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Greenwoods & Freehills Budget Briefing. The 2009-10 Commonwealth Budget. The 2009-10 Commonwealth Budget. Managed investment trusts Andrew Mills Superannuation and related measures Shayne Carter Employee share schemes Ernest Chang Foreign source income (CFCs, FIFs etc)
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Greenwoods & FreehillsBudget Briefing The 2009-10 Commonwealth Budget
The 2009-10 Commonwealth Budget • Managed investment trusts • Andrew Mills • Superannuation and related measures • Shayne Carter • Employee share schemes • Ernest Chang • Foreign source income (CFCs, FIFs etc) • Jane Michie • Off-market share buy-backs • Ernest Chang • GST • Andrew Howe
The 2009-10 CommonwealthBudget MITs Andrew Mills Director
MIT CGT treatment Why? What is it? Who qualifies? What will it apply to? When will it apply?
MIT CGT History ATO activity and industry lobbying MIT Review terms of reference International competitiveness and certainty
MIT CGT Elective CGT to apply to disposals of “eligible assets”
MIT CGT “MITs” – which definition? trusts 100% owned by MITs satisfying “eligible investment” rule in Div 6C not unit trusts subject to corporate tax
MIT CGT not same as EIB list shares, units, real property likely follow super rule TOFA arrangements probably excluded
MIT CGT elective 2008/09 year and following irrevocable query (a) new trusts (b) change in assets (c) mergers of trusts
Trust to trust rollover Proposed abolition of E1 and E2 announced October 2008 Discussion paper and submissions followed Limited rollover announced in budget Fixed trust requirement No material discretionary elements Same beneficiaries Benefit in stapled trusts arrangements
SUPERANNUATION MEASURESShayne CarterDirector The 2009-10 Commonwealth Budget
The Measures • Reduction of the concessional contribution caps • Transfer of small and lost accounts • Account-based pensions draw-down relief • Trans-Tasman retirement savings scheme • Capital loss roll-overs for complying superannuation fund mergers • Life insurance – immediate annuity business • Henry Review of Retirement Income System
Contribution caps from 2009-10 year • Concessional • cap halved to $25,000 ($50,000 transitional for those aged 50 and over until 30 June 2012) • Non-concessional • cap maintained at $150,000 by changing cap from3 x concessional cap to 6 x concessional cap • Grandfathering • pre-Budget defined benefits where notional contribution will exceed new concessional limit
Transfer of small and lost accounts • ‘Efficiency’ measure • Lost accounts with balances less than $200, and inactive for 5 years and insufficient records to identify owners • Members can reclaim such money
Account-based pensions draw-down relief • Currently flexible rules concerning pensions • Minimum draw-down rules • 18 February the minimum draw-down amount for 08/09 was halved • Measure extended to 09/10
Trans-Tasman retirement savings portability scheme • In-principle agreement to a memorandum of understanding with New Zealand to establish a Trans- Tasman retirement savings portability scheme • Proposal to permit transfers between New Zealand Kiwi Super funds and certain Australian superannuation funds • No real detail and no start date
Capital loss roll-over for complying superannuation mergers • Build up of capital losses in funds created a barrier to transfer • Government announced CGT loss roll-over relief in transfers to superfunds with at least 5 members • Broadly proposed CGT loss roll-over would allow the transferring fund to disregard some or all of any capital losses • The receiving fund to inherit the transferring fund’s cost base
Capital loss roll-over for complying superannuation mergers ... continued • Announcement in April 2009 of further refinements to proposal – extension of arrangements to mergers involving pooled superannuation trusts and the complying super business of a life insurance company • Will allow super entities in a net capital loss position to roll-over assets with capital gains and capital losses • Extended to realised capital losses or revenue losses
Government co-contribution • Currently government makes a co-contribution of $1.50 for each $1 of personal after-tax contributions made by a person earning under $30,342 • Co-contributions phase out to persons earning $60,342 • The rate of government co-contribution will be temporarily reduced as follows, returning to the present rate of $1.50 in the 2014-2015 year:
Life insurance – immediate annuity business • Problem with exemption for life policies • Particular issues with application of provisions after consequential simpler super amendments • Super income stream benefits to be treated on same footing as other providers • Ordinary money annuities old rules apply
Henry Review of retirement incomes released • That the three pillar approach (that is, the means-tested Age Pension, compulsory superannuation guarantee and voluntary contributions) be retained • Greater consideration of the interaction of the tax transfer system and the aged care system is required • Concern that the longevity risk (the risk that individuals will exhaust their assets before death) is a structural weakness of the superannuation system • A general lack of awareness and engagement of individuals with the retirement income system
Henry Review ... continued • That tax-assisted voluntary superannuation contributions should be more fairly distributed • Questioning the current cap on concessional contributions - which the government specifically announced it would act on • That the current 9% compulsory rate of saving was appropriate; and • That preservation age should be gradually increased to 67, subject to further examination how mandatory retirement ages should be treated
EMPLOYEE SHARES SCHEMES Ernest ChangDirector The 2009-10 Commonwealth Budget
FOREIGN SOURCE INCOME (CFCs, FIFs etc)Jane Michie Director The 2009-10 Commonwealth Budget
Foreign source incomeIntroduction Tax Board recommendations (10) Government responses Treasury consultation
Foreign source incomeTreasury consultation Pre-drafting Discussion Paper Part X to be re-written in ITAA 1997 Principle-based drafting
Foreign source incomeTreasury consultation Passive vs Active income ‘active’ can include traditionally passive items possibly, no special rules for AFI subsidiaries ‘intra group’ relief is limited flow-on for s.23AH and Div 768-G
Foreign source incomeTreasury consultation Section 23AJ seeking a single non portfolio concept less emphasis on voting rights possible loss of s.387 relief apply to equity interests shares only? debt interests excluded 3rd party arrangements? interposed trusts/partnerships extend to corporate unit trusts/public unit trusts s.23AI to be repealed?
Foreign source incomeTreasury consultations – additional insights De facto control to dominate Possible loss of FITOs Debt/equity and TOFA rules likely to apply Possible limit on debt deductions Limits on choice of methodology
Foreign source incomeTreasury consultation – noticeable omissions No effective dates (anywhere) No discussion of NCLE application No discussion of FIF integrity rule No discussion of base company integrity rule Foreign hybrids not addressed
OFF-MARKET SHARE BUY-BACKSErnest ChangDirector The 2009-10 Commonwealth Budget
Off-market share buy-backs • Background • Implementation of all six Board of Taxation recommendations • legislating current ATO administrative practice (PS LA 2007/9) • change in tax recognition of notional losses by shareholders • differentiation between listed and unlisted companies • Application • Effective from date of Royal Assent
