The Mid-Year Economic and Fiscal Outlook is released each year by the government, which is often referred to as the mini-budget. Some years the MYEFO passes by without any tax-related developments. However, on 13 December 2023, the MYEFO documents were released containing brief details of some policy decisions made by the Government which affect the tax system and are worth noting.
GIC and SIC Deductions
The Government plans to deny deductions for ATO interest charges, especially the general interest charge (GIC) and the shortfall interest charge (SIC). When tax debts aren’t paid on time, GIC is applied while SIC applies when a tax liability has been incorrectly self-assessed and results in a tax shortfall. Currently, both GIC (General Interest Charge) and SIC (Shortfall Interest Charge) amounts are deductible under the tax-related expenses rules in section 25-5. If ATO (Australian Taxation Office) waives off GIC or SIC, then according to the assessable recoupment rules in Subdivision 20-A, these amounts are included in assessable income. The government has announced its plans to disallow deductions for GIC and SIC amounts incurred in income years commencing on or after 1 July 2025. However, the Commissioner will still have the authority to waive GIC or SIC amounts where appropriate.
Luxury Car Tax and Fuel-Efficient Vehicles
With regards to the Luxury Car Tax (LCT) system, the government is proposing to update it by refining the definition of a fuel-efficient vehicle and revising the indexation rate for the LCT value threshold for all the rest of the luxury vehicles. These changes will come into effect from 1 July 2025. Luxury cars with an LCT value above the relevant threshold will attract LCT at a rate of 33%. There are two thresholds for the LCT:
a higher threshold that is applied to fuel-efficient vehicles
a lower threshold that is applied to all other luxury vehicles.
The government may reduce the maximum fuel consumption to 3.5 litres per 100 km from 7 litres per 100 km. The government is also planning to make changes to the indexation rate of the LCT value threshold for all luxury vehicles from headline CPI to the motor vehicle purchase sub-group of the CPI, matching it with the indexation of the LCT value threshold for fuel-efficient vehicles.
Foreign Resident Capital Gains Withholding
The Government introduced the foreign residential capital gains withholding system with effect from 1 July 2016 due to concerns about the integrity of the tax system when foreign residents dispose of taxable Australian property. The Government plans to maximise the foreign resident capital gains withholding tax rate to 15% from 12.5% and minimise the withholding threshold to nil from $750,000. The changes may apply to the real property disposal with the contract entered into from 1 January 2025.