Budget 2015 Brief

Contents
Executive summary ....................................................... 1

Economic and fiscal analysis ......................................... 2
Economic assumptions .................................................. 3
Personal tax ................................................................... 4
Business tax................................................................... 5
Tax integrity measures .................................................. 6
Small business ............................................................... 8
Tax reform...................................................................... 9
Infrastructure ............................................................... 10
R&D and grants............................................................ 11
Environment................................................................. 11
Government overview ................................................. 12
Competition policy ....................................................... 13
Health and ageing ........................................................ 14
Human services ........................................................... 15
Education ..................................................................... 16
Defence ....................................................................... 17
Overview of changes ................................................... 18
CFO / Head of Tax checklist ........................................ 19
Contact us .................................................................... 20
Executive summary
A focus on confidence levels and integrity measures

The 2015 Federal Budget is set against the back drop of a previous tough first term budget, historically low
interest rates, lower exchange rates and a government belief that green shoots are now evident in the economy.
Households have mostly been spared any further pain. In addition, the government is seeking to support
business and consumer confidence rather than embark on further Budget deficit remedial action. Thus, rather
than directing expenditure savings towards offsetting declining revenues and delivering faster reductions in
projected fiscal deficits, the government has decided to spend most of the savings on job creation measures.
A strong focus in this Budget is providing small businesses with incentives to employ more staff and for the
second income earner in families to be encouraged to look for more work. There is also a focus on integrity
measures looking to address fiscal risks and fairness concerns in both the taxation and welfare systems.
Key decisions in the Budget include:
A small business package that includes reductions in tax rates for small businesses as well as accelerated tax
write-offs for a fixed period.
Streamlining and extending existing child care arrangements, but restricting the ability to access both
government and employer-provided parental leave entitlements.
Large business tax integrity measures directed towards increasing both the types of activities that are brought
within the Australian tax base and tax disclosures.
What does this mean for business?

Whilst a few of the Budget proposals may still be subject to Senate negotiations, and thus some businesses may
be tempted to take a wait and see approach, there appears to be much less controversy surrounding the details
of this Budget.
Thus, if you run a small business, you will be focussing on your year-end tax position, next years tax payment
profile and your projected capital expenditure over the medium term.
For some large businesses, consideration needs to be given to the opportunities associated with the
infrastructure and free trade initiatives as well as assessing the ramifications of the child care and parental leave
reforms.
For others (particularly some large businesses that to date, have been outside the Australian tax net)
understanding the Australian tax integrity measures will be your immediate focus. For all large businesses,
however, this is by no means the end of the base erosion and profit shifting story. Still to come is the Senate
Inquirys report on Corporate Tax Avoidance in June 2015, the OECDs final recommendations in October 2015,
the Tax Reform green paper by the end of the year, and the ever increasing global compliance activities of
multiple tax authorities.
Gary Wingrove
Chief Executive Officer
KPMG | 1
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Economic and fiscal analysis

Below trend growth in Australia's major trading
partners, particularly China and Japan, and subdued
business investment activities has resulted in a
moderating of our short term economic outlook.
With the new tax and spending measures, the

deficit is now expected to narrow from $41.1 billion
(2.6 per cent of GDP) in 2014-15 to $6.9 billion (0.4
per cent of GDP) in 2018-19. The overall fiscal
position remains comparatively healthy among
advanced countries.
As activity in the non-resource sectors of the

economy is picking up more gradually than
expected, the risk of managing a transition from the
investment boom to broader based growth appears
to be slowly growing over the near term.
Government Net Debt
Japan
Greece
Ireland
Portugal
UK
Italy
US
France
Belgium
Germany
Netherlands
Korea
Canada
Australia
Denmark
Switzerland
Percent of GDP
While Australias fiscal position stays reasonably

well placed compared with its advanced economy
peers, tougher budget repair measures on both
revenue and expenditure sides would be needed to
continue back on the path back to a surplus. That
being said, the running of deficits in the forward
estimates period where our economic certainty is
less than we have recently enjoyed, is reasonable
and appropriate.
180
160
140
120
100
80
60
40
20
0
Underlying cash balance
KPMGs forecasts broadly concur with those of the

Treasury, although we are less optimistic that the
underlying cash balance will trend down as quickly
as predicted due to possibly softer tax receipts.
That is, implied tax revenue elasticities calculated
against nominal GDP for the period 2014-15 to
2018-19 are more than 40 percent stronger than
average tax revenue elasticities over the period
2000-01 to 2013-14. Should the forecast growth
rates in tax revenues be less than anticipated, the
underlying cash position for the government will be
worse over the forward estimates, assuming there
is no corresponding adjustment in government
expenditure.
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Underlying cash balance (Percent of GDP)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
8
7
6
5
4
3
2
1
0
2001
The key challenge to maintaining Australias living

standard remains to be boosting productivity. The
fiscal policies targeted to increase productive
potential are particularly helpful at the time when
there appears to be a heavy reliance on monetary
policy to support the adjustment of the economy.
8
7
6
5
4
3
2
1
0
Unemployment rate - percent
GDP and PRICES - percent change
A sound macro economy
Unemployment rate
Gross domestic product, constant prices
Inflation, average consumer prices
Source: Federal Budget papers and IMF publications
Key insights
Softer economic conditions, particularly due to declining business investment in the mining sector, warrant
the running of budget deficits in the forward estimate period.
KPMG broadly concur with Treasury economic forecasts, although we are less optimistic that tax receipts
will be as strong as anticipated, particularly taxation revenue generated from individuals and companies.
KPMG | 2
Economic assumptions
When interpreting the Budget estimates, the likelihood of volatility in economic fundamentals is an important
consideration. Key risks for macro indicators are presented below.
Real GDP growth continuing trend growth

GDP (Real)
2014
2015
2016
2017
2018
2.50%
2.25%
2.75%
3.25%
3.50%
The resource sector continues to transit from an investment phase to a

production phase, with iron ore exports growing faster. Higher resource
exports will make the economy more sensitive to terms of trade
shocks, and the floating exchange rate will be an important buffer.
Growth in real GDP
2015
United States
3.1%
Canada
2.2%
United Kingdom
2.7%
Japan
1.0%
China
6.8%
Unemployment rate
2015
United States
5.2%
Canada
7.0%
United Kingdom
5.4%
Japan
3.7%
China
4.1%
CPI
2015
United States
0.1%
Canada
0.9%
United Kingdom
0.1%
Japan
1.0%
China
1.2%
Debt as a percentage
of GDP
2015
Unemployment rate recovering very slowly

Unemployment
2014
2015
2016
2017
2018
5.90%
6.25%
6.50%
6.25%
6.00%
Spare capacity in the economy has continued to increase, with the

unemployment rate increasing, consistent with the below trend
economic growth. Labour market conditions are expected to recover
very gradually, with the unemployment rate declining once economic
growth reaches an above trend pace.
Consumer price index within band

