The Federal Government has released its first discussion paper for its planned tax reform, described the move as the first step in ‘an ambitious tax reform agenda’.

 

The paper outlines a number of future challenges that the Australian Government hopes to address, stating that future reform must take into account dealing with the emergent economic dominance of Asia in global markets while also offsetting the impacts of the country’s ‘patchwork economy’.

 

“The tax system is a major driver of the type of fair and prosperous society that we want. This is why reform of the tax and transfer system is important to achieving our economic goals. Tax reform should aim to make the economy stronger, our society fairer and the tax system simpler,” the Federal Treasurer Wayne Swan writes in the introduction to the paper.

 

The Federal Government has outlined the reform agenda to personal taxes, including:

 

  • increasing the tax free threshold from $6,000 to $18,200 in 2012-13, freeing up to an extra one million people from needing to lodge a tax return and providing all taxpayers below $80,000 with a tax cut. Most will get a cut of at least $300, but people with income below $30,000 will get larger tax cuts that reward their workforce participation;
  • simplifying personal taxes, by providing an optional standard tax deduction of $500 from 1 July 2012, increasing to $1,000 from 1 July 2013;
  • reducing adverse incentives, by phasing out the Dependent Spouse Tax Offset for people aged under 40 on 1 July 2011, and reforming the Fringe Benefits Tax treatment of cars to remove the tax incentive to drive longer distances;
  • improving the treatment of interest savings, with a 50 per cent tax discount on up to $500 of interest income from 1 July 2012, increasing to $1,000 from 1 July 2013;
  • boosting superannuation savings, through an increase in the Superannuation Guarantee to 12 per cent by 1 July 2019; and
  • making superannuation concessions fairer, through a new $500 government contribution for low-income earners, and maintaining the $50,000 superannuation contributions cap beyond 1 July 2012 for over 50s with balances below $500,000.

 

The reform agenda for business taxes are as follows:

  • lowering the company tax rate to 29 per cent from 2013-14, with small companies benefitting from an early start from 2012-13;
  • replacing the Entrepreneurs’ Tax Offset with simpler and more generous depreciation arrangements that allow small businesses to immediately write-off assets valued at under $6,500 and the first $5,000 of a motor vehicle; and
  • allowing designated infrastructure projects to carry forward losses with an uplift factor to maintain their value.

 

The Federal Government has also announced a public forum to be held on taxation on 4-5 October at Parliament House in Canberra.

 

The full discussion paper can be found here