Today BRR Media speaks with Philip Diviny; he’s a Taxation Partner with Middletons in Melbourne, welcome back to BRR Media Philip.

How are you David?

Phil of course last night we saw the Federal Budget delivered, can you give us a wrap of the key issues to come out of the Budget?

The headline tax issue I suppose was the company tax loss carry back measure that’s been announced.  But really this year there were a whole host of tax measures contained within the Budget, some of which have probably slipped under the radar a bit on the night, and those things include measures such as the increase in the tax rate for managed investment trusts from 7.5% to 15%, the elimination of the CTT discount for non-residents and then I guess some other more prominent measures such as the elimination of the Living Away from Home Allowance for people who don’t have another Australian residence, and restriction of the Living Away from Home Allowance to a 12 month period, and also the increase in the super contributions tax for people earning over $300,000.

And certainly a number of issues there.  And as you mentioned the loss carry back was probably one of the major changes.  Can you just explain how will that loss carry back work?

The loss carry back has been lobbied for, for quite some time, and it exists in a number of other countries such as Canada.  The way in which this one will work is that if you incur a loss, if you’re a company and you incur a loss of up to $1 million, you can effectively carry back that loss and apply it against taxable income that you’ve earnt in an earlier year, and therefore get a refund of tax from the Tax Office.  So let’s say for example in the 2013 income year a company makes a loss of $1 million, but in the previous year it had taxable income of $1 million it would carry back that 2013 loss, apply it against its 2012 income an get a refund of $300,000 tax from the Tax Office.  Now there are a couple of key points to note about the carry back of losses measure, the first one is that it only applies to companies.  Now with the existence of the CGT discount, a lot of smaller businesses structure themselves as trusts, either unit trusts if that’s an investment that’s formed between people who, you know, have different interests or maybe a discretionary trust if it’s a family involved in a business.  And this loss carry back measure won’t be available to those sort of entities, it is restricted to companies.  The second thing is that the amount of the loss carry back is limited to a company’s franking credit balance, and the reason for that is that under our system, if a company pays a franked dividend the shareholders can utilise those franking credits; so the Government doesn’t want a situation where people have paid out their franking credit balance, it’s been used by the individual shareholders in that company and then the next year they turn around and try and carry back their loss and get a refund of tax from the Tax Office.

And Philip just finally what are some of the other tax issues that you might have been expecting to come out in this Budget but didn’t eventuate?

Well unfortunately David there are a lot of measures which had been previously announced, which have now been canned in the Budget, and obviously the one that’s attracting the headlines is the proposed reduction in the company tax rate that the Government had committed to, to reduce the company tax rate down to 29%, and that’s now been shelved.  But there are other measures in there as well that are in the same basket, so the tax breaks for green buildings program has also been shelved, the proposed 50% tax discount for interest income has been dropped, and the proposal to have a standard deduction for work related expenses for individual tax returns will also not proceed.  So there’s a lot of things which had been previously committed to by the Government which have now been clawed back by this Budget.  A lot of the measures in the Budget of course had been fairly well leaked or publicised prior to the night of the Budget, but it was interesting to see that the Government has now shelved these measures to which they’d committed most of them in the 2011 Budget.

As always there are winners and losers every time a new budget is released, and thanks again for your insights today Philip.

Thanks David.

That was Philip Diviny, Partner in the Taxation team with Middletones in Melbourne.  Listeners if you have any questions for Philip about this interview please send a message using the panel on your screen or otherwise you can email through to law@brrmedia.com and we’ll forward your query.