CPI
2014
2015
2016
2017
2018
3.00%
1.75%
2.50%
2.50%
2.50%
Inflation is expected to come in below the target band, reflecting the fall
in oil prices and weaker performance for the economy and labour
market. Expectations of a depreciating Australian dollar are expected to
pose upward pressure on inflation over the projection period.
Public net debt as a percentage of GDP

Public net debt
2014
2015
2016
2017
2018
15.6%
17.3%
18.0%
17.6%
16.8%
Net government debt as a percentage of GDP a key measure of fiscal

sustainability remains low by international standards, and is expected
to remain less than 20 percent into the medium term.
United States
80.4%
Canada
38.3%
United Kingdom
82.6%
Japan
129.6%
China
n/a
Source: IMF
KPMG | 3
Personal tax
Fringe benefits tax (FBT)
A $5,000 grossed-up cap on salary sacrificed meal
entertainment and entertainment facility leasing
expenses for employees of not-for-profit
organisations, public hospitals and public ambulance
services has been introduced from 1 April 2016.
As expected, there are no significant taxation

changes in this years budget and an attempt to
better target welfare measures. Individual income
tax thresholds are not automatically adjusted for
inflation, which over time pushes individuals into the
higher taxing brackets (bracket creep) adding further
strain to the relationship between effort and reward.
This Budget has not sought to address this.
The current FBT exemption for work-related

electronic devices will be expanded for small
businesses with aggregated annual turnover of less
than $2 million, so that the exemption will apply to
more than one work-related portable electronic
device. There is not a requirement for the devices to
perform substantially different functions.
Other measures
Other measures announced include:
Tightening access to pension payments as a
result of the announced decreases in the assets
test.
Changes to work-related car expense deductions,
as follows:
Abolition of the 12 percent of original value
method and one-third of actual expenses
method for claiming income tax deductions
for work related use of cars.
Introduction of an average rate (regardless of
size of car) when using the cents per
kilometre method.
Income Tax
From 1 July 2015, unincorporated small businesses
(e.g. sole traders) with aggregated annual turnover
less than $2 million will be eligible for a 5 percent
tax discount on the income tax payable on the
business income, capped at $1,000 per individual for
each income year.
From 1 July 2015, the zone tax offset will exclude
fly-in fly-out and drive-in drive-out workers where
their usual place of residence is not within
the zone.
Employee Share Schemes
Income tax deduction for work related use of cars
Budget announcements made reference to the

legislation currently before parliament to change the
employee share scheme provisions.
Engine capacity (litre)

Ordinary
Car
Overall the drafted changes realign Australias tax

treatment of employee share schemes with
international practice, and are welcomed.
The new rules, to apply to grants from 1 July 2015,
will benefit all employers, in particular by shifting the
taxing point of rights to acquire shares, including
options, from vest to exercise. This means the
taxing point will coincide with the economic benefit
received at exercise and revives the effectiveness of
options.
Rotary
engine car
Current cents
per km rate
1.6 or less
0.8 or less
65 cents
1.6 2.6
0.8 1.3
76 cents
2.6 and
over
1.3 and
over
77 cents
Proposed
cents per
km rate
66 cents
Increase in Medicare Levy low-income

thresholds to take account of movements in CPI
and ensure that low-income earners continue to
be exempted from paying the Medicare Levy.
Changes to tax residency rules from 1 July 2016
in relation to people temporarily residing in
Australia for a working holiday so that they do
not benefit from the tax-free threshold (currently
$18,200).
Key insights
The introduction of the cap for salary sacrificed meal entertainment and entertainment facility leasing
expenses follows recommendations from the 2010 Productivity Commission inquiry and the 2013 Labor
Governments inquiry into the not-for-profit sector. The changes should provide a more even playing field
for employers in the private sector in comparison to those in the not-for-profit sector.
KPMG | 4
Business tax
Five main changes
Multinational anti-avoidance measures

The government has released draft legislation
expanding the operation of the anti-avoidance
provisions in Part IVA to multinational
enterprises who structure to avoid having a
taxable presence in Australia. The changes are
targeted measures aimed at approximately 30
companies who deal through related parties
where profits from Australian sales are
booked overseas and subject to low or no
global tax.
This is a budget with two clear areas of focus

concessions to drive growth for small businesses
and integrity measures for large multinational
companies structuring to flow profits outside the
Australian tax net. Outside of these two areas, there
are limited changes for business.
The operation of this statutory remedial power
will be limited to where a negligible budget
impact arises and provided it has a beneficial
outcome for affected taxpayers. Legislative
instruments will be subject to consultation and
may be overridden by Parliament.
The measures will apply to tax benefits for

both new and existing schemes from
1 January 2016. The application of these
measures is limited to companies with global
revenues of $1 billion or more.
This is a significant broadening of the power

given to the Australian Taxation Office to
administer the law. The new approach will
hopefully lead to greater certainty for
taxpayers without the significant delay that
can arise when waiting for legislative
amendments through Parliament.
Administrative penalties will be doubled from

1 July 2015 for companies who enter into tax
avoidance or profit shifting schemes.
New transfer pricing documentation

standards
The government will implement the
Organisation for Economic Cooperation and
Developments (OECDs) new transfer pricing
documentation standards. Under the new
standards, the Australian Tax Office will
receive the following information:
A country-by-country report disclosing

information on the global activities of the
multinational, including where its income is
located and where its taxes are paid.
A master file containing an overview of the
multinationals global business and transfer
pricing policies.
A local file providing detailed information
about the local taxpayers intra-group
transactions.
The measures will apply from 1 January 2016
and will be limited to companies with global
revenue of $1 billion or more.
Statutory remedial power for the

