Taxation Fairness and integrity in the tax system


Budget Review 2009-10 Index

Budget 2009 10: Taxation

Fairness and integrity in the tax system

Kali Sanyal

On 12 May 2009, the Treasurer announced in the 2009–10 Budget important new measures to improve the integrity of the tax system and protect Commonwealth revenues in the face of the global recession. This paper discusses the proposals classified as fairness and integrity measures in ‘Appendix F: Major Savings in the 2009-10 Budget’ of the Budget Overview 2009-10.[1]

The following table lists the savings from these measures and provides links to press releases issued on Budget day, where available, and references to Budget Paper No. 2 2009–10.

Fairness and Integrity Measures in Budget 2009-10

Announced measure and linked media release

Budget paper no. 2

Revenue ($m)

2008–09

2009–10

2010–11

2011–12

2012–13

Total

Tightening access to non-commercial business losses

p. 20

-

-

330.0

240.0

130.0

700.0

Superannuation - payment of small and insoluble lost accounts to unclaimed monies

p. 35

-

-

183.7

36.1

9.7

229.6

Promoting a level playing field for small business

p. 390

-

43.9

52.7

67.3

78.6

242.5

Better targeting of income tax exemption for overseas workers

p. 19

-

-

215.0

225.0

235.0

675.0

Better targeting the concessions of Employee Share Schemes

p. 18

-

10.0

90.0

60.0

40.0

200.0

Total

 

0.0

53.9

871.4

628.4

493.3

2047.1

Source: Adapted from ‘Appendix F: Major Savings in the 2009–10 Budget', Budget Overview 2009–10, p. 39

The following notes on the above measures include extracts from Budget Paper No. 2 2009–10.[2]

Tightening access to business losses[3]

From 2009–10 the Government will tighten the application of the rules on the use of non-commercial losses to prevent high income individuals from offsetting excess deductions from non-commercial business activities, considered to be lifestyle choices or hobbies, against salary and other income.  

The changes will lead to the following:

  • taxpayers with an adjusted taxable income of over $250 000 will instead have excess deductions quarantined to the business activity
  • the existing rules will continue to apply to taxpayers with an adjusted taxable income of $250 000 or less, and
  • the measure will have an ongoing gain to revenue which is estimated to be $700.0 million over the forward estimates period.

Taxpayers will still be able to apply to the Commissioner of Taxation for relief from the rules:

  • if there are exceptional circumstances or
  • because the nature of the activities means that a taxpayer is temporarily carrying on an uncommercial business but the activities they are undertaking are nonetheless independently assessed as commercially viable.

Superannuation – unclaimed monies[4]

From 2010–11 superannuation providers will be required to transfer lost accounts which have balances less than $200, or which have been inactive for five years and for which there are insufficient records to identify the owner of the account, to unclaimed monies held by the Australian Taxation Office (ATO).

The lost accounts will be able to reclaimed by former holders.

The measure will result in an estimated gain to revenue of $238.0 million and an expected increase to government expenditure of $8.4 million over the forward estimates period.

Compliance activities[5]

The Government will provide $70.9 million over four years to the ATO for compliance activities aimed at ensuring small business and other taxpayers continue to meet taxation and other superannuation obligations during the global economic downturn.

The measure:

  • will allow the early identification of and engagement with small businesses that may engage in cash economy activities, tax minimisation schemes and serial insolvency practices, and help maintain employee entitlements
  • in fiscal balance terms, is estimated to result in an additional $313.4 million in revenue over four years
  • in underlying cash terms, the expected increase in receipts is $216.7 million over four years.

The measure includes a $4.6 million capital funding for the ATO to implement system changes.

Better targeting of income tax exemption for overseas workers[6]

Currently some foreign employment income earned by Australians working overseas is exempt from income tax. The policy intent was to relieve double taxation, but in practice little foreign tax may be paid on these earnings.

From 1 July 2009, the exemption will be limited to income earned as an aid worker, a charitable worker, some types of government employment, or on projects of national interest. To relieve double taxation when it occurs, individuals will be entitled to a foreign income tax offset for any foreign tax paid on money earned.

The measure has an estimated gain to revenue of $675 million over the forward estimate period.

Concessions for Employee Share Schemes[7]

Eligibility requirements for the employee share scheme tax concessions to employees with an adjusted taxable income of less than $60 000 have been changed from 7.30pm (AEST) on 12 May 2009.

Previously, an employee could elect to be assessed on discounts provided on shares or rights in the income year the shares or rights were acquired. If no election was made, the discount (which includes gains on shares or rights) was taxed at a later time (such as when restrictions on the shares or rights are lifted). If an employee elected to be taxed upfront, they received a tax exemption of up to $1 000 on the discount.

The proposed measure will:

  • remove the existing election and assess discounts provided on shares or rights in the income year the shares or rights are acquired
  • limit access to the upfront concession to employees with an adjusted taxable income of less than $60 000.

This measure will have an ongoing gain to revenue which is estimated to be $200.0 million over the forward estimates period.

Reaction to the Budget measures

Over the forward estimate years, the Government anticipated a total savings of $2.05 billion, an increase of revenue by other measures.

However, it is pertinent to note that the initiatives undertaken by the government on the employee share schemes drew some criticisms from business group and employees equally. On 15 May 2009, the Australian Financial Review disclosed that:

Leading chairmen and executives have lashed the Rudd government's assault on employee share schemes, as more companies moved yesterday to freeze or postpone their plans amid widespread outrage about the changes. Woolworths, Fairfax Media, OneSteel and Macquarie Group joined Wesfarmers and United Group yesterday in suspending or reviewing schemes, putting at risk the $200 million in revenue the government planned to recoup from the move over the next four years. The changes, which force people earning more than $60,000 to pay tax upfront on share and options packages, affect more than 4 million employees and many small companies that had introduced schemes to encourage share ownership. [8]

The article went on to say:

Assistant Treasurer Chris Bowen told The Australian Financial Review yesterday [14 May 2009] that the Rudd government supported employee share schemes but stood by the budget measure, despite the business backlash. [9]



[1].    Australian Government, ‘Appendix F: Major Savings in the 2009-10 Budget’, Budget Overview, Commonwealth of Australia, Canberra, 12 May 2009, p. 39, viewed 13 May 2009, http://www.budget.gov.au/2009-10/content/overview/download/Budget_Overview.pdf

[2].    ‘Appendix F: Major Savings in the 2009-10 Budget’, Budget Overview.

[3].    Australian Government, ‘Part 1: Revenue Measures’, Budget measures: Budget paper no. 2: 2009–10, Commonwealth of Australia, Canberra, 2009, p. 20.

[4].    ‘Part 1: Revenue Measures’, Budget paper no. 2, p. 35.

[5].    Australian Government, ‘Part 2: Expense Measures’, Budget measures: Budget paper no. 2: 2009–10, Commonwealth of Australia, Canberra, 2009, p. 390.

[6].    ‘Part 1: Revenue Measures’, Budget paper no. 2, p. 19.

[7].    ‘Part 1: Revenue Measures’, Budget paper no. 2, p. 18.

[8].    P Durkin and A Hepworth, ‘PM lashed on share scheme debacle’, Australian financial review, 15 May 2009, p. 1, viewed 15 May 2009,  http://parlinfo.aph.gov.au/parlInfo/download/media/pressclp/ABKT6/upload_binary/abkt60.pdf

[9].     Durkin and Hepworth, p. 1.


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