Federal Budget Update 2021

Matthew Marcarian   |   12 May 2021   |   5 min read

Australian Treasurer Josh Frydenberg presented the Australian Budget on 11th May 2021. 

Our Principal, Matthew Marcarian outlines the key budget announcements that may affect our clients. 

Changes to Australia’s personal tax residency rules

The Government has announced that it will adopt a new framework for personal tax residency which will be based on the recommendations of the Board of Taxation made in March 2019. 

The Budget papers indicate that the objective of the change is to make personal tax residency laws ‘easier to understand and apply in practice, deliver greater certainty and lower compliance costs for globally mobile individuals.’ 

The question is whether the amending legislation will actually achieve that objective.

Essentially the government proposes a ‘bright line’ test of 183 days. However, just how bright that line actually is will depend on the drafting and the overall framework of the laws when they are introduced. 

It also seems to be the case that under the new proposed laws, an Australian expat could be found to be a resident even if they spend less than 183 days in the country, where there are other residency indicators present.

In essence this mirrors the existing common law position, but elevates certain common law tests into tax legislation. 

This may result in the removal of uncertainty in some situations – but if not handled carefully, will risk creating other interpretational problems that the common law can more flexibly deal with.

The Government is also likely to introduce specific tests in relation to ‘commencing residency’ and ‘ceasing residency’ in an attempt to increase certainty in the law. 

CST would like to see that the exposure draft process for the new legislation gives the tax community extensive time to provide feedback given how sensitive this area of tax law is to interpretation, how fundamental tax residency is and how far reaching legislative changes are likely to be.

The changes to residency laws will only be effective from the start of the tax year after which the proposed legislation receives Royal Assent. 

This means that if the amending legislation can receive Royal Assent before 30 June 2022 then it will be effective from 1 July 2022.

CST will stay at the forefront of these legislative developments and will be providing feedback to the government on exposure draft legislation, based on our extensive advisory experience in these areas. 

Patent Box

The Government has announced a limited Patent Box regime which will apply a concessional 17% company tax rate to income derived from Australian medical and biotechnology patents. 

We are not sure why 17% was the chosen rate – but we note that it is identical to Singapore’s general company tax rate.

If we are absolutely committed to encouraging this industry in Australia, we would like to see a bolder policy approach here with a more meaningful reduction in the applicable tax rate to 10%, if not lower. That would be much more competitive on the global stage.

The Government has committed to consulting industry before settling on the detailed design of the Patent Box.

Self Managed Superannuation Fund – relaxing residency requirements

The Government has announced that it will permit people who are temporarily overseas to continue to contribute to a Self Managed Super Fund beyond the current 2 year period and upto 5 years. 

However if someone is overseas for up to 5 years they would normally be considered to be non-resident, which would imply that they are not ‘temporarily overseas’ and would therefore not be eligible to keep contributing to a Self Managed Superannuation Fund. 

The Government needs to re-assess this change. We believe the best approach would be to introduce a direct link to the actual tax residency of the member, rather than rely on the notion of ‘temporary’ absence.

Change to Employee Share Scheme Rules

The government has announced that it will amend the Employee Share Scheme (ESS) rules so that the end of a person’s employment will not be a taxing point for individuals any longer under the ESS regimes. 

For clients who are able to keep unvested ESS interests at the end of their employment, this change is excellent.

In the past the law has been problematic for clients where a taxing point has arisen because of employment ending – even though the shares or options had not actually vested, resulting in unfunded income tax bills and heavy compliance costs.

Moving forward, for a deferred ESS scheme, the taxing point will essentially be earlier of the time when there is no risk of forfeiture and no restrictions on disposal, or 15 years.

Removal of the Work Test for Voluntary Superannuation Contributions

In a welcome change, the Government will allow individuals aged 67 to 74 to make non-concessional contributions subject to the existing caps.

However for concessional contributions (i.e personal deductible contributions) the work test still applies. 

