Australian Federal Budget 2022 2023
29 March 2022
Tonight Josh Frydenberg handed down his fourth Federal Budget, and the last before the next Federal election, which will most likely be held in May. With an eye firmly on the election, the Budget is a crowd pleaser, with a halving of fuel excise for the next 6 months and a one-off increase to the offset for low to middle income earners the headline acts. On the downside, the budget forecasts a decade of deficits, with net debt peaking at $864 billion in 2026.
Overall, the more significant measures announced tonight are short term in nature, and there is almost nothing by way of tax reform or any meaningful revenue measures. Perhaps surprisingly, the Government did not make any announcements regarding the OECD's "Pillar 1" and "Pillar 2" tax reforms, which will redefine many key international tax principles in the forthcoming years. One suspects that business and tax professionals will be watching these measures with more interest post-election than tonight's "pre-election" Budget.
The key tax proposals in the Budget are summarised below.
PERSONAL TAX MEASURES
Cost of living tax offset for low and middle income earners
The Government has announced that it will increase the low and middle income tax offset (LMITO) by $420 to a maximum of $1,500 per individual for 2021-22 to assist with cost of living pressures. The LMITO was previously $1,080. Taxpayers will receive the benefit of this increased offset when they lodge their tax returns from 1 July 2022.
Taxpayers earning $126,000 or more will not receive the LMITO (as was previously the case).
Increasing the Medicare levy low income thresholders
The Government has announced that the Medicare levy low income thresholds will increase from 1 July 2021, as follows:
| Taxpayer | Current threshold | Threshold from 1 July 2021 |
|---|---|---|
| Individual | $23,226 | $23,365 |
| Family | $39,167 | $39,402 |
| Single seniors and pensioners | $36,705 | $36,925 |
| Family seniors and pensioners | $51,094 | $51,401 |
| Increase to family thresholds for each dependent child or student | $3,597 | $3,619 |
Note that taxpayers earning more than the above thresholds may still be entitled to a reduction in the Medicare levy if their income does not exceed the phase-in limit.
Temporary reduction in fuel excise
As a direct measure in response to global market conditions, for the next 6 months commencing on 30 March 2022 excise and excise equivalent customs duty that applies to petrol, diesel and other fuel and petroleum based products (excluding aviation fuel) will be halved from 44.2 cents per litre to 22.1 cents per litre. Indexation will continue but at a 50% reduced rate.
These measures will decrease net tax receipts by c.$3b over this period. The Australia Competition and Consumer Commission will monitor the price behaviour of retailers to ensure the lower excise rate is passed on.
BUSINESS TAX MEASURES
COVID
The Government has further extended the measure pursuant to which payments from certain state and territory COVID-19 business support programs are made non-assessable non-exempt (NANE) income until 30 June 2022. This measure was originally announced on 13 September 2020 and a number of programs have previously been designated by the Government as eligible for this treatment.
Since the 2021-22 Mid-Year Economic and Fiscal Outlook (MYEFO), the following additional state and territory grant programs have been made eligible: New South Wales Accommodation Support Grant, New South Wales Commercial Landlord Hardship Grant, New South Wales Performing Arts Relaunch Package, New South Wales Festival Relaunch Package, New South Wales 2022 Small Business Support Program, Queensland 2021 COVID-19 Business Support Grant, South Australia COVID-19 Tourism and Hospitality Support Grant and South Australia COVID-19 Business Hardship Grant.
In another COVID-19 related measure, the Government will also ensure that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals from 1 July 2021, and will also ensure fringe benefits tax (FBT) will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose. This measure was originally announced on 8 February 2022.
Patent Box
In the 2021-22 Budget, the Government announced the introduction of a patent box regime for corporate income associated with Australian patented inventions in the medical and biotech sectors (and potentially the cleantech sector) with effect from 1 July 2022. Qualifying corporate income is proposed to be concessionally taxed at an effective tax rate of 17%.
The patent box regime, which is yet to be legislated (but has been introduced into the House of Representatives), is now proposed to be expanded for income years starting on or after 1 July 2023 to patents granted after 29 March 2022 in connection with:
- specified low emissions technologies (as foreshadowed in the last budget); and
- listed agricultural and veterinary chemical products or Plant Breeder's Rights.
As previously announced, medical and biotech patents granted after 11 May 2021 not only in Australia but also in several other overseas jurisdictions with equivalent patent regimes (including the US) will now be eligible under the regime.
Employee share scheme measures
The proposed amendments are intended to simplify the regulatory regime that currently applies to employee share scheme (ESS) offers. Currently, ASIC Class Order CO 14/1001 provides unlisted bodies and their wholly owned subsidiaries with relief from disclosure rules for offers of ESS interests. To be eligible for regulatory relief, the unlisted body (or its wholly-owned subsidiary) must not offer ESS interests to eligible participants with the value of greater than $5,000 in any 12 month period (the "value cap").
