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On 12 May 2015, Australia's Treasurer Joe Hockey delivered the 2015 Budget. The main tax related measures are summarized as follows.

Tougher Anti-Avoidance Rules

A new targeted anti-avoidance law will be introduced aimed at multinationals that have entered into schemes to artificially avoid having a taxable presence in Australia. This approach will be taken instead of a diverted profits tax that was to be developed with assistance from the UK.

The general conditions where the new anti-avoidance law will apply include when:

  • A non-resident entity derives income from the making of a supply of goods or services to Australian customers, with an entity in Australia supporting that supply;
  • The non-resident avoids the attribution of the income from the supply to a permanent establishment in Australia and it is reasonable to conclude that the division of activities between the non-resident entity, the Australian entity, and any other related parties has been designed for such avoidance; and
  • The non-resident entity, or a related entity (or entities) in their corporate structure, are subject to no corporate tax or a low corporate tax rate (either under the law of a foreign country or through preferential regimes)

If it is determined that an arrangements is entered into for a principal purpose of avoiding tax, the Commissioner of Taxation has the power to look through the scheme and apply the tax rules as if the non-resident entity had been making a supply through an Australian permanent establishment.

The new law will apply to tax benefits obtained on or after 1 January 2016 in connection with a scheme, whether or not the scheme was entered into, or was commenced to be carried out, before that date.

In addition, the maximum penalties that may be applied for anti-avoidance will be doubled from 1 July 2015 for large companies that enter into tax avoidance and profit shifting schemes.

These measures will apply to companies with global revenue of AUD 1 billion or more.

Transfer Pricing Documentation Requirements

The new transfer pricing documentation standards developed as part of the OECD Base Erosion and Profit Shifting (BEPS) Project will implemented from 1 January 2016.

Under the new requirements, large multinationals operating in Australia will be required to provide:

  • A Country-by-Country Report showing information on the global activities of the multinational, including the location of its income and taxes paid;
  • A master file containing an overview of the multinational's global business, its organizational structure and its transfer pricing policies; and
  • A local file that provides detailed information about the local taxpayer's intercompany transactions

This measure will apply to multinationals with global revenue of AUD1 billion or more.

Tax Measures Supporting Small Businesses

Accelerated depreciation for small businesses will be expanded by allowing small businesses with aggregate annual turnover of less than AUD 2 million to immediately deduct assets they start to use or install ready for use, provided the asset costs less than AUD 20,000 (currently AUD 1,000). Assets valued at AUD 20,000 or more can be placed in the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% in each subsequent year. If the balance of the depreciation pool is less than AUD 20,000, the pool can be immediately deducted.

The measures will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017.

Small businesses with aggregated annual turnover less than AUD 2 million will also be subject to a reduced tax rate of 28.5% (standard rate 30%). In addition, unincorporated businesses will be eligible for a 5% income tax discount capped at AUD 1,000 per individual per year.

The reduced tax rate and discount will apply from the 2015-2016 tax year.

R&D Tax Incentive Cap

A cap of AUD 100 million will be introduced on the amount of eligible research and development (R&D) expenditure for which companies can claim a tax offset at a concessional rate under the R&D tax incentive. Expenditure beyond the AUD 100 million cap will receive a lower offset at the company tax rate.

Under the R&D tax incentive, companies can claim a refundable tax offset of 43.5% if their turnover is less than AUD 20 million or a non-refundable tax offset of 38.5%.

These changes will apply in relation to assessments for income years commencing on or after 1 July 2014.

GST on Imported Digital Products and Services

The application of Goods and Services Tax (GST) will be extended to cross border supplies of digital products and services purchased by Australian consumers from foreign suppliers. The change is planned to apply from 1 July 2017, and will follow guidelines being developed as part of the OECD BEPS Project.

Unanimous agreement of the States and Territories prior to the enactment of legislation will be required.

Click the following link for an overview of all the proposed budget measures.