Advancing tax reform

Improved incentives

The Budget includes a substantial set of tax reforms to improve incentives for investment and workforce participation.

To promote investment, designated infrastructure projects will be able to carry forward losses with an uplift factor to maintain their value.

To improve workforce incentives, the Dependent Spouse Tax Offset will be phased out for people under 40 years of age. Taxpayers with invalid dependent spouses and selected other groups will not be affected.

To provide more cash in low‑income earners' regular pay, a greater proportion of the Low Income Tax Offset (LITO), up to an additional $300, will be provided during the year.

Fairness and integrity

It is important that everyone pays their fair share of tax so that others do not have to shoulder an unfair burden. The Budget contains a number of measures that support the integrity of the tax system, with that revenue then available for other priorities.

The fringe benefits tax (FBT) valuation of car benefits will be reformed by removing the incentive for people to drive their car further in order to obtain a larger tax concession, and in the process burn more fuel.

To reduce access to income splitting by high‑income earners, the LITO will no longer be available for the unearned income of minors.

The Entrepreneurs' Tax Offset has not achieved all its objectives but has generated high compliance costs. From 2012‑13, assistance to small business will be delivered instead through a company tax rate cut, instant write‑off of all assets costing less than $5,000, and a new measure allowing an immediate deduction for the first $5,000 of a motor vehicle.

Tax compliance measures will help deliver fairness in the tax system. These include improved reporting of taxable payments made to some contractors and stronger action against fraudulent 'phoenix' activity, fraudulent tax refund claims, and non‑payment of tax on government payments.

The Tax Forum, to be held in October, will consider further tax reform.