place before 12 May 2010 will be affected by the changes subject to the application of normal amendment periods. These changes are necessary to ensure deductions are claimed only when it was intended and will protect a significant amount of revenue that would otherwise be at risk.

Changes for the period between 12 May 2010 and 30 March 2011 will largely protect taxpayers who made business decisions on the basis of the current law before the Board’s review was announced.

For acquisitions after 30 March 2011 changes will be made to increase certainty for taxpayers and apply a business acquisition approach in certain cases.

Private rulings sought and received by taxpayers from the ATO, including written advice under advance compliance agreements, will stand.

The Board recommended further investigation be undertaken on two issues: the treatment of liabilities under the consolidation regime and capping the tax costs allocated to certain types of assets. I look forward to the Board’s further advice on these issues when it reports on its post implementation review of certain aspects of the consolidation regime.

The Board of Taxation’s Report on the Review of the Consolidation Rights to Future Income and Residual Tax Cost Setting Rules is available at

In addition to the changes to the income tax law affecting consolidation that I have announced today, the Government will also make changes to the operation of the taxation of financial arrangements (TOFA) rules for consolidated groups.

These changes will ensure that, for consolidated groups, the TOFA Stages 3 & 4 provisions operate as intended and that the tax treatment of financial arrangements that are liabilities is appropriate.

The changes also address the technical issues raised by industry as part of the post-enactment consultation on the TOFA Stages 3 & 4 regime and ease the transition of consolidated groups into the regime.

The changes will apply from the start of TOFA Stages 3 & 4 regime.

Details of the changes can be found on the Treasury website (

Affected taxpayers should seek expert advice. Queries can be made by emailing

The Government will undertake public consultation on draft legislation for these measures as a matter of priority.

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