Commissioner of Taxation
Managed Investment Trusts revised

start date
The recently released draft legislation

introducing a new attribution tax system for
qualifying Managed Investment Trusts
included a start date of 1 July 2015. As
anticipated by industry, the government has
announced the measures will instead apply
from 1 July 2016, with the option to early
elect into the regime from 1 July 2015. No
announcement has been made on the
substantial number of submission points
raised in recent consultation on the draft
legislation.
Company tax and paid parental leave

levy
The 1.5 percent paid parental leave levy and

company tax cut announced in last years
Budget will no longer apply to medium and
large corporations.
However, the corporate tax rate for small
businesses (turnover of less than $2 million)
will be cut to 28.5 percent from 1 July 2015.
The Commissioner of Taxation will be granted

the power to make a legislative instrument to
modify the operation of the tax law to ensure
the purpose or object of that law is achieved.
This change will apply from the date of Royal
Assent.
The franking credit rate will remain unchanged

at 30 per cent for all companies.
KPMG | 5
Tax integrity
measures
Multinational (MNE) antiavoidance provision
Because the so-called digital economy cuts across

multiple sectors, the impact of the proposed
changes to the GST treatment of imported digital
products and services is not limited to any one
sector, although the technology sector and those
using innovative ways to sell products cross border
are likely to be most impacted.
Background
There is a concern that a number of MNEs
particularly, but not solely, in the digital economy,
put in place structures where the main sales activity
of the MNE does not give rise to a taxable presence
in Australia. This is because our tax treaties allocate
taxing rights to the treaty partner and not Australia
for profits on the sales contract.
4. Principal purpose of tax avoidance - A principal

purpose (being less than a sole or dominant
purpose) of the structure must be to obtain a tax
benefit or both a tax benefit and a reduction in
foreign tax.
In many cases a related Australian marketing

company employs people to undertake substantial
activities prior to the formal conclusion of the
contract and is paid a service fee, but not a share of
the profits referable to the sale.
Reconstruction and penalties

If the above four conditions are met, then the
Commissioner has the power under existing general
anti-avoidance provisions to assess tax (including
withholding tax) as if there was an Australian taxable
presence.
The G20-OECD Action Plan recognises this problem

and is considering amendments to the concept of
permanent establishment in treaties generally.
However, the United Kingdom, acting ahead of the
G20-OECD process, has introduced a new tax,
called a Diverted Profits Tax. It operates outside the
scope of the tax treaty network because it is not a
corporate income tax.
If the MNE anti-avoidance provision were to apply,

then the Commissioner will have the power to
impose a fine of 100 percent of the unpaid tax plus
interest.
Commencement
Australia has chosen a different path. Australia has

sought to modify its existing anti-avoidance
provisions to deal with this issue rather than create
a new tax. Australias tax treaties are incorporated
into Australias domestic legislation which allows
Australias anti-avoidance provisions to override the
treaties.
The provisions are to commence from 1 January

2016. This will give companies an opportunity to
reorganise their affairs. There is, however, no other
grandfathering of existing arrangements.
Treasury will consult on the Exposure Drafts until 9
June 2015.
Conditions
Key insights
There are four gateways for this provision to apply:
This is a targeted measure that only deals with

inbound supplies directly to Australian customers
(i.e. excludes buy-sell arrangements and outbound
marketing hubs) and where there are connected
activities undertaken in Australia by associated or
commercially dependent entities.
No definition of low rate of corporate income tax
raises uncertainty of scope of application.
Not limited to MNEs with operations in pure tax
havens but also captures jurisdictions offering tax
holidays and other concessions.
Adopts a lower "purpose" threshold than existing
general anti-avoidance measures.
Existence of entities in nil or low tax jurisdiction
creates a rebuttable presumption of potential
application and burden of proof rests with MNE to
establish exemption.
No grandfathering and application date from
1 January 2016 means limited time for action.
1. Size - The foreign resident must have global

turnover in excess of AUD$1 billion in any year in
which they obtain the tax benefit or reduce the
relevant taxpayers liabilities.
2. Customer relationship - The foreign resident
derives income from a supply of goods or services
to Australian customers, with another entity in
Australia supporting that supply.
3. Nil or low tax condition - This condition will be
satisfied where the foreign resident is connected to
a nil or low tax jurisdiction unless the non-resident
demonstrates that either:
a) none of the activities carried on in the nil or low
tax jurisdiction are connected with Australia; or
b) those activities represent substantial economic
activity.
KPMG | 6
Tax integrity
measures
(continued)
Key insights
Not limited to digital supplies as was
anticipated. Instead will capture all imported
services and intangibles supplied to end
consumers.
Differs in some respects from legislation
proposed or enacted in other jurisdictions.
Presents challenges for non-resident suppliers
to determine status of consumers, particularly
for marketplace operators. Will capture more
transactions than if applied at individual
supplier level.
Would have been preferable to use the
opportunity to align the treatment of imported
goods and services - now an imbalance
between electronic versions of physical
goods, e.g. e-books v books.
Needs to be accompanied by streamlined
ATO GST registration processes and systems.
Further clarification, such as additional
transitional provisions, may be required.
GST on digital products and

services by offshore suppliers
Background
There has been significant public discussion in the
last 5 years concerning the perceived competitive
disadvantage faced by domestic suppliers of goods
and services who are required to charge 10 percent
GST as against offshore suppliers who can make
sales without imposing GST.
The proposed Budget measure partially deals with
this problem, by seeking to charge GST on all
imported intangibles and services consumed by
Australian resident end users.
GST compliance program- 3 year extension
These measures will apply to intangibles such as

digital supplies (e.g. movie downloads, games and
e-books), as well as services such as consultancy
and professional services, but not to physical goods
ordered on-line.
The government expects that the ATO will collect

an additional $2.5 billion from a 3 year extension to
the GST compliance programme, $1.8 billion of
which will flow to the States and Territories.
Additional revenue in 2016-17 is estimated at
$717.8 million.
In some circumstances, the liability for the GST

obligation on electronic supplies made by nonresidents will fall to the operator of a digital
marketplace or platform.
Key insights
The estimate of additional revenue in 2016-17
represents an increase of slightly over 40
percent from the 2013-14 ATO Annual Report
figures.
We can expect continued focus on the
Integrity of Business Systems for GST
purposes and perhaps a more rigorous
enforcement of the penalty regime January
2016 means limited time for action
A simplified registration framework is proposed for

non-residents with a GST obligation under these
amendments.
Commencement
The GST changes are to commence on 1 July 2017.
Consultation
The changes will require the unanimous agreement
of the States and Territories. The closing date for
submissions commenting on the draft legislation is
7 July 2015.
Anticipated revenue
The revenue to be collected from this proposal is
expected to be $350 million over the next 4 years.
KPMG | 7
Small business
Reduction in corporate tax rate and
a small business discount
The government has followed through with its
announced cut in the company tax rate for small
businesses reducing the tax rate to almost a 50 year
low of 28.5 percent with effect from 1 July 2015.
The engine room of the economy is getting a tuneup. Targeted tax and other measures should have a
meaningful impact on entrepreneurs and early-stage
businesses.
Unincorporated small businesses will also receive a

