Socials

Last night the 2024 Federal Budget was handed down by the Treasurer aiming to address inflation, higher interest rates and cost of living.

Businesses and individuals are feeling the pressure navigating through challenging conditions. These economic conditions require strategic foresight and adaptive measures from the Australian government.

This year’s Federal Budget comes at a critical time and carries high expectations to deliver solutions that address these pressing issues. We explore the intricacies of the 2024/25 Federal Budget and reveal the Hidden Gems— opportunities and insights that could be the key to resilience and growth for your financial landscape.

What does the Federal Budget mean for you?

Our Fast Facts provide an overview of the budget insights and highlight potential opportunities for your sector.

Take a look at what the Federal Budget means for you in 2024:


Follow us on LinkedIn to receive the latest updates on Federal Budget and other important industry news.

With another super rate increase from 1 July 2024, make sure salary reviews are completed and your payroll is up to date.

From 1 July 2024, the superannuation guarantee (SG) rate will increase from 11% to 11.5%, increasing the compulsory superannuation payments employers make to their employees.

The 0.5% increment will continue on 1 July each year until it reaches 12% in 2025.

What employers need to do prior to 1 July 2024?

To avoid any negative impact to employees, complete salary reviews before 30 June 2024. Provided the business can support the cost and cashflow, this will ensure the pay increments at least cover the increase to the employee’s cash salary component.

Employees who are packaged on a gross salary plus super arrangement will have no impact on their take home salary. Although, employers need to factor in the additional wages cost for the superannuation increment of 0.5%. This will mean the total wages costs will increase for other on-costs such as payroll tax and WorkCover.

Maximum Contribution Base (MCB)

The MCB will increase to $65,070 per quarter.

MCB is used to determine the maximum limit on any employee’s earnings base for each quarter in the financial year. Employers are not required to make the minimum SG payment for the part of earnings above the MCB.

Concessional contributions

From 1 July 2024, the concessional contributions cap will increase from $27,500 to $30,000, allowing individuals to add more to their super accounts.

Non-concessional contributions

The non-concessional contributions cap will increase from $110,000 per year to $120,000. This change will also affect the bring-forward rule which will increase to up to $360,000 depending on your super balance.

What’s not changing

Superannuation contribution payment due dates remain the same at 28days after the end of each quarter.

The superannuation guarantee charge (SGC) will apply when employers do not pay the SG to their eligible employees’ nominated superannuation fund by the due date.

The contribution quarters are as follows:

QuarterPeriod
11 July – 30 September
21 October – 31 December
31 January – 31 March
41 April – 30 June

How can SW help?

SW has an experienced outsourcing team to assist with your payroll function. We can assist employers understand and become familiar with the new requirements to make this change as easy as possible, while also ensuring employers are meeting compliance requirements.

We can support with :

Contributor

Joshua Teo

The Victorian State Budget 2024/25 seeks to address the inflationary and interest rate pressures and focuses on health and education spending. With high debt levels, Treasurer Tim Pallas has curbed infrastructure expenditure with property taxes set to increase.

Key takeaways

What does the State Budget mean for you?

Contributors

William Zhang

Blake Rogers

The much-anticipated draft Build to Rent (BTR) legislation has been released for consultation, intended to significantly boost Australian developments in order to help ease Australia’s significant housing shortfall.

The SW Property & Infrastructure team are at the forefront of key changes and impacts related to BTR and the proposed legislation. Our submission to Treasury will cover all the noteworthy intricacies that will have long term ramifications on the BTR sector as detailed below.

Legislation will not be backdated

It is disappointing that the legislation will not be back dated for the small number of BTR pioneers that commenced construction on projects before 9 May 2023. These projects will be subject to the 30% Managed Investment Trust (MIT) Withholding Tax rate (WTR) imposed on residential property which may leave these small number of assets stranded and as these properties will not have concessional BTR MIT WHT treatment they will be more difficult to sell.  

BTR projects are anticipated to be predominately funded by large offshore investors who already have exposure to this asset class internationally.

Key points

Who’s eligible?

BTR developments must meet the following eligibility criteria:

Does this reduce ‘Red Tape’?

The Government’s promise of cutting red tape and planning hurdles to attract more institutional investment in the housing sector seems inconsistent with the legislation’s complexity. The new rules appear more difficult to satisfy than most of the State BTR land tax concessions (as indicated in the below analysis).