We think that the law should have been simplified further so that irrespective of the type of contribution the work test should not apply – particularly given the caps on concessional contributions are quite low being $27,500.

This change is expected to be implemented in time for application for the 30 June 2022 tax year.

Removal of $450 per month threshold for superannuation eligibility

In an excellent measure the government will remove the current $450 monthly threshold meaning that all Australian resident employees will receive superannuation.

Under the current law someone who earned $300 per month missed out on superannuation and given that technology allows employees to so easily make contributions given the onset of single touch payroll – this change is welcome to enhance fairness in our system.

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Central Management
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Carry on a Business

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Voting Power

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The company is an Australian Resident

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Contact us for tailored international tax advice regarding your client's specific situation.

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United Kingdom Property and Tax Updated


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CGT Proposals Details of the plans to impose Capital Gains Tax on gains arising to non-UK residents on the disposal of UK residential property have...

United Kingdom Property and Tax Updated

Richard Feakins   |   9 Mar 2014   |   11 min read

CGT Proposals

Details of the plans to impose Capital Gains Tax on gains arising to non-UK residents on the disposal of UK residential property have been published.

The proposals are wider than anticipated and also have unexpected consequences for UK resident second home owners.

CGT will be charged on gains accruing from April 2015 to non-resident individual owners, trusts, companies and partners on disposals of residential property regardless of the value of the property.

CGT will also be levied on gains arising on the disposal of investment properties, in contrast to the Annual Tax on Enveloped Dwelling (ATED) regime introduced in April 2013.

The tax payable by non-corporate sellers will be at the normal CGT rates (18% or 28%) with the benefit of the annual CGT exemption (£11,100 for 2015/16) and, if applicable, principal private residence relief (PPR).

A surprising aspect of these proposals is that both UK and non-UK resident owners of multiple homes may, in future, be denied the ability to elect which of their homes should benefit from PPR.

Instead, only the property which is, as a matter of fact, a taxpayer’s main residence or the property that qualifies as such in accordance with a proposed new fixed rule would be eligible for relief.

The rationale behind this is a concern that, if PPR is available on the sale of a non-resident’s home, the non-resident can simply elect their UK home as their main residence (rather than their non-UK property on which no CGT is payable).

Nevertheless, the proposed extension of this change to UK residents is unexpected.

That said, the Government’s dislike of “flipping” is well known and, to this end, the final period of ownership exemption for PPR has already been reduced from 36 months to 18 months for disposals on or after 6 April 2014.

The new proposals also suggest a new method of collecting CGT.

The detail here is sketchy but the idea is that non-resident sellers would have an option either to pay the tax due themselves or have the tax collected by withholding (carried out by the solicitor acting for the purchaser).

The tax would have to be paid within 30 days of completion, this could be quite onerous for the purchaser’s solicitors and it would further complicate the conveyancing process.

The application of the new CGT charge to disposals by non-resident companies will be more convoluted. Companies paying ATED will pay the related CGT charge on all or part of the gain at the usual rate of 28%.

By contrast, all other non-resident companies will be subject to a tailored CGT charge at a rate to be confirmed.

Enveloped properties

Another unexpected announcement in the recent Budget was the immediate extension of 15% SDLT to corporate purchasers of residential properties worth more than £500,000, (previously £2million).

The scope of ATED will be similarly extended but not with immediate effect. From 1 April 2015 a new band of ATED will apply, with an annual charge of £7,000 on residential properties worth more than £1m but less than £2m.

From 1 April 2016 residential properties worth between £500,000 and £1m will be charged £3,500.

The bands will otherwise remain unchanged and the current reliefs/exemptions (including those for commercially let residential property and development and trading businesses) will continue to apply.

The ATED related CGT charge will be extended from 6 April 2015 to properties worth more than £1m and will apply to that part of the gain that accrues on or after this date; and to properties worth more than £500,000 from 6 April 2016.