5 percent discount on income tax payable on
business income up to a $1,000 cap per individual.
This will continue to encourage individuals to access

company profits in a manner other than a dividend
with the risk of instead having a deemed unfranked
dividend.
Immediate write-off on assets

costing less than $20,000
However Australia is not unique in having such a

significant gap with a major difference being the
imputation system reducing the ultimate impact.
The Treasurer has gone back to the tried and tested

accelerated depreciation on assets acquired by
small businesses.
From 1 April 2015
Immediate write-off for each asset costing less

than $20,000.
Measures apply to assets acquired and installed
from now to 30 June 2017.
Assets costing $20,000 or more can be pooled
and depreciated at 15 percent in the first year
and 30 per cent thereafter (with an immediate
deduction when the balance falls below
$20,000).
Corporate tax
rate
Top personal
marginal tax rate
United States
40.0%*
39.6%
Canada**
26.5%
46.4%
United Kingdom
20.0%
45.0%
China
25.0%
45.0%
New Zealand
28.0%
33.0%
Notes:
Is the small business turnover

threshold too low?
All tax rates are rounded to one decimal point
Classification as a small business enables an entity

to access not only these new measures but also a
number of existing targeted concessions.
Change of business structure

without incurring a CGT liability
Given this importance we would be keen for the

current $2 million threshold to be revisited and
ideally indexed.
With effect from 1 July 2016 there will be CGT rollover relief if a small business entity wants to change
its structure.
Gap growing between personal

and company tax rates
Businesses will still need to be cautious of other

taxes such as stamp duty and GST.
* Assumed 5% state and local government taxes

** Assumed company or individual in Ontario
Other measures
The reduction in the corporate tax rate continues to

widen the gap between this and the top personal
marginal tax rate.
Costs of starting a new business can now be

deducted in the year of commencement.
Reduction of red tape when registering a
business.
Key insights
The Budget has focused on small business to kick-start the economy.
Whilst dual corporate tax rates will introduce complexity this is the practical cost of having a targeted
measure seeking to maximise every dollar being spent.
The significant immediate write-off of assets costing less than $20,000 should impact broader spending in
the economy with all businesses ultimately benefitting.
KPMG | 8
Tax reform
In the Budget Reply speech in May 2013, the now
Prime Minister announced a White Paper process in
relation to tax reform if elected.
On 30 March 2015 a discussion document was
released titled Re:Think Tax Discussion Paper which
sets the scene rather than provide tentative
solutions and trade-offs. Potential solutions will be
dealt with in a Green Paper to be released in the
second half of 2015, which will be followed by a
White Paper to be taken to the next Federal
election.
It is important for us all to understand how

different stakeholders are potentially impacted by
tax reform. From that knowledge one can develop
an educated intuition about the changes that are
required.
It is not a matter of leaving it to taxation technicians.
The deep and valuable thinking in tax policy starts
when one understands substantially all the
arguments and provides an intuitive, but not-selfserving, weight to each.
There is a very short 2 month consultation period on

Re:Think which ends on 1 June 2015, although the
government has indicated that it will receive input
after that time and consultation is being undertaken
by the Board of Taxation in July.
Uninformed intuition generally ideologically driven

can be counterproductive.
Tax reform is clearly very difficult. The government

has indicated that it will not seek to widen the base
or change the rate of GST without consent of all the
states. Australias company tax rate is particularly
high for a medium sized economy reliant on foreign
investment for capital deepening and therefore
productivity improvement.
That said, the debate is a particularly important one

and may set the direction for change in the long
term. KPMG has produced a thought leadership
piece on tax reform and will continue to produce
short pieces on individual components of the tax
system.
We welcome your input. Download our latest
thinking on Tax Reform.
On personal income tax, bracket creep and high

effective marginal rates arising from the loss of
transfer payments for those on lower incomes
seeking additional hours of work are problematic
features. We have a plethora of inefficient state
taxes. There are few levers, particularly if changes
to the taxation of consumption are excluded.
Tax reform: A national

challenge... join the
conversation
KPMG | 9
Infrastructure
Announcements
Infrastructures presence in this years Budget is
somewhat subdued when compared to last years
cornerstone infrastructure Budget.
The Federal Governments strong commitment to

developing and improving regional and local
infrastructure is demonstrated by this Budget. The
last year, however, has highlighted the challenges in
planning, developing and funding major
infrastructure projects within a federated political
system.
The announced infrastructure funding focused on

regional initiatives such as the $5 billion
concessional loan facility to increase private sector
investment in infrastructure in northern Australia,
the $100 million road upgrade for improving
northern cattle supply chains and $50 million to fund
local infrastructure projects from the Stronger
Communities Programme. An additional $499
million for road infrastructure has also been
allocated to Western Australia. These
announcements combined with existing announced
funding commitments provide a robust pipeline.
Building on the scoping studies announced last year,

the Budget announced a scoping study to be
completed for the Australian Rail Track Corporation.
Review
The following table details a selection of announced

federally funded infrastructure projects:
Last years Budget embraced infrastructure as a key

mechanism to (i) assist generating economic activity
as the economy transitioned from resource
investment led growth and (ii) drive long term
productivity improvements.
Announced Federally Funded Infrastructure Projects

Project
Value ($m)
New South Wales
11,792
Western Sydney Infrastructure
2,900
Pacific Highway Duplication
5,600
Westconnex
1,500
Other
1,742
Queensland
10,150
Bruce Highway
6,700
Toowoomba Second Range Crossing
1,285
Gateway Motorway North
930
Other
1,235
Victoria
1,247
Western Highway Ballarat to Stawell
501
Princes Highway East Traralgon to Sale
210
Other
536
Western Australia
3,335
Perth Freight Link
925
Gateway WA Perth Airport
675
Northlink WA Swan Valley Bypass
615
Other road funding
1,121
South Australia
1,029
North South Corridor Darlington
496
North South Corridor Torrens Rd
448
Other
85
Tasmania
485
Australian Capital Territory
111
A year on, real progress is being made on a number

of the governments key projects. However, some
of the government initiatives have been thwarted,
highlighting the challenges of planning, developing
and funding infrastructure within the federated
political system. For example, the government
remains committed to the East West Link Project
and stated that it will provide $3 billion to the first
Victorian Government willing to build the Project.
Also under the Asset Recycling Initiative announced
in last years Budget, to encourage state
governments to sell or lease assets, the majority of
states have now explored the possibility of selling
assets with scoping studies. However, Queensland
has now decided not to proceed with any
transactions, the Western Australian process
remains uncertain and Victorias Port of Melbourne
transaction has been deferred until 2016. These
developments pose a risk that the Asset Recycling
Funds could be disproportionately allocated across
jurisdictions and/or stranded due to lack of asset
transactions.
Funding is also allocated to developing a northern

Australia infrastructure projects pipeline and the
World Bank Global Infrastructure Facility.
Key insights
New announced infrastructure funding has been modest and is focused on regional infrastructure with a $5
billion concessional loan facility to increase private sector investment in infrastructure in northern Australia,
$500 million for roads in Western Australia, and the $100 million road upgrade for improving northern cattle
supply chains.
The Federal Government has a significant commitment to infrastructure delivery and this is demonstrated
through the strong pipeline of announced projects and its substantial annual funding of infrastructure
projects.
KPMG | 10
R&D and grants