Use of foreign capital now requires an affordable tenancy component

A number of the state land tax concessions do not require an affordable tenancies component. Therefore, this will now need to be factored into the rental profile of BTR developments in NSW, VIC and WA where they are looking to fund developments using foreign capital.

15 year compliance period

As the 15% MIT WHT rate is only available for 15 years, the concession is not very beneficial considering the long-term nature of BTR developments and is not consistent with the original announcement that did not mention any restriction on the period of the lower 15% MIT WHT rate. 

All other commercial property held by a MIT is broadly subject to a 15% MIT WHT rate during the duration of the asset holding period by the MIT so it unclear why such a restriction has been imposed on the BTR sector.

Comparison with State BTR regimes

The following table summarises the key features comparison of NSW, Queensland, Victorian and Western Australian BTR land tax concessions.  There are also BTR exemptions for South Australia, Tasmania and ACT.

Get in touch

Should you have any questions regarding the new BTR MIT legislation or would like to contribute to our submission on this issue please contact either Abi, Stephen or Matt.

Discover the Hidden Gems of the Federal Budget 2024/25. What will it deliver to support you, your business and your industry?

With global inflationary pressures, high interest rates and the cost of living crunch, businesses and individuals alike find themselves navigating through challenging conditions. These economic conditions require strategic foresight and adaptive measures from the Australian government.

This year’s Federal Budget comes at a critical time and carries high expectations to deliver solutions that address these pressing issues. Join us as we explore the intricacies of the 2024/25 Federal Budget and reveal the Hidden Gems— opportunities and insights that could be the key to resilience and growth for your financial landscape.

Budget Breakfast Webinar | Hidden Gems

Join us as we digest the details of the 2024 Federal Budget at an informative webinar with an interactive Q&A session.

Our host, Matt Birrell will be joined by ANZ Senior Economist, Madeline Dunk as well as our SW industry experts to breakdown the key details of the FY24 Federal Budget.

Online registration details

Date         Wednesday 15 May 2024

Time         9.30am – 11am (AEDT) 

Expert speakers

Madeline Dunk
ANZ
Senior Economist

Matt Birrell
SW
Director, Tax

Simon Tucker
SW
Director, Tax


Follow us on LinkedIn to receive the latest updates on Federal Budget and other important industry news.

The new Victorian Commercial and Industrial Property Tax (CIPT) will impact  property purchases after 1 July 2024. This is a significant change to transition away from stamp duty for commercial and industrial property. There are numerous complexities in the proposed legislation.

The Commercial and Industrial Property Tax Reform Bill 2024 was introduced into the Victorian Legislative Assembly on Wednesday 20 March. This follows the Victorian Government announcement of the final design details of the Commercial and Industrial Property Tax Reform in December 2023. The Government has asked for written submissions or suggested adjustments to the legislation by 3 April.

The CIPT will be an annual property tax with the Bill providing for the transition of qualifying land to the commercial and industrial property tax (CIPT) scheme.

CIPT key points

What type of properties and land will this apply to?

The reform will apply to Victorian qualifying commercial or industrial use land that fall within the below ranges of the Australian Valuation Property Classification codes (AVCC):

Student accommodation

Land will have a qualifying use if the land is solely or primarily used for eligible student accommodation which is defined to mean residential premises that are:

Entry into the Scheme

Land with a qualifying use enters the scheme on the occurrence of:

Generally, a dutiable or landholder transaction brings land into the scheme if the transaction is not fully exempt from land transfer duty or landholder duty, and the transaction relates to an interest in land that amounts to a qualifying interest, being an interest of at least 50% in the land. 

Aggregation

There are aggregation rules that apply in determining if the 50% threshold has been met. Interests acquired with associated persons and acquisition of interests which occur with a 3-year period will be aggerated. Examples are provided in the Bill.

Who pays CIPT?

The owner of taxable land is liable to pay CIPT on the land.

The owner of CIPT taxable land is the same as the owner of the land for the purposes of the Land Tax Act 2005, however, the provisions deeming the holders of beneficial interests in certain trusts to be owners of land for the purposes of imposing land tax surcharges relating to trusts, are not applicable to CIPT.