The balance of the gain will be treated as at present and, where the company is non-resident and part of the gain is not ATED related, the latter may also be subject to the proposed new tailored charge from April 2015.

A Mansion Tax?

Press speculation about a mansion tax grows ever more fevered whilst actual proposals remain elusive. That said, both ATED and the new CGT proposals described in this Newsletter illustrate how soft a target property is and house price inflation will surely tempt our politicians further.

Current possibilities, whether from academics or politicians, include: a progressive property tax (on houses but with relatively low values); increasing Council Tax on dwellings worth over £2m, being the latest idea from Danny Alexander; and a far more radical land value tax which would apply to all types of land.

The debate seems likely to intensify between now and May 2015. We are monitoring developments and will publish specific briefings as soon as there is something concrete to report.

Other Budget news

  • Pensions: Far reaching reforms were announced to remove the requirement to purchase an annuity from pension funds and to relax the tax charges that apply to the withdrawal of funds. Some transitional measures were introduced on 27 March but the full reform will take effect from April 2015 following consultation.
  • Savings: From 1 July 2014, the ISA will become a “new ISA” (NISA) with a limit of £15,000 for 2014/15 and will be able to hold any combination of cash and shares. From the same date both the Junior ISA and child trust fund limit will also rise to £4,000. From 1 June 2014, the premium bonds subscription limit will rise to £40,000; it will rise again to £50,000 in 2015/16.
  • The IHT debt rules introduced from April 2013 will be amended so that foreign currency bank accounts will be treated as if they were ‘excluded property’. Therefore a liability (whenever incurred) will be disallowed for IHT purposes if borrowed funds have been deposited in a foreign currency account in a UK bank (either directly or indirectly) in respect of deaths after the date of Royal Assent of Finance Bill 2014.
  • IHT Exemptions: The Government will consult on extending the existing IHT exemption for members of the armed forces who die on active service to all emergency service personnel who die in the line of duty.
  • CGS: The annual cap on the total tax deductions that can be claimed under the Cultural Gift scheme & Acceptance in Lieu (for donations of pre-eminent objects to the nation) has been increased to £40m with effect from 6 April 2014.
  • Accelerated tax payments: As from Royal Assent of the Finance Act 2014 HMRC will be able to require taxpayers who have used a tax avoidance scheme to make an accelerated tax payment where it considers that there is judicial ruling which has defeated the same (or a similar) scheme.

Similarly, taxpayers will be required to pay disputed tax ‘up front’ if they have claimed a tax advantage by the use of arrangements that fail to be disclosed under DOTAS; or where HMRC invokes the GAAR.

  • The Government is consulting on some potentially quite alarming proposals to allow HMRC to seize money from bank accounts from anyone who owes more than £1,000 in tax or tax credits, although this will apparently be subject to certain safeguards.
  • Charity definition: HMRC is proposing to amend the definition of charity for tax purposes by introducing a new ‘purpose of establishment condition’.

This aims to prevent charities being set up to abuse charity tax reliefs and is not intended to catch genuine charitable organisations.

However one of the proposed tests would deny charitable status for tax purposes if one of the main purposes for which it was established was to secure a tax advantage.

This could potentially impact on private and corporate charitable foundations as it is arguable that one of their main purposes is to obtain a tax advantage such as Gift Aid and other reliefs on donations.

Inheritance tax news

  • Revised proposals to divide the nil rate band available to trusts between all trusts created by the same settlor will be published later this year and legislation introduced in Finance Bill 2015.
  • The National Audit Office is launching an investigation into the possible misuse of agricultural and business property relief from IHT, as their use has almost doubled in five years.
  • The Conservative Party have indicated they would consider raising the IHT nil rate band to £1m, should they be re-elected.

FATCA’s impact on trusts

The UK and US government have reached an agreement to implement a US law, the Foreign Account Tax Compliance Act (FATCA) in the UK. FATCA was designed to combat tax evasion by US residents using foreign accounts and it requires institutions outside the US to pass information to US tax authorities. A surprising range of institutions are affected by FATCA including some private trusts.