The Government has announced that the value cap for unlisted bodies and their subsidiaries will be lifted to $30,000 per participant per year. Where an option is granted to a participant and is unexercised, participants will be able to accrue their annual cap for up to 5 years (plus 70% of dividends and bonuses received in the relevant year). The value cap for ESS interests will be removed completely where the acquisition of those interests would allow a participant to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.
In addition, the Government will remove any regulatory requirements for offers to independent contractors, where they do not have to pay for ESS interests.
Small business tax concessions
The Government has introduced two measures which provide an additional 20 per cent deduction on expenditure that small businesses (with aggregated turnover of less than $50 million) incur on:
- external training courses provided to their employees from 29 March 2022 to 30 June 2024. The external training courses will only be eligible for the deduction if they are delivered by entities registered in Australia and to employees in Australia or online. Expenses incurred for in-house on the job training and on external training for persons other than employees will be excluded. There is no annual cap on expenditures; and
- business expenses and depreciating assets from 29 March 2022 to 30 June 2023 that support digital adoption such as portable payment devices, cyber security systems or subscriptions to cloud-based services (among others). This is subject to an annual cap in each qualifying income year of $100,000.
Eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year, and all subsequent expenditure will be claimed in the income year in which it is incurred.
ATO Tax Avoidance Taskforce
The Government will extend funding of the ATO Tax Avoidance Taskforce on multinationals, large corporates and high wealth individuals for 2 years, providing over $650M in additional funding ($350M in 2023/24 and $327.6M in 2024/2025). It is expected that the activities of the Taskforce will increase receipts by $2.1 billion over the period from 1 July 2023 to 30 June 2026.
The taskforce was established in 2016 to undertake compliance activities to ensure multinational enterprises, large public and private businesses (and associated individuals) pay the right amount of tax in Australia. As of June 2021, the taskforce has helped the ATO raise $22.9 billion in tax.
The taskforce has a focus on:
- international risk, which focuses on Base Erosion and Profit Shifting (BEPS) and international restructuring to organise profit shifting
- inappropriate arrangements that seek to extract profits or capital without the entity paying the right amount of tax
- taxpayers contributing to tax gaps in markets and influencing compliance levels
- high risk trust arrangements beyond ordinary trust arrangements or tax planning related to genuine business or family dealings
- detecting and disrupting those intermediaries that promote tax exploitation schemes across the tax and superannuation systems
The activities of the taskforce include the Top 1000 review programs, the Next 5000 program, diverted profits tax reviews, audits and the identification of tax avoidance schemes and promoter penalty situations.
Primary producers – carbon credits
Under changes previously announced on 21 March 2022, the Government will change the manner in which primary producers treat revenue from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates. From 1 July 2022, income from the sale of ACCUs will be treated as primary production income, providing access to the income tax averaging arrangements and the Farm Management Deposit (FMD) scheme. Currently, income from the sale of ACCUs is treated as non-primary production income and is therefore ineligible for the concessionary tax treatment provided by the averaging arrangements and FMD scheme. The Government will also change the taxing point for ACCUs for eligible primary producers (ie those currently eligible for the FMD scheme or averaging arrangements) to the year in which the ACCUs are sold. Current tax rules essentially apply a "trading stock" approach to ACCUs where relevant holders of ACCUs may be taxed on the change in value of ACCUs each year. The announcement indicates that
eligible primary producers will no longer be subject to tax on the value of ACCUs before they are sold. Similar rules will also apply to biodiversity certificates.
TAX COMPLIANCE MEASURES
The Budget contains a number of tax compliance measures, primarily directed towards reducing red tape by modernising tax return filing processes and tax payment obligations. In particular:
- With effect from the 2022-23 income year, certain small and medium enterprises will calculate their PAYG and GST instalments by reference to an assumed GDP uplift factor of 2%, rather than what would have arisen under the statutory formula (being an uplift factor of 10%). This measure (if enacted) will only apply to those with up to $10 million annual aggregated turnover for GST instalments, and $50 million annual aggregated turnover for PAYG instalments.
- With expected effect from 1 January 2024, companies will be able to choose to have their pay as you go (PAYG) instalments calculated based on their financial performance (as determined from accounting software, subject to some prescribed tax adjustments). This measure is intended to better align tax obligations with business performance (and cash flow).
- With expected effect from 1 January 2024, those required to lodge Taxable Payments Annual Report (which relates to certain payments to contractors) will instead be permitted to report those payments (via accounting software) on the same lodgement cycle as their activity statements (i.e., Business Activity Statements or Instalment Activity Statements).
- With expected effect from 1 July 2024, all trust income tax returns will be able to be electronically lodged, which is intended to simplify processes for taxpayers, enable the ATO to pre-fill beneficiary tax returns, and to assist the ATO in automating certain assurance processes.
- $6.6mil has been committed for the development of IT infrastructure to allow the ATO to share single touch payroll tax data with State and Territory revenue offices on an ongoing basis.
Other than in respect of the change to the GDP uplift factor and single touch payroll tax data, implementation of the announced measures is subject to the capacity of third party software operators to deliver the relevant software updates.