Rate of CIPT

The rate of CIPT will be:

The taxable value of CIPT taxable land or part of CIPT taxable land is the same as the taxable value of the land or part under the Land Tax Act 2005. This is usually the site value contained in a valuation of land undertaken by the Valuer-General under the Valuation of Land Act 1960.

Exemptions from transfer and landholder duty on subsequent sales

There will be exemptions from transfer duty and landholder duty for certain transactions in relation to land that has entered the CIPT scheme.

Acquisitions of 100% interest in land

If the tax reform scheme land has entered the CIPT scheme through a transaction involving a 100% interest, no further duty is payable on a subsequent transaction.

Acquisitions of less than 100% interest in land

Where an interest of over 50% is acquired (but less than 100%), a subsequent transaction which relates to a different interest in the land may be subject to duty for a 3 year period or until full duty has been assessed on the interest (whichever occurs sooner).

The Bill includes as an example:

Person A acquires a 50% interest in a landholder under a relevant acquisition which occurs on 1 September 2025. The landholder holds a 100% interest in land. This relevant acquisition amounts to an interest of 50% in the land which is a qualifying interest and the qualifying landholder transaction is an entry transaction. Person B holds the remaining 50% interest in the landholder. On 1 January 2026, Person C acquires a 100% interest in the landholder from Person A and Person B. The value of the land holding of the landholder is to be excluded from the calculation of duty to the extent that the interest acquired by Person C is the same, or substantially the same, as the entry interest for the land (50%). The value of 50% of the land is included for the purposes of assessing duty on the relevant acquisition made by Person C.

Change in use

Where there is a change of use of land to a non-qualifying use (such as a rezoning to a residential use) after an exempt transaction, duty becomes payable on that transaction by the transferee.

Duty is assessed on the previous transaction based on the dutiable value of the land at the time of that transaction, not at the time of the change of use.

The amount of duty is to be reduced by 10% for each calendar year that has elapsed since the date of the transaction that is being assessed for duty. Note this is not necessarily the entry date of the land to the CIPT scheme.

Exclusions from the CIPT

As noted above, only commercial and industrial land (as well as student accommodation) is captured by the CIPT. Properties primarily used for residential, primary production, community services, sport, or heritage and culture purposes will not be captured.

The following transactions will also be excluded and will remain subject to duty regardless of whether the land has entered the CIPT transition:

Furthermore, transactions eligible for corporate reconstruction and corporate consolidation exemptions or concessions will not trigger entry into the CIPT regime.

Also as noted above, dutiable transactions and landholder acquisitions which are eligible for an exemption will not result in entry into the CIPT transition.

Our observations

How SW can help

This is a significant change in the application of duty to commercial and industrial property. For advice on how this will impact acquisitions in your pipeline or for assistance in modelling the tax payable on proposed acquisitions, reach out to your SW contact or one of the key contacts below.

Key contacts

Robert Parker

For the seventh consecutive year, SW has been recognised as a finalist in Beaton’s Client Choice Awards, solidifying its position as one of the leading accounting and consulting firms across Australia and New Zealand. This year, SW proudly secured three finalist spots, reflecting its unwavering commitment to excellence in client service and innovation.

CEO Duane Rogers reflected on the firm’s continuous recognition, stating, “Since our inaugural entry in 2018, these awards have provided invaluable insights into our client engagement and market positioning. It’s truly humbling to be acknowledged by our clients year after year. Being recognised not only in our revenue category but also as a finalist for Most Innovative Firm and Best Customer Experience underscores our firm’s dedication to our purpose and values, guiding our client interactions and supporting our talented team.”

Dr. George Beaton, Executive Chairman of Beaton, commended SW’s performance, stating, “This year’s competition was fierce, with 250 entrants vying for top honours. SW stood out with some of the highest client service scores we’ve seen, evidence of a deep commitment to client satisfaction in a hyper-competitive market.”

Building on its success, SW has established avenues for clients to provide feedback, including through beaton debrief surveys and direct conversations with Chief Marketing Officer, Ms. Amanda Lee.

Ms. Lee emphasised the significance of these dialogues, explaining, “Client conversations offer profound insights into their priorities and expectations. This feedback loop informs our continuous improvement efforts, shaping our learning and development initiatives. It also reaffirms that our core behaviours, such as responsiveness and understanding client needs, are ingrained in our culture.”

