Pitcher Partners partner Greg Nielsen said increasing budget deficits and decreasing revenue collections may again put pressure on the White Paper discussion and future income tax reforms. However, tax reform is complex, he said, and sufficient consideration of the issues is unlikely to occur between now and the May 2015 Federal Budget.
Mr Nielsen said there were options that could be considered in the shorter term to help the Budget position, such as the tax treatment of digital downloads.
“While increasing the GST rate is something that could be explored, the government is unlikely to do this without taking the option to an election,” he said.
“There has been much discussion around supplies of intangible property to Australian consumers from offshore providers (such as digital downloads) and how these could be taxed in Australia, where currently non-residents may not be paying Australian tax in the form of GST or corporate income tax.
“It may be possible to increase revenue collections from the supply of intangible property to Australian consumers from offshore, by including these activities as being a taxable supply for GST purposes where they are consumed by Australian residents. Although the collection of GST in relation to these types of e-commerce transactions presents its own challenges, these options may be simpler to introduce."
The Budget deficit has been revised by approximately $10.6 billion as a result of declining revenue (around $6.2 million) and increased expenditure ($4 billion). Tax receipts have mainly decreased due to the reduction in iron ore prices by over 30 per cent and weaker-than-expected wages growth.
KPMG tax partner Grant Wardell-Johnson said the MYEFO figures are “chastening, to say the least”.
He said the biggest relief is that the government has chosen not to follow the UK on a Diverted Profits Tax (DPT) or similar provisions.
“Presumably, consideration will be given to these potential measures at a later point in time, but the UK measures seem extremely complex, and it’s not at all clear who would be affected.
“The DPT does not seem to fit comfortably with the OECD agenda – the whole point of which was for a multilateral approach to avoid countries taking unilateral action. So I would urge the government to take extreme care before going down the UK route.”
Mr Wardell-Johnson said there could be renewed focus on companies capitalising and expensing in-house software, but warned this may have an unwelcome impact on large institutions.
“In the MYEFO statement, the Treasury said it would be extending the effective life of depreciation for in-house software so that it would be written off over five years, rather than the current four (when installed ready for use on or after 1 July 2015). The move will raise $140 million 2016-17 and $280 million in 2017-18. This may have a significant and unwelcome impact on large institutions, which may no longer be able to claim R&D tax credits for in-house software development, given that they exceed $20 billion turnover under the new government threshold.”
“While we accept that, given the MYEFO figures, action needs to be taken to increase revenue, we do have concerns on this approach to R&D, given that the nation needs a stronger focus on innovation,” Mr Wardell-Johnson said.