NO.086

THE NEW BUSINESS TAX SYSTEM – A REALITY

The New Business Tax System is a reality, with key legislation passed by

Parliament receiving Royal Assent today. Australia will now have a modern, fair and

internationally competitive business taxation system.

The Government’s capital gains tax reforms and company tax cuts will be of major

benefit to Australian investors and businesses and will encourage economic growth and job

creation.

• Only 50 per cent of net capital gains will be taxed in the hands of individuals, and

  two-thirds in the case of superannuation funds, where the assets sold have been held for

  more than one year. This measure is effective from 11.45am AEST, 21 September 1999.

• The freezing of indexation from 30 September 1999 and the removal of averaging from

  21 September 1999 will vastly simplify the capital gains tax provisions.

• For many small business taxpayers, tax will be payable on a maximum of 25 per cent of a

  capital gain on the sale of active small business assets from 21 September 1999. A capital

  gains tax exemption will apply in certain circumstances where small business taxpayers

  have held an active asset continuously for 15 years.

• Australia’s company tax rate will also become one of the lowest in the region. It

  will be cut from 36 per cent to 34 per cent for the 2000-01 income tax year and to 30 per

  cent thereafter.

The replacement (except for small business taxpayers) of accelerated depreciation

arrangements with an effective life system, and the removal of the general balancing

charge offset, will help to meet the cost of the company tax rate cut. At the same time,

expenditure on indefeasible rights of use will now be eligible for write-off over their

effective life. These changes have effect from 21 September 1999.

The following measures apply from today and will particularly boost investment in

venture capital.

• Scrip-for-scrip rollover relief is available where interests in one entity (company or

  fixed trust) are exchanged for interests in another entity, as would typically occur as a

  result of a takeover.

• Foreign pension funds from specified jurisdictions that are exempt from tax at home will

  be freed from tax in respect of income (including capital gains) earned on the disposal of

  eligible venture capital investments in Australia.

• Complementing this measure, and included in legislation introduced into the Parliament

  on 9 December 1999, Australian widely-held superannuation funds (and like entities)

  will be able to receive effectively tax-free venture capital gains derived through a

  Pooled Development Fund.

A number of integrity measures which address tax minimisation and avoidance

opportunities have also been legislated. The new arrangements include preventing loss

duplication, preventing value shifting through debt forgiveness, and the taxation of

consideration received from assigning leases. These measures apply from 22 February 1999,

when the Government foreshadowed them. In addition, the tightening of the 13 month

prepayment rule and the repeal of the excess deductions provisions in respect of mining

operations apply from 21 September 1999. Further loss measures involving linked

company groups apply from 21 October 1999 (the date of introduction of the relevant

legislation into the Parliament).

During 2000, the Government will introduce further legislation implementing the New Business

Tax System.

CANBERRA

10 DECEMBER 1999

(The enacted legislation, and its accompanying Explanatory Memoranda, may be viewed

from tomorrow on the ‘business’ link at http://www.ato.gov.au.)