2024 Budget Tax Note

by Ryan Leslie, James Pettigrew ,Toby Eggleston, Nick Heggart, Graeme Cooper, Jinny Chaimungkalanont, Hugh Paynter

As expected, corporate tax changes in this year’s budget were few and far between. What was not expected was the actual list of changes – contrary to expectations there were no announced investment allowances to encourage investment in energy transition but there was an expansion in the CGT rules for non-residents, a delay in previously announced Part IVA changes and an abandonment of the proposed rules to deny deductions for intangibles payments to low or no tax jurisdictions – on the basis that Pillar 2 will address those issues.

A summary of the tax changes relevant to corporates is included below:

• Non-resident CGT changes: The biggest unexpected change is a light on details announcement of a ‘broadening’ of the types of assets for which non-residents are subject to capital gains tax on disposal. Currently, non-residents are only subject to CGT on taxable Australian property, comprising assets of an Australian permanent establishment, land, fixtures, mining rights and non-portfolio interests in land rich entities. The announced changes, to take effect for CGT events commencing on or after 1 July 2025 (meaning a change to the tax profile of existing investments) are
  • a clarification and broadening of the taxable asset classes – the only detail provided is that the change will ‘ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land’. The Commissioner has foreshadowed arguing (in a number of current tax cases) that taxable Australian property comprises more than land and common law fixtures – seemingly the law will be amended to reflect the Commissioner’s position. It will be interesting to see how the interplay with some double tax agreements is navigated (i.e. if the DTA has a definition of real property will Australia unilaterally override?). Changes to include mining information and goodwill in the value of mining rights were announced in 2013 but were never pursued (these changes may also be revisited);
  • amending the principal asset test from a point in time test to be a test applied over a one-year period, which will no doubt have practical issues in terms of information and valuation availability, especially for minority investors. Presumably it will also capture shares in entities where the underlying land asset has been sold and all that is left is cash at the point the non-resident sells; and
  • requiring non-residents disposing of shares and membership interests with a value exceeding $20 million to notify the ATO in advance of disposal – this advance notice requirement is increasingly being imposed as a FIRB condition in relevant transactions. This measure is stated as being designed to “improve oversight and compliance with the foreign resident CGT withholding rules, where a vendor self-assesses their sale is not taxable real property”. Under the present rules a buyer is not liable where it relies on a vendor declaration unless it knows it to be false. It seems optimistic to think that there is such an ongoing issue of non-residents falsely declaring shares are not taxable real property that this will raise anywhere near the $200m pa forecast.
• Tax incentives: Tax incentives – but not until FY28 – for critical minerals production ($7bn) and hydrogen production ($6.7bn).
  • The critical minerals production incentive will be valued at 10% of relevant processing and refining costs and apply for up to 10 years.
  • The hydrogen production tax incentive will provide a $2/kg incentive for green hydrogen produced for up to 10 years.
• Intangibles payment rules not proceeding: The proposed rules to deny certain payments relating to intangibles held in low or no tax jurisdictions are not continuing on the basis that the issues will be addressed through the Pillar 2 Global Minimum Tax Tax, which is a welcome change. However, a new penalty will apply from 1 July 2026 for SGEs found to mischaracterise or undervalue royalty payments to which withholding tax would have applied.
• Deferral of Part IVA changes: The start date for the Part IVA changes announced last year has been deferred from 1 July 2024 to the date of Royal Assent. As a reminder, those changes were to capture scheme which (a) result in lower withholding tax rates applying and (b) achieve an Australian tax benefit but have a dominant purpose of obtaining a foreign tax benefit. Once enacted the new rules will apply to transactions regardless of whether the scheme was entered into before that date.
• Small business relief: The small business $20,000 instant asset write-off is extended to 30 June 2025, though it will remain applicable only for entities with annual turnover below $10 million.
• Tax avoidance taskforce funding: Funding for the tax avoidance taskforce has been increased by $1.2bn to cover the 2027 and 2028 financial years – with an expectation of raising an additional $2.4bn in tax.