The Turnbull Government is backing work and investment with lower taxes which will encourage workforce participation and business investment to improve growth and create the jobs of the future.
As Australia successfully transitions from the mining investment boom to a stronger, more diversified economy, it is vital that our tax system drives economic growth and national prosperity.
Australia needs a sustainable tax system so we can cover the Government’s responsibilities for the next generation while creating the right settings for enterprise, innovation and investment.
Personal income tax relief
The Turnbull Government’s tax plan makes a start on personal income tax relief to keep average full time wage earners on a lower tax rate for longer. Middle income Australians are bearing a growing burden as they see their average tax rate rise, punishing hard work, hindering growth, limiting opportunity and hampering innovation.
We will therefore give hard working Australians greater incentive to earn more without being taxed at a higher rate. The Government will prevent average full time wage earners moving into the second top tax bracket until 2019-20 by increasing the middle tax bracket threshold from $80,000 to $87,000 from 1 July 2016.
This will stop around 500,000 taxpayers facing the 37 per cent marginal tax rate this coming financial year. By pushing up the tax threshold on the middle tax bracket we’ll keep average full time wage earners on the lower rate for longer.
The Government will consider further measures to reduce the burden of tax as fiscal settings allow.
Lowering the tax burden on enterprise
As we transition from the mining investment boom it is vital that we give businesses every opportunity to invest, innovate, grow and employ more Australians.
We need a tax system that supports enterprise by backing businesses to invest.
Australian small businesses contribute significantly to our economy. To make it easier for these businesses to invest and expand to create more growth and jobs, the company tax rate will be cut, with small businesses benefitting first.
From the 2016-17 income year, companies with annual turnover less than $10 million will have a company tax rate of 27.5 per cent. This will decrease the tax rate for around 870,000 companies who employ around 3.4 million workers.
Over the next ten years, the Government will encourage investment and higher-paid jobs by decreasing the tax rate on all companies to 25 per cent by 2026-27.
This will significantly increase the attractiveness of investment into Australia and make Australian companies more internationally competitive in a tough global marketplace.
This will also mean higher living standards for Australians and an expected permanent increase in the size of the economy of just over one percent in the long term.
Since many small businesses are not companies, from 1 July 2016, the Government will also increase and extend access to the unincorporated small business tax discount to unincorporated businesses with turnover of less than $5 million. The rate will increase to 8 per cent, capped at $1,000. After the initial increase, the discount will be increased in phases to a final discount rate of 16 per cent from 1 July 2026.
The Government will also increase access to a range of small business tax concessions to businesses with turnover of less than $10 million. This will enable over 90,000 additional businesses to access these concessions. Access to the small business capital gains tax concessions will remain at a turnover of less than $2 million.
These changes are good for Australia’s economy and good for Australian workers. Higher investment will lead to permanent increases in wages, support jobs, increase consumption and result in higher living standards. The changes are expected to permanently lift the level of GDP by just over one per cent in the long term.
Fighting tax avoidance
At the same time as reducing the tax burden on businesses, the Government will take additional steps to reinforce the integrity of Australia’s corporate tax base and ensure businesses pay the right amount of tax in Australia.
We are introducing tough new laws and much harsher penalties including:
- A Diverted Profits Tax (DPT) which will impose a penalty rate of tax on large multinationals that attempt to shift their Australian profits offshore to avoid paying tax. Together with the Multinational Anti-Avoidance Law, introduced by this Government last year, the DPT is expected to raise around $650 million over four years.
- Rules to prevent multinationals exploiting differences in the tax laws of two or more jurisdictions to defer or avoid paying tax (anti-hybrid rules).
- Updating Australia’s transfer pricing rules to align with international best practice.
- A new Tax Transparency Code to encourage greater transparency within the corporate sector, especially by multinationals.
- New protections for whistleblowers who disclose information about tax misconduct to the ATO.
- New rules, to be developed in consultation with stakeholders, to require better disclosure to the ATO about potentially aggressive tax planning schemes.
- Increased penalties for breach of tax reporting obligations for companies with global incomes of $1 billion or more. The maximum penalty for failing to lodge tax returns and similar documents will be increased 100 fold from $4,500 to $450,000.
Enforcement of our existing and tough new laws will be supported by a Tax Avoidance Taskforce to be set up in the ATO. This crack down on multinationals and high wealth individuals is expected to generate $3.7 billion of additional revenue over the next four years.
Simpler tax rules
Tax laws can be complex, and sometimes do not work as intended. To ensure our tax system is always improving and does not impose more of a compliance burden than absolutely necessary, the Government will introduce dedicated Regulatory Reform Bills into the Parliament to update and improve our tax laws.
Members of the public, as well as tax professionals, will be encouraged to suggest matters to be included in these Bills, through the new Board of Taxation Sounding Board, accessible at www.taxboard.gov.au.
Promoting health by reducing smoking
To further discourage smoking, the Government will implement a further four annual 12.5 per cent increases in tobacco excise and excise equivalent customs duties, with the first increase to take effect on 1 September 2017. The Government will also limit the duty free tobacco allowance in Australia to 25 cigarettes or equivalent.
At the same time the Government will step up its fight against illicit tobacco activity. An additional $7.7 million will be provided to the Tobacco Strike Team. Existing penalties will also be strengthened, including by introducing tiered offences not currently available under the Customs Act.
This is a tax plan for Australia’s future. It is an important plank in the Government’s overall agenda to boost growth and support jobs, and it will help secure the prosperity for current and future generations of Australians.