Tax cuts boost R&D benefits for
small business
The Budget proposes to reduce the corporate tax
rate for small business by 1.5 percent where the
turnover is less than $2 million. This means that
small business will receive additional R&D benefit the permanent tax benefit will increase from 15 to
16.5 percent. These businesses will still be able to
cash out the 45 percent refundable tax offset
(where sufficient tax losses exist). There is no
impact for larger companies beyond the $100 million
expenditure cap enacted earlier this year.
Aggregated
Turnover
Corporate
Tax Rate
R&D Tax
Offset
While there is no new grant funding for innovation

in this Budget, the increased R&D benefit for small
business is welcome news.
Other Government Incentives

Building on the Industry Innovation and
Competitiveness Agenda which was announced last
October, the government has maintained its focus
on five Growth Sectors but has not announced any
new major grant program support. Existing grant
programs supporting manufacturing transition and
commercialisation remain although some
programmes may see reductions in total funding
(i.e. the Entrepreneurs Infrastructure Programme
and Automotive Transformation Scheme).
Net
Benefit
>$20 million
30%
40%
10%
$2-20 million
30%
45%
15%
<$2 million
28.5%
45%
16.5%
Key insights
The increased R&D benefit for small business is consistent with recent government policy to shift innovation funding
away from large corporates to small companies. However the government is currently reviewing the effectiveness of
the R&D Tax Incentive through its Re:Think Tax Discussion Paper, so we may see further R&D reforms.
No new major direct business focused grant programs have been announced. Rather, tax measures are used to
provide broader stimulus, particularly for small business through the government's Jobs and Small Business package.
Environment
This - and any new commitments made in the lead

up to the UNFCCC conference in Paris - may put
further pressure on the forward estimates for the
ERF.
The centrepiece of the Governments Direct Action

Plan, the $2.55 billion Emissions Reduction Fund
(ERF), has received no additional funding.
Funding of $6.1 million has been provided to extend

the operation of the Climate Change Authority for an
additional 2 years. An additional $100 million has
been provided for the Great Barrier Reef Trust.
One quarter ($660 million) of this has been

committed in the first ERF auction (held in April)
which resulted in contracts for 47 million tonnes of
abatement at an average weighted price per tonne
of $13.95. This will deliver 20 percent of Australias
2020 abatement target of 236 Mt CO2-e (with some
of the contracted abatement delivered after 2020).
Efficiency savings will be made from the Green

Army ($73.2 million over 4 years) and from the
Natural Heritage Trust ($12.3 million over 5 years).
Funding allocated for drought relief should provide
environmental benefits. This includes $25.8 million
for pest management programs (including feral
animal control) and $70 million in accelerated
depreciation for farm improvements including
fencing and water storage.
It is likely that the first auction has captured low

hanging fruit and higher prices might need to be paid
for abatement in subsequent auctions.
Key insights
No new funding has been allocated for the Emissions Reduction Fund.
There may be a mismatch between the abatement target and the funding set aside to meet the target.
This will need to be managed by substantial additional funding in later years or an adjustment to the target.
KPMG | 11
Government
overview
Digital transformation
Flagged in the Coalitions election policy on egovernment and the digital economy, the Digital
Transformation Agenda has now been funded in this
Budget. The measure seeks to promote the
application of digital technologies to improve and
ease the interaction between individuals, business
and government. The agenda will have as its initial
focus five key projects and will be administered by
the Digital Transformation Office, a new agency
within the Communications portfolio. Funding of
$254.7 million over 4 years has been allocated.
With the reality of continuing fiscal constraints, the

challenge for government is to seek out more
efficient and relevant ways to deliver public
services.
Key to improving the experience of engaging with

government is the $11.5 million allocated to the tell
us once service which will see contact information
able to be provided, updated and shared with
relevant linked agencies. This will be accompanied
by a $33.3 million program for a trusted digital
identity framework as well as $7.1 million for the
development of a secure and seamless whole-ofgovernment digital mailbox solution for messages
and documents.
This program of functional and efficiency reviews

will be rolled out more fully in 2015-16 and
undertaken in the Departments of Agriculture, the
Environment, Foreign Affairs and Trade, Treasury,
Attorney-General and Social Services, as well as the
Australian Taxation Office and the Australian Bureau
of Statistics.
Over 5 years, these two reviews are forecast to

produce savings of $131.0 million and $113.1 million
respectively from 2014-15. Within the Department
of Health, $96 million in net savings was found
through a focus on contracting, corporate, staffing
and property costs.
With the Federal Government having made the

decision not to sell Defence Housing Australia, $4
million has been allocated to support the review of
operations to promote transparency as well as
ensure the delivery of quality housing and
accommodation services is sustainable.
This move to increase governments engagement

with the digital sphere will be backed by the Digital
Transformation Offices development of mandatory
digital service standards. A further key project within
the agenda is the project to streamline government
grant administration. This will be underpinned by the
investment in a common Information
Communication and Technology (ICT) platform, a
key component within the $106.8 million allocation.
Divestment of four office accommodation buildings

in Canberra is likely if the sale process validates the
scoping study findings. These buildings are East
Block, West Block, Anzac Park East and Anzac Park
West.
Back-office efficiencies
Smaller government
The rationalisation of enterprise resource planning

systems has been identified as a key area of saving,
together with the consolidation and reform of backoffice processing and transactions.
This year, the Federal Government expects to return

staffing levels within the Commonwealth to below
2006-07 levels. The focus on reducing the size and
complexity of government is captured in the smaller
government reforms. These address the elimination
of duplication and waste, streamlining of services
and reducing the cost of government administration.
Greater co-ordination around the procurement of ICT

products and services has also been flagged to
reduce the cost and increase efficiency, including
software licencing.
The Department of Education and Training, and the

Department of Health have undergone the first of
two pilot functional and efficiency reviews.
Key insights
Offering more than simply putting transactions online, digital has the capacity to open up whole new ways
of transacting and engaging that could profoundly change interactions with government.
A re-sized public sector geared to reform, innovation and engagement will continue to demand much of its
leaders. This will require leaders who are equipped to collaborate, innovate and articulate outcomes in an
environment which is marked by ambiguity and uncertainty.
KPMG | 12
Competition policy
Productivity remains high on the governments
agenda, and is recognised as one of the key
outcomes being sought from the $5.5 billion Jobs
and Small Business Package and the $4.4 billion
Families Package.
The Harper Review provides the opportunity for

