The New Federal Government’s Budget was handed down on 25 October by Treasurer Jim Chalmers. With an eye on, and limited in what can be done, the high budget deficit and government debt together with rising inflation, higher prices and interest rates as a consequence, the Budget has a focus on delivering on election promises, particularly on cost of living relief in the areas of:
- Expansion of the paid parental leave scheme
- Child care
- Reduced price for medicines
- Increasing wages growth
While these target families and the cost of living pressure, there was also spending measures in the areas of health, education, defence, infrastructure and climate change.
There were no major tax changes or any significant tax reform measures announced in the Budget with only a handful of previously announced but unenacted measures being introduced or having the start date deferred to a later time. The Government has abandoned eight (8) measures announced by the previous Government but there still remain a number of significant reforms announced that are yet to be introduced particularly in relation to the changes to both individual and corporate tax residency, and the long awaited reforms to Division 7A.
A summary of the key tax measures in the Budget follows.
- No changes to the Stage 3 personal tax income tax cuts were announced. These Stage 3 income cuts are legislated to commence from 1 July 2024 with individuals earning between $45,000 and $200,000 having a marginal rate of 30% (personal rates and thresholds for the 2022-23 income year remain unchanged from the 2021-22 income year).
- Low and Middle Income Tax Offset (LMITO) – The Government has announced that this measure will cease for the 2022-23 income year and beyond. With the 2021-22 income year now being the final year for the LMITO, individuals previously eligible may see a reduced refund from 1 July 2023 of between $675 and $1,500.
- Covid -19 business grants – the government will enact legislation to make certain State and Territory Civid-19 grant programs eligible to be treated as non-assessable non-exempt income. The grants announced in the Budget are predominantly those provided in Victoria and the ACT to exempt those eligible businesses paying income tax on these grants.
- Electric car FBT exemption – the Government will be proceeding with this measure which is currently in a Bill before the Senate. It will exempt battery, hydrogen fuel cell and plug-in hybrid electric vehicles from FBT. To be eligible for the FBT exemption, the vehicle must have a retail price (including GST) below the luxury car tax threshold for fuel efficient vehicles (for the 2022-23 year being $84,916) and be held or first used on or after 1 July 2022. Employers will need to include the exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.
- Off-market share buy-backs – the Government intends to change the income tax treatment of off-market share buy-backs by listed public companies to align with the tax treatment of on-market buy-backs. There is no other guidance in the Budget papers nor any draft legislation at this time. The ATO announcement in relation to this measure states that this proposed measure will prevent any part of the buy-back price being treated as a dividend with the entire buy-back being treated as capital proceeds (thus affecting taxpayer who would otherwise benefit from any dividend component of the buy-back price that has franking credits attached). The measure will apply from 25 October 2022.
- Eligibility age to make downsizer contributions into superannuation – the Government has announced it will lower the minimum eligibility age from 60 to 55 with effect from the start of the first quarter after Royal Assent of the new legislation. There are no other changes to the eligibility criteria that allows individuals to make a one-off post tax contribution to their superannuation of up to $300,000 per person from the sale proceeds of a dwelling that is eligible, in whole or in part, to the CGT main residence exemption.
- Incentives to downsize – to reduce the financial impact for pensioners, the Government is proposing to:
- Extend the assets test exemption for principal home proceeds from 12 to 24 months; and
- Change the income test to apply a lower deeming rate (0.25%) to principal home sale proceeds when calculating deemed income for 24 months after the sale.
International Tax Measures Affecting Business
As highlighted in the election campaign, the new Government had signalled a strong focus on the tax paid by multinational enterprises in Australia. The Budget contains a Multinational Tax Integrity Package consisting of measures targeting these taxpayers, being:
- Thin capitalisation – the rules will be amended to apply from 1 July 2023 to replace some of the existing tests to limit debt (interest) deductions with earnings-based tests to limit the debt deductions in line with an entity’s profits.
- Deny deductions, made on or after 1 July 2023, for payments relating to intangibles held in low or no tax jurisdictions (being a jurisdiction with a tax rate of less than 15% or a tax preferential patent box regime without sufficient economic substance) – this measure is targeted at significant global entities (entities with global revenue of at least $1 billion).
- Improved tax transparency – to apply from 1 July 2023, there will be new reporting requirements for companies, including large multinationals and Australian listed and unlisted public companies, to enhance the tax information they disclose to the public. The measure provides, for example, that those Australian public companies will have to disclose information on the number of subsidiaries and their country of domicile.
- Digital Currency – legislation will be introduced to clarify that digital currencies (such as Bitcoin) will continue to be excluded from the Australian income tax treatment of foreign currency i.e. where they are held as an investment, the current CGT treatment continues to apply. This measure will be backdated to apply to income years that include 1 July 2021.
Measures Announced but not Proceeding
As noted, the Government announced it will be not proceeding with some previously announced measures including :
- Reversal of previous measure allowing taxpayers to self-assess the effective life of intangible depreciating assets – this measure, which was previously announced on the 2020-21 Budget, will not be proceeding. As such, holders of such assets, including patents, copyrights and registered designs, will remain subject to the statutory effective lives as stated in the income tax law.
- The proposed measure to introduce a limit of $10,000 for cash payments made to businesses.
- The proposed measure to introduce a requirement for retirement income product providers to report standardised metrics in product disclosure statements.
- The proposed measure to change the annual audit requirements for certain self-managed superannuation funds (SMSFs) to a three yearly requirement.
- The proposed measure to amend the debt/equity rules.
The Government has announced it will defer the start date for other previously announced measures including:
- Transactions relating to the supply of ride sourcing and short-term accommodation will have a start date moved from 1 July 2022 to 1 July 2023 (with other reportable transactions including asset sharing and food delivery now proposed to commence from 1 July 2024).
- The proposed measure to relax the residency requirements for SMSFs and APRA-regulated funds that may become non-residents for tax purposes due to the trustee or active members being unable to return to Australia as a result of circumstances beyond their control is deferred from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the new legislation.
The Government announces a range of increased funding for the Australian Taxation Office and the Tax Practitioners Board. Areas in the ATO to receive increase in temporary funding include:
- The Tax Avoidance Task Force
- Shadow Economy Program
- The Personal Income Taxation Compliance Program (focussing on compliance activity in areas such as over-claimed deductions and under-reported income)
While a lot of the Budget measures announced were reported and leaked prior to the Budget, it contains no new surprises and the Government noticeably talked up the effect of the deficit and debt situation. How effective the cost of living measures are in the current time of high inflation and interest rates expect to rise further, will be a challenge.
From a tax perspective, the measures again only tinker around the edges in face of the new Government’s election commitment not raise taxes. It is hoped real tax reform will enter the debate leading into next year’s Budget.
As always, greater details on these measures will come during consultations and introduction of legislation into the Parliament. We will continue to provide updates as developments occur and the impacts they will have.
This information does not constitute financial or legal advice and is for general information purposes only. Please contact DLA Partners for specific advice relating to your particular circumstances.