Corporate trustees and trusts which delegate the management of investment portfolios will generally need to register with the IRS by 25 October 2014, in the latter case if more than 50% of their income derives from investments.

Alternatively they may be able to enter into an agreement with a third party (e.g. the investment manager) to register on their behalf.

Thereafter they must report any US connections annually to HMRC, who will pass the information on to the IRS.

Other trusts will not need to register but may have annual reporting requirements if they have any US beneficiaries, trustees, protectors or settlors.

All trustees should consider their status and obligations under FATCA as soon as possible. For full details please see our flyer entitled ‘FATCA: What trustees need to know.’

Public register of beneficial owners

It has been clear since last November that companies will be required to make greater disclosure of their beneficial owners, but it had been assumed that trusts would be excluded as David Cameron has argued that they should be treated differently.

However, the European Parliament has recently approved an amendment to the Fourth Money Laundering Directive, which will, if implemented, make information about the individuals behind trusts publicly available for the first time.

Each EU member state would have to keep and make available a public register listing the ultimate beneficial owners of privately owned companies, foundations and trusts. There would be provisions to protect data privacy and to ensure that only the minimum information necessary is on the register.

Whilst it is appreciated that greater transparency may help to prevent criminal activity and tax evasion, many feel that these proposals go beyond what is required to achieve this aim.

Although they do seem rather worrying, they are still at a relatively early stage: final negotiations within the EU on the Directive will not begin until later this year and then each individual Member State has to incorporate the result into domestic law before the provisions take effect.

Further, the UK government has confirmed that it will oppose the mandatory registration requirement for all trusts and will seek to negotiate a compromise.

Same Sex Marriages

Since the Marriage (Same Sex Couples) Act 2013 came into force on 13 March 2014, same sex couples are able to marry in England and Wales. Civil partners should also be able to convert their legal relationship to a same sex marriage later this year, once the mechanism to do this has been introduced.

The intention is that same sex marriages should have virtually identical tax and legal consequences and effects to opposite sex marriages.

Therefore, from 13 March 2014 all legislation using marriage terminology will be read as encompassing both same sex and opposite sex marriage. The default position for interpreting legal instruments will depend upon whether or not that instrument was in existence on 13 March 2014.

Pre-existing private legal instruments will generally be read as referring only to opposite sex marriages; and new instruments from that date will be read as encompassing both opposite and same sex marriages. The position may be reversed by inclusion of specific provisions to the contrary.

Art used in a business

The Court of Appeal has confirmed that a painting used in Castle Howard’s house opening business was a wasting asset which attracted no CGT on its disposal, upholding the Upper Tribunal decision covered in our newsletter last Spring (HMRC v The Executors of Lord Howard of Henderskelfe [2014] EWCA Civ 278).

The painting in question was not owned by the business operator, but informally permitted to be used in the business, and the Court of Appeal has confirmed that the CGT legislation does not limit the exemption to assets owned by the trader.

This is potentially a very useful decision but it may not be relevant to many cases because the CGT exemption does not apply if capital allowances have or could have been claimed on the asset. It is also possible that the law could be changed.

This Publication provides general advice only is should not be relied upon when making decisions. Neither CST nor any other professional in the firm has prepared this with a view to covering any client scenario and this document is not a substitute for professional advice. It has been prepared in conjunction with firm of Boodle Hatfield see www.boodlehatfield.com

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Corporate Residency

Please provide your details to access the online tool

Name is required.

Email is required.

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Place of
Incorporation

Is the company incorporated outside Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Central Management
and Control

Is the Central Management and Control
of the company exercised in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Carry on a Business

Does the company carry on a business in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Voting Power

Is the company's voting power controlled
by shareholders who are residents of Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is an Australian Resident

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is not a resident
but it could be a CFC

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

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