The Federal Treasurer, Peter Costello has announced far-reaching reforms to the Australian business taxation regime and plans to slash the Capital Gains Tax (CGT), encouraging investment in the IT industry.
Under the long awaited changes, the government plans to implement many of the main recommendations of the Ralph Report. The decision will see CGT cut heavily for Australian investors, and exemptions for overseas Pension funds, in a move designed to push more overseas funding into Australian IT startups.
Treasurer Peter Costello said in his announcement that the New Business Tax System will offer "major benefits to 95 per cent of Australian businesses and 99 per cent of Australian primary producers," as a separate simplified tax system will be introduced for businesses earning less than $1 million per annum.
However, big business won't be missing out. The key change in the recommended new business tax system is the expected lowering of the company tax rate from 36 percent to 34 per cent from 1 July 2000 and then 30 percent from 1 July 2001.
The review states that lowering Capital Gains Tax (CGT) will "improve the workings of the Australian capital markets and encourage more investment and innovation."
The changes will be "favourable to all aspects of the IT industry," according to Graham Penn, general manager of research at IDC.
Companies involved in "software and services will benefit most because that's where the people are." The taxation changes will effect people and incentives, according to Penn.
A major motivation for reform of the capital gains tax arrangements was to increase the international competitiveness of Australian business and to encourage greater investment by Australians.
The review proposes that overseas pension funds should be exempted from CGT when investing in high-tech businesses. The reforms aim to promote venture capital investments in Australia, which is a boon for the IT industry.
The government has recognised that businesses have many demands in addressing Y2K compliance issues and the introduction of GST, so the new system will be phased in and major elements of the package will be deferred until 1 July 2001.
For more information go to www.rbt.treasury.gov.au.