Australia to re-energise the reform process
commenced under Hilmer, and move onto those
sectors of the economy that remain ripe for
improvement, and that also have the real prospects
of enhancing productivity
Productivity was also key to the Coalition

governments 2013 election promise of a root and
branch review of Australias competition policy,
which has now been completed with the final report
of the Harper Review published at the end of March
2015.
But, Australias period of Great Prosperity appears

to be faltering, and relying on external forces alone
to continue improving our living standards is too
risky. Rather, todays environment of falling terms of
trade and declining workforce participation means
the prospect of a fall in living standards (as
measured by real net disposable income per capita)
is more likely than the continuation of the positive
trend in growth weve enjoyed over the past 20
years.
There are 56 recommendations contained in the

report, with 21 recommendations each in the areas
of Competition Policy and Competition Law.
Much of the commentary surrounding the Harper
Review has focussed on Recommendation 30,
which says section 46 of the Competition and
Consumer Act 2010 (CCA) should be re-framed to
prohibit a corporation that has a substantial degree
of power in a market from engaging in conduct if
the proposed conduct has the purpose, or would
have or be likely to have the effect, of substantially
lessening competition in that or any other market.
The proposed reforms to planning and zoning, retail

trading, pharmacy and human services, all have the
potential to drive changes that will enable us to help
ourselves, rather than relying (too much) on the help
of others. Further, the Review also acknowledged
that consumer benefits are likely to arise from
privatisation of government assets, but that
governments should not seek to maximise asset
sale proceeds at the expense of competition. This
recognition is important in the context of tonights
announced potential sale of the Australian Rail Track
Corporation and the ASIC Registry.
Big business has suggested that there is no reason

to change the current provisions, while the ACCC
has suggested the Panels suggested defence to
mitigate over capture for otherwise procompetitive conduct should not be applied.
While the recommendations surrounding the
misuse of market power provisions are important, it
is also essential not to lose sight of the underlying
driver behind the conduct of the review. It has been
more than 20 years since Competition Policy was
comprehensively assessed by the Hilmer Review.
The Australian economy benefitted in the final
decade of the last century from the productivity
dividend achieved through much of the internal
reforms emanating from the Hilmer Review, while
our economy in the first decade in the current
century has been carried forward by external forces,
such as the demand for our natural resources to fuel
the China Boom.
Key insights
The Harper Review was finalized at the end of March 2015, and contains 56 recommendations, with the
two largest sets of reform proposed for Competition Policy and Competition Law.
Much of the focus since its release has been on the introduction of an 'effects test' to the misuse of
market power provisions in the CCA.
It is important to recognise that Australia needs to re-energise its economic reform agenda started 20 years
ago with Hilmer, particularly given the economic benefits from the commodity boom are starting to wane.
KPMG | 13
Health and ageing

Health
A number of health measures announced in the last
Budget have failed to pass the Senate. In particular
the Medicare co-payment has been abandoned with
the cost associated with the reversal featuring in the
Budget. $2.9 billion in expenditure over 5 years is
associated with this measure. Despite this, the
government has indicated that it will maintain the
Medical Research Future Fund which was to be
funded through the co-payment.
This Budget signals a change of approach for the

government in health, engaging doctors in major
reviews of the MBS and PBS as platforms for future
reform. The investment in eHealth through the
myHealth trial has the potential to better leverage
the health consumer to drive improvements in
health outcomes.
In the lead up to the Budget, two major reviews

have been announced with funding of $34 million:
one dealing with the Medical Benefits Schedule and
the second concerning Primary Care, both of which
are due to report in late 2015.
Ageing
The biggest significant change in the Budget is the
$73.7 million funding over 4 years for home care
packages to increase consumer choice. This
measure will see the allocation of home care
packages to the consumer, via the My Aged Care
Gateway, instead of to the provider. This is a
significant change, and will require providers to have
a robust consumer directed care model.
Major changes
A main focus of this Budget has been the
Pharmaceutical Benefits Scheme (PBS) with the
government providing $1.6 billion over 5 years for
the inclusion of new and amended listings on the
PBS and the Repatriation Pharmaceutical Benefits
Scheme (RPBS). In addition, the government will
achieve savings of $252.2 million over 5 years for
price amendments for medicines currently on the
PBS and the RPBS. These savings will be redirected
to fund other health policy priorities or reinvested
into the Medical Research Future Fund.
The introduction of additional short term restorative

places into the Aged Care Planning Regions will see
a budget saving of $56.2 million. These services are
aimed at preventing more permanent admission to
residential aged care. However, it is anticipated that
this will occur through the replacement of
permanent residential places with short term
restorative places.
$485 million has been allocated for a new myHealth

Record trial and $26 million for incentive payments
to doctors to vaccinate children.
The alignment of aged care means testing

arrangements ensures older people who choose to
pay for residential aged care either through a
periodic payment, or a lump sum are treated in the
same manner, ensuring equity for all older people
entering residential aged care. There may also be
some indirect impact from the changes to the Aged
Pension Asset Test. With part pensioners and selffunded retirees expected to contribute more
towards their care than full pensioners, there is
likely to be an increase in the number of part
pensioners and self-funded retirees who may
choose to access care and support outside of the
aged care system.
Savings of $963 million over 5 years will be

achieved through reductions in a number of health
programs including the Health Portfolio Flexible
Fund, preventative health research along with GP
Super Clinics which have not commenced
construction.
The government has also recently announced the
successful bidders for Primary Health Networks
which will replace Medicare Locals from 1 July
2015.
Key insights
The government has stepped back from controversial measures such as the introduction of a GP
co-payment and instead aims to manage health expenditure by reductions in a number of health programs.
The investment in eHealth through the myHealth Trial is an opportunity to re-set the eHealth agenda and
put health consumers in a stronger position to drive improvements in their health and the effectiveness of
health providers.
KPMG | 14
Human services
Families Package - Child Care
Changes in this Budget
The government currently assists with child care

through the Child Care Benefit, Child Care Rebate,
and Jobs, Education, Training Child Care Fee
Assistance. The policy objectives for subsidising
child care are twofold: to improve workforce
participation, and to enhance access to child care for
disadvantaged children.
Additional expenditure on the streamlined child

care subsidy is projected to be $3.2 billion over
the forward estimates.
Welfare Payment Reform

An independent reference group chaired by Mr
Patrick McClure AO was tasked by the Australian
Government in December 2013 to look at Australias
welfare system, the broad range of payments and
services available and consider whether they
support people to work in line with their capacity. In
particular, the areas of focus concerned:
On 20 February 2015, the Productivity Commission