In recognition of its outstanding client service, SW is a Finalist for three award categories:

Award categories for SW

The Client Choice Awards, based solely on client feedback, celebrate excellence in professional services and reflect the evolving expectations of clients. By prioritising transparency and objectivity, Beaton ensures the integrity of the evaluation process, reinforcing the significance of client satisfaction in shaping industry standards.

SW extends its congratulations to all winners and finalists for their exceptional contributions to the professional services sector in 2023 and commends the Beaton team on their 20th anniversary. For more details, click here.

Media contact

E [email protected]
P +614 30 322 206

The decision in AusNet Services Limited v Commissioner of Taxation [2024] FCA 90 has been handed down and could be a win for taxpayers with its impact on the  ‘nothing else’ criteria for CGT rollover relief.

AusNet Services Limited faced a distinct challenge in trying to extricate themselves from a previously chosen rollover relief election, when hindsight showed that a different approach could lead to greater tax benefits. Though AusNet Services Limited lost the case, the decision may well assist taxpayers seeking to rely on CGT rollover relief more generally.

Background

The Ausnet Group consisted of the following entities which were stapled:

After a separate dispute with the Australian Taxation Office, it was decided to interpose a new entity above the AusNet Group and form a new tax consolidated group (TCG).

As shown in the above ‘post restructure’ diagram, after the 3 companies were unstapled, AusNet Services Limited (AusNet Services) acquired each of the 3 companies under a scrip-for-scrip exchange in the following order:

  1. Transmission,
  2. Finance, then
  3. Distribution.

The original intention was that CGT rollover would be sought for the interposition of the new head company under Division 615 of the Income Tax Assessment Act 1997.  On the same day as the interposition, AusNet Services elected to apply Division 615 (noting this is a separate election that automatically applies for the shareholders where the new interposed entity is the head company of a TCG). This election was supported by the Class Ruling CR 2015/45 (link) that AusNet Services sought from the Commissioner.

The issue with a Division 615 rollover is that the cost base of the shares that Ausnet Services (the interposed entity) holds in Distribution is equal to the cost base of the Distribution’s assets net of liabilities. Where there is significant value in the goodwill of Distribution, the ACA will be skewed to the goodwill, rather than other assets which have tax benefits.

Because of the rules that apply under Division 615 to determine the cost base of shares acquired in the 3 companies, AusNet Services came in time to experience what might be described as ‘rollover regret’.  With the benefit of hindsight, AusNet Services came to realise that the effects of the Division 615 were disadvantageous for the group in relation to the acquisition of Distribution.  Unfortunately, the relevant legislation explicitly states that once the decision to apply Division 615 is made, it cannot be revoked. The only recourse for amendment was therefore to contend that Division 615 should not have been applicable to Distribution in the first place.

Rollover relief and ‘nothing else’

Whilst there were several arguments raised by AusNet Services as to why rollover relief under Division 615 should not apply, for the purposes of this alert we will be focusing only on the argument that is pertinent to a number of tax rollover relief provisions, which will have broad implications. 

The argument boils down to the following question:

Notably the ‘and nothing else’ requirement is an important precondition for rollover relief in several other rollover provisions beyond Division 615, including:

