Many inbound investments to date have been structured using trusts. The government proposes to eliminate the advantages by taxing trusts the same as companies commencing in July 2000. Transition rules would apply to existing investments.
Another proposal would eliminate the concept of “franked dividends,” or distributions out of earnings that were already taxed at the company level. Franked dividends are not subject to further tax to the shareholder receiving them. This has given rise to “streaming” arrangements where franked income is steered to Australian shareholders and unfranked dividends go to shareholders who are outside the Australian tax net. Instead, companies will have to pay a top-up “equalization tax” when paying dividends to ensure all earnings have been subject to full corporate tax.
The government also proposes a rule where any distribution by a company would be treated as a dividend to the extent the company has profits. This will affect share buybacks, capital reductions and liquidations.
A general goods and services tax (GST) would be imposed by the federal government, probably at a 10% rate. The GST would replace the federal wholesale sales tax and certain state taxes, including most stamp duties.
The government also said it intends to talk to the business community about reducing the corporate tax rate to 30% (from the current 36%) in exchange for scaling back accelerated depreciation and possibly other concessions.
The proposals will be included in the election manifesto of the ruling Liberal-National coalition for the next national election, currently expected in October. The government is currently trailing in the polls, but the main opposition party is backing most of the reforms.