Inquiry Report into Child Care and Early Childhood
Learning was released. The Budget introduces a
single means-tested child care subsidy, tied to a
benchmark price, in line with the Productivity
Commissions recommendations. Proposed
changes to eligibility requirements with the
introduction of a work activity test seek to improve
workforce participation. The changes to child care
payments are the first signal of the governments
response to the Productivity Commissions
recommendations.
providing incentives to work for those who are

able to work
adequately supporting those who are genuinely
not able to work
supporting social and economic participation
through measures that build individual and family
capability
While the new subsidy does, in theory, improve

child care affordability, there are challenges
associated with tying the subsidy to a benchmark
price. High unmet demand means many child care
services are likely to charge higher than the
benchmark. In addition, the ability of the measure to
increase workforce participation and productivity will
rely on:
being affordable and sustainable both now and in

the future and across economic cycles
being accessible, easy to understand, and able to
be delivered efficiently and effectively.
While the key focus was on working age payments,
the McClure Review also examined issues that
impact on payments such as indexation. A New
System for Better Employment and Social
Outcome, the reference groups final report, was
released on 25 February 2015.
The market ability to address supply and

demand; specifically, for the estimated 165,000
parents who would like to work, or work more,
to access suitable child care places.
The availability of employment opportunities to
enable parents to return to work.
While the Budget includes some welfare integrity

initiatives, such as upgrading the welfare
information technology system, it appears
substantive action on the McClure
recommendations has been deferred to pursue
other initiatives.
Additional budget measures include:

$327.7million for a child care safety net to
provide more targeted assistance to
disadvantaged children and families.
$843 million to continue universal access to
preschool for a further 2 years.
$246 million to trial subsidising nannies.
Key insights
Changes to the child care payments signal the Government's first response to the Productivity
Commission Inquiry into Child Care.
The package appears reliant on the Senate passing previously announced changes to the Family Tax
Benefit B.
KPMG | 15
Education
Education has received less focus in this years
Budget. Total education expenses are expected to
decrease by 0.3 percent in real terms between
2014-15 and 2015-16, and increase by 2.5 percent in
real terms from 2015-16 to 2018-19, an increase
that is driven by increased schools expenditure.
Higher education and Vocational Education and
Training (VET) funding will fall in nominal terms over
the corresponding periods.
Will the Senate pass the higher education reforms

first announced in the 2014 Budget, and if so, in
what form? Until this question can be answered, the
higher education sector faces uncertainty as to the
levers available to them to offset the reduction in
higher education funding outlined in this Budget.
The Department of Education and Training (DET) has

also been affected by the governments small
government agenda.
VET FEE-HELP
VET sector announcements align with the Budgets
fairness theme, focusing on facilitating the current
regulatory reforms to improve training quality.
Specifically, the Budget provides $18.2 million over
4 years from 2015-16 to implement an enhanced
compliance regime for VET FEE-HELP.
Higher education
The biggest new funding announcement for higher
education is for an additional years funding for the
National Collaborative Research Infrastructure
Strategy, of $150 million. However, this is funded by
cuts to the Sustainable Research Excellence
Program. $16.9 million has been allocated over 4
years to improve initial teacher education.
The future of VET National Partnership Agreements

appears uncertain, with no allocated funding in this
Budget for the National Partnership on Skills Reform
beyond June 2017.
The higher education sector will also provide a new

contribution towards government revenue, with an
estimated revenue recovery of $26 million over 4
years by extending the Higher Education Loan
Payment (HELP) repayment framework to debtors
residing overseas.
Small government
The government will also achieve savings of $131
million over 5 years from 2014-15 by terminating or
redesigning a number of programmes administered
by DET including redesigning the National
Workforce Development Fund.
A year on from the last budget, it seems extremely

unlikely now that the reduction in overall higher
education funds will be offset by deregulated
student fees, as first anticipated by this
government. The uncertainty faced by the higher
education sector is compounded by flagged
efficiency dividend allocations currently being
withheld by government.
Key insights
This is a relatively quiet budget for the education sector compared to last year.
The Budget outlines a funding reduction in nominal terms for both the higher education and VET sectors,
meaning that uncertainty remains for the higher education sector as to the fundings stream available to
them to offset these reductions.
KPMG | 16
Defence
The defence story in this Budget is twofold:
the continuing commitment by government to
the 2 percent of GDP target
the First Principles Review (FPR) which will see
root and branch reform within the Department of
Defence.
Having kept its promises regarding the defence

budget, the government is asking for substantial
internal reform over the next 2 years. This will be a
challenging time, but success offers substantial
benefits to the nation.
The Federal Government has re-committed to

increasing the defence budget to 2 percent of GDP
by 2023. Assuming this occurs towards the end of
Defences 10-year budget planning envelope, this
could mean an additional amount of $14 billion to a
portfolio forecasting a total spend of $30.1 billion in
FY 2016. But even in the medium term, the
government has committed to 7.1 percent real
growth. Few portfolios have fared so well.
And there are more major policy announcements to

come. In August, we can expect the Defence White
Paper which will include a new Force structure and
(importantly for Industry), a new investment plan.
Unlike the Defence Capability Plan of years gone by,
FPR has tasked the department to develop a more
comprehensive Defence Investment Plan. This plan
will look beyond major capital spending on aircraft,
ships or vehicles, and includes the infrastructure,
information technology and other enablers required
to deliver defence assets. If done well, this new plan
should be warmly welcomed by business.
Budget growth aside, it is the internal reforms that

require focus. The FPR Report was completed in
April and has entered its implementation phase.
Defence has 2 years to complete deep reform to
address the cultural and structural issues that have
created slow, complicated, inefficient systems and
process. Unlike many of the 20 major reviews of the
organisation since 2008, the FPR does not place
substantial financial targets on the leadership.
Rather, Defence is being asked to become outcome
orientated, simpler, professional, focused and
transparent.
Hot on the heels of the Defence White Paper will be

policy statements concerning defence industry and
Australias vexed naval shipbuilding sector. One can
expect those documents to follow the lead set by
FPR. Simpler program structures, focused
government intervention and investment, while
balancing national security and economic challenges.
The risk for business is that FPR becomes a 2-year

period of introspection, where investment decisions
are delayed, and organisational flux makes
relationship management challenging. Budgets and
investment schedules may be affected.
In the lead up to the Budget we saw the Federal

Government make announcements around
additional C-17 heavy lift aircraft. Some additional
Defence measures are embedded in the Northern
Australia Infrastructure Fund.
Noteably there are $1.2 billion of new measures in

this years Budget affecting Defence including:
Package
Description
Military Operations
Afghanistan,
Iraq
and Middle East
$811 million
Intelligence
Additional funding
$296 million
Online Programs
Additional funding
$22 million
Telco Storage
Additional funding
$131 million
Lastly, changes to the military superannuation

scheme appear broadly positive for ex-service
personnel, with the better of three indexes now to
be used.
FY15/16
Source Budget Papers No1 15/16
Key insights
The big changes ahead will create opportunities for defence industry, a large, vibrant and diverse Australian
business sector which also services clients in areas such as infrastructure, information technology, and
professional services.
As ship building, submarine, land vehicle and other defence programs move forward as part of the
government's Budget commitments, suppliers to defence need to ensure they are prepared as
opportunities come to market.
KPMG | 17
Overview of changes
The main contributors to the changes in Revenue and Expenditure for 2015 2019 as outlined in the Budget
papers.
Top 10 Revenue contributors