Arguments of the case

AusNet Services argumentsCourt view
There was no scheme for reorganising the affairs of Distribution, as AusNet Services was not a shelf company. The reference to ‘its affairs’ in section 615-5(1)(c) meant that Division 615 only applied where the affairs of Distribution were not amalgamated or merged. Note that the Commissioner has previously indicated in earlier rulings on predecessor provisions that rollover relief may not be available where multiple entities are being restructured unless the interposed company is a shelf company – see Taxation ruling TR 97/18 (link).The affairs referred to in 615-5(1)(c) relate to the affairs of the shareholders and not that of the original or interposed company. In any event, Distribution, Finance and Transmission were a single economic unit and their affairs could not be dealt with in isolation. Essentially, the Court did not accept that it was a requirement of Division 615 that a shelf company be used where a new company is interposed between multiple entities and their shareholders.  
Distribution failed to meet the and ‘nothing else’ criteria of the rollover relief because the shareholders of Distribution received: shares in AusNet Services, which, unlike the shares in Distribution, included substantial franking credits; andan increase in value of the AusNet Services shares due to the synergy created by Distribution, Transmission and Finance being brought under the one umbrella parent entity.  The Court has interpreted the and ‘nothing else’ condition quite narrowly, where it stated that: By its terms, s 615-5(1)(c) focusses on that which a shareholder receives under the scheme in exchange for the shares. It does not look to the consequences of the scheme, but rather the consideration or quid pro quo received for the disposal of the shares. In this case the implementation deed specifically stated that for each share disposed of in Distribution, one share in AusNet Services would be received. Therefore, this quid pro quo would be viewed as the relevant consideration in determining the and ‘nothing else’ criteria. Where there were consequences of the scheme that arguably added further value to the consideration received, they would be ignored in the application of the and ‘nothing else’ condition. As an aside, it is interesting to note that in Class Ruling CR 2015/45 and the present case, the Commissioner accepted that there could be successive rollovers that were eligible for relief under Division 615. This should be contrasted with the Commissioner’s views in Taxation Determination 2020/6. Given the comments of the court, we would expect that the Commissioner’s views in Taxation Determination 2020/6 would need to be reconsidered.

AusNet lost in this case however the narrow construction of the and ‘nothing else’ condition is a win for taxpayers.

Key takeaways

How SW can help

If you are considering a group restructure and/or have any queries on the contents of this article, please contact our expert team here at SW.

Contributors

Ned Galloway

Kate Wittman

The Practical Compliance Guideline (PCG) 2024/1 (the Guideline) has been released with ATO poised to dedicate resources towards scrutinising cross-border related party intangible arrangements. As a result taxpayers will face increased disclosure and self-evidence requirements.

After a nearly three-year wait[1], the ATO finalised the risk guideline targeting cross-border related party arrangements (collectively referred to as ‘Intangibles migration arrangements’) involving:

The Guideline addresses concerns with arrangements:

The Guideline applies from 17 January 2024, and will apply to existing and new arrangements.

The Guideline does not reflect the ATO’s interpretation of tax laws, however serves as a cautionary notice that ATO will focus on scrutinising[2] risky arrangements.

The ATO’s compliance approach

The ATO’s approach to risk assessment is determined by two point-based Risk Assessment Frameworks (RAFs).

The below risk factors may trigger risk points for a completed intangible migration during the current year:

RAF Table 2 becomes relevant where there was no intangible migration completed during the current year. It comprises the below risk factors:

The risk zones / ratings and corresponding compliance approaches are summarised in the table below.

Evidence expectations

Similar to previous drafts, the Guideline continues to place a high bar for evidence and documentation.

The expected evidence focuses on the following aspects:

The complexity of taxpayers’ business, the extent to which their Intangibles migration arrangements contribute to that business, and the risk rating of the arrangement will influence the type and level of evidence the ATO expects from them to substantiate the arrangement. However, the Guideline does not serve as substitute for the transfer pricing documentation requirements under Australian tax law.

Examples

Appendix 1 of the Guideline includes 15 examples of Intangibles migration arrangements to illustrate how the RAFs should be applied by taxpayers. Our transfer pricing experts break down and explain these examples here.

Some positive improvements, but still challenging to handle

Compared with PCG 2023/D2, there appears to be some “taxpayer friendly” changes which show that the ATO adopted public feedback during the consultation process. Some positive changes include:

On the other hand, the Guideline remains to place significant challenges and administrative burden on taxpayers:

Key takeaway for taxpayers

The Guideline’s finalisation highlights the ATO’s focus on tax risks connected to intangible arrangements with offshore related parties. It is relevant to a wide range of Australian taxpayers, regardless where the relevant intangibles are held. The asessment of the relevance and associated risk is not a straightforward process.  It is important for taxpayers to self-assess early and complete these self-assessments before tax returns for the relevant income year are lodged.

For larger taxpayers that are required to complete Reportable Tax Position (RTP) Schedules in the tax return, a new question on Intangibles migration arrangements will need to be completed.  Getting in touch with relevant IRPs early to obtain necessary evidential support is critical for the RTP disclosure.

Regardless of materiality, taxpayers need to ensure sufficient coverage on the arm’s length nature of relevant intangible arrangements is included in its contemporaneous transfer pricing documentation.  All the examples detailed in the Guideline have mentioned transfer pricing as a focus area under the ATO’s compliance approach across all risk categories.

