International Tax Reforms Announced in Australian Budget

15 May 2003 Australian Treasurer Peter Costello announced his 2003/2004 budget this week, with the most significant changes restricted to personal income tax thresholds and international taxation reforms.

From 1 July 2003, there will be increases in the personal income tax thresholds and additional assistance for low income earners through a more generous low income tax offset, measures that in total are worth more than $10bn over the next four years.

Taxpayers on incomes of $35,000 per year will see the amount of tax they pay reduced by around $208 per year as a result of the threshold changes. For those on $55,000, the reduction in tax paid will be $448 per year, and for taxpayers on an income of $75,000, the reduction in tax due will be $573 per year.

The bracket changes will particularly benefit those on incomes of between $20,000 and $27,475, whose income tax liability will be reduced by around 8%.

As had been anticipated by the press in the run up to the budget, Costello announced a package of reforms concerning Australia's international taxation arrangements, which have in the past been criticised for their 'Byzantine' complexity, and labelled as disincentives for investment.

The recently announced reforms will:

• reduce the compliance costs associated with the controlled foreign company rules.
• reduce tax on certain types of foreign business income and gains.
• modernise Australia’s tax treaty network.
• better target the foreign investment fund rules.

To enable adequate public consultation on the legislation, most reforms will not commence until 1 July 2004 at the earliest. Priority will be given to achieving early commencement of several key reforms.

Other measures unveiled in Mr Costello's budget announcement included increases in R&D funding, and a reduction in tariffs to encourage the country's automotive industry:

• $20 million in additional funding in 2003-04 for the Commonwealth Scientific and Industrial Research Organisation (CSIRO). This will help fund research to advance new industries and jobs, healthier and more productive lives for Australians and better use of environmental resources.
• $61 million over four years so Geoscience Australia can provide information on oil exploration opportunities in Australia.
• $150 million over five years from 2004-05 to encourage additional investment in research and development in the pharmaceutical industry.
• Automotive tariffs will fall from 15% to 10% on 1 January 2005 and to 5 per cent on 1 January 2010.