$ million
Top 10 Expenditure contributors

2015-19
$ million
2015-19
Tightened pension access for high asset

holders
2,443.6
Growing Jobs and Small Business

reduction in small company tax rate and
five percent discount for certain small
business activity
(3,250.0)
Strengthening the integrity of welfare

payments through fraud prevention, debt
collection and assessment process
enhancement
1,701.5
Families Package introducing improved

child care to encourage employment,
study or other recognised activities
(3,197.7)
Commonwealth contribution to the East

West Link project in Victoria no longer
provided
1,400.0
Medicare Benefits Schedule reversal of

prior GP rebate proposals
(2,809.9)
Removal of Double-Dipping from

Parental Leave Pay
967.7
Growing Jobs and Small Businesses

Youth Employment Strategy revised
waiting period for youth income support
(1,848.0)
Streamline funding across various Health

programmes
950.7
Growing Jobs and Small Business

immediate tax deduction for assets with
cost not exceeding $20,000
(1,750.0)
Personal income tax modernising the

methods used for calculating workrelated car expense deductions
845.0
Pharmaceutical Benefits Scheme

expansion and amendment of approved
medication listings
(1,568.2)
Strengthen Australias foreign

investment framework via compliance
and enforcement, penalties, application
fees and transparency for agricultural
investments
735.0
Families Package extension of

National Partnership Agreement on
Universal Access to Early Childhood
Education
(843.0)
Personal income tax changes to tax

residency rules for temporary working
holiday makers
535.4
Developing Northern Australia

Attracting private sector investment in
infrastructure in Northern Australia
(800.5)
Consolidation of immigration detention

centres
514.2
Automotive Transformation Scheme

revised implementation
(683.4)
No Jab No Pay restriction on certain

Government payments where children
are not immunised on a timely basis
508.7
Department of Defence: Continued

support of Operation Okra in Iraq
(415.2)
KPMG | 18
CFO / Head of Tax checklist

Detail
1
Changes in tax rates Small business
Deferred tax impacts
Dividend franking
Fringe benefits changes
Remuneration impacts (e.g. meal entertainment)
New opportunities (e.g. work related electronic devices)
Multinational Enterprises Targeted anti-avoidance measures
Review existing arrangements to identify whether caught
Where affected, evaluate any changes needed before 1 January 2016
Transfer pricing
Consider additional documentation needed
Evaluate systems readiness for country-by-country reporting
GST on digital imports Offshore suppliers
Evaluate cross-border sales to identify whether affected
GST registration may be needed
Identify system changes and pricing adjustments as needed
Other small business concessions
Review capital expenditure to identify eligibility for new concessions
Consider altering structure where CGT roll-over is available
New MIT regime Fund managers, A-REITS, Infrastructure and other trusts
Commencing planning for broad ranging impacts (legal, systems, accounting, custodian
interactions, member engagement, etc.)
Employee share schemes
checklist
Remuneration packages
Tax administration New ATO interpretative power
Can existing tax consequences that are unintended and have frustrated
products/structures be overcome?
KPMG | 19
Contact us
KPMG Leadership
Chief Executive Officer

Gary Wingrove
+61 2 9335 8225
gwingrove@kpmg.com.au
Tax
Audit
Advisory
Rosheen Garnon
+61 2 9335 7255
rgarnon@kpmg.com.au
Duncan McLennan
+61 2 9335 7182
dmmclennan@kpmg.com.au
John Somerville
+61 3 9288 5074
jsomerville@kpmg.com.au
Australian Tax Centre
Corporate Tax
Specialist Tax
Grant Wardell-Johnson
+61 2 9335 7128
gwardelljohn@kpmg.com.au
David Linke
+61 2 9335 7695
davidlinke@kpmg.com.au
David Gelb
+61 3 9288 6160
dgelb@kpmg.com.au
Private Enterprise
Rob Bazzani
+61 3 9288 5594
rbazzani@kpmg.com.au
Tax Leadership
Industry Leadership
Corporates
Energy & Natural Resources Financial Services
Angus Reynolds
+61 3 9288 5364
areynolds@kpmg.com.au
Alison Kitchen
+61 3 9288 5345
akitchen@kpmg.com.au
Adrian Fisk
+61 2 9335 7923
adrianfisk@kpmg.com.au
Infrastructure, Government
& Health
Michael Hiller
+61 7 3233 3299
mhiller1@kpmg.com.au
kpmg.com/au/budget
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Contents

Executive summary ....................................................... 1

A focus on confidence levels and integrity measures

What does this mean for business?

Economic and fiscal analysis

With the new tax and spending measures, the

As activity in the non-resource sectors of the

Government Net Debt

While Australias fiscal position stays reasonably

Underlying cash balance

KPMGs forecasts broadly concur with those of the

Underlying cash balance (Percent of GDP)

The key challenge to maintaining Australias living

Unemployment rate - percent

GDP and PRICES - percent change

A sound macro economy

Source: Federal Budget papers and IMF publications

Real GDP growth continuing trend growth

The resource sector continues to transit from an investment phase to a

Growth in real GDP

Unemployment rate recovering very slowly

Spare capacity in the economy has continued to increase, with the

Consumer price index within band

Public net debt as a percentage of GDP

Net government debt as a percentage of GDP a key measure of fiscal

As expected, there are no significant taxation

The current FBT exemption for work-related

Employee Share Schemes

Income tax deduction for work related use of cars

Budget announcements made reference to the

Engine capacity (litre)

Overall the drafted changes realign Australias tax

Increase in Medicare Levy low-income

Multinational anti-avoidance measures

This is a budget with two clear areas of focus

The measures will apply to tax benefits for

This is a significant broadening of the power

Administrative penalties will be doubled from

New transfer pricing documentation

A country-by-country report disclosing

Statutory remedial power for the

Managed Investment Trusts revised

The recently released draft legislation

Company tax and paid parental leave

The 1.5 percent paid parental leave levy and

The Commissioner of Taxation will be granted

The franking credit rate will remain unchanged

Because the so-called digital economy cuts across

4. Principal purpose of tax avoidance - A principal

In many cases a related Australian marketing

Reconstruction and penalties

The G20-OECD Action Plan recognises this problem

If the MNE anti-avoidance provision were to apply,

Australia has chosen a different path. Australia has

The provisions are to commence from 1 January

There are four gateways for this provision to apply:

This is a targeted measure that only deals with

1. Size - The foreign resident must have global

GST on digital products and

GST compliance program- 3 year extension

These measures will apply to intangibles such as

The government expects that the ATO will collect

In some circumstances, the liability for the GST

A simplified registration framework is proposed for