How SW can help

Our experts can assist with:

Reach out to your SW advisor for support from our specialist tax team.

Contributors

Elena Guo


[1] With initial PCG 2021/D4 released in May 2021, followed by PCG 2023/D2 released in May 2023.

[2] Including the potential application of the general anti-avoidance, transfer pricing, capital gains tax rules etc.

The ATO has released a new draft tax ruling (TR 2024/D1) on the character of software arrangements for public consultation. This outlines the Commissioner’s view as to when payments would fall under a software arrangement and are subject to royalty withholding tax.

The over-arching view remains that payments made for vast majority of software arrangements may be royalties when made by an Australian entity to an offshore entity. This includes cloud-based distribution, distributors of tangible hardware with a software component licensing, software-as-a-service.

The current draft is in essence a comprehensive rewrite, notably removing the concept of a ‘simple use of software’ but further considers the interactions and applications of the royalty definitions in domestic tax laws and Double Tax Agreements (DTAs). It replaces draft ruling TR 2021/D4 (issued in June 2021), which replaced TR 1993/12 (withdrawn effective 1 July 2021).

What has changed?

Under the current draft:

an agreement, arrangement or scheme under which a distributor makes payment(s) directly or indirectly to the owner or licensee…of the copyright (or other intellectual property (IP)) for the right to be in a position to earn income relating to the use of, or right to use, software.

Royalty ‘defined’

The table below sets out the ATO’s distinction when consideration constitutes a royalty payment.

RoyaltyNot a Royalty
– Grant of a right to use IP (e.g. to reproduce a computer program), (regardless of whether the right is exercised).
– Use of an IP (under the standard tax treaty definition).
– Supply of know-how in relation to an IP right.
– Supply of assistance required to enable the application or enjoyment of the supply.
– Sale by a distributor of hardware with embedded software, where the distributor is granted or uses rights in the IP of the embedded software.
– Solely for grant of right to distribute software without being provided the use, or right to copyright or another IP right.
– Consideration for transfer of all rights with respect to software copyright.
– Payment from distributor solely for acquisition of hardware with embedded software, provided the distributor does not use or is granted the right to use, any other copyright / IP in the embedded software.
– Outright sale of all rights associated with the software and IP. Supplier must not retain any rights.
– Consideration for the provision of services that are unrelated to any IP right referred to under the standard tax treaty definition.

How does the ruling apply in practice?

To illustrate its view the ATO has replaced the eight high-level examples with two detailed scenarios.

In one scenario, the Australian entity (AusCo) is granted a non-exclusive right to resell its foreign parent’s (ForCo) software products in Australia. Whilst the agreement does not set out all the necessary rights and obligations to give effect to the software arrangement, certain key terms are provided, including:

The ATO considers payments made by the AusCo to ForCo is royalty because the rights and entitlements to use the software cannot be provided with the authorisation or communication by the ForCo (the copyright owner). Furthermore, AusCo has obtained other rights (e.g. use of ForCo’s trademarks, brands, enter into commercial rental arrangement (recurring licensing fee), etc.) under the agreement.

Reasonable apportionment may be applicable if sufficient evidence is provided to support the notion that the distribution right had substantial value independent of any right to use copyright or IP rights.

What is the (potential) impact?

The ATO is currently seeking comments on the draft ruling, with the consultation period closing on 1 March 2024. Once finalised, the ruling will apply to both prospective and retrospective arrangements.

Where a payment is royalty, it is subject to royalty withholding tax in Australia – either at the treaty rate (where there is a DTA) or the default rate of 30 percent. If the Australian resident makes overseas payments but failed to withhold and/or remit, deduction of these payments will be denied for income tax purposes until such time the withholding tax is remitted.

Whilst the draft ruling concerns payments relating to ‘software arrangements’, the ATO may also potentially extend its application to distribution / licensing arrangements to other industries (e.g. pharmaceutical), where the rights to distribute, copyright, technical know-how and/or provision of ancillary services may also typically be ’bundled up’ under a single agreement.

How SW can help

Our experts can assist with:

Reach out to your SW advisor for support from our specialist tax team.

Contributors

Anthony Cheung

Emily Lowe