Federal Budget 2022-23 — New tax measures announced

On 25 October 2022, Federal Treasurer Jim Chalmers handed down the Budget of the newly elected Government for 2022-23.

Detailed below is a summary of the significant tax measures announced.

Significant tax announcements

• Digital currency — The Government will introduce legislation to clarify that digital currencies continue to be excluded from the Australian income tax treatment of foreign currency.
• Superannuation — The minimum eligibility age to make downsizer contributions to superannuation will be reduced from 60 to 55 years of age.
• Multinational tax integrity package — The Government has announced a multinational tax integrity package to address the tax avoidance practices of multinational enterprises.
• Extension of Australian Tax Office (ATO) Compliance Programs — The operation of several ATO Compliance Programs will be extended.
• Electric cars — The Government will reduce taxes on electric cars by exempting battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs.

Tax measures in detail

Digital Currency

Clarifying that digital currencies are not taxed as foreign currency

The Government will introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency.

This maintains the current tax treatment of digital currencies, including the capital gains tax treatment where they are held as an investment. This measure will be backdated to income years that include 1 July 2021.

The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.

Superannuation

Expanding eligibility for downsizer contributions

The Government will expand the eligibility to make downsizer contributions to superannuation, by reducing the minimum eligibility age from 60 to 55 years of age. This measure will have effect from the start of the first quarter after Royal Assent of the enabling legislation.

The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute, and contributions do not count towards non-concessional contribution caps.

Multinational tax integrity package

Following the release of its Consultation Paper in August 2022, the Government has announced a multinational tax integrity package to address the tax avoidance practices of multinational enterprises (MNEs) and improve transparency through better reporting of MNEs’ tax information. The measures as part of this package are detailed below.

Amending Australia’s thin capitalisation rules

The Government will strengthen Australia’s thin capitalisation rules to address risks to the corporate tax base arising from the use of excessive debt deductions. This measure will apply to income years commencing on or after 1 July 2023.

The current thin capitalisation regime limits debt deductions up to the maximum of three different tests: a safe harbour (debt to asset ratio) test; an arm’s length debt test; and a worldwide gearing (debt to equity ratio) test.

The Government will replace the safe harbour and worldwide gearing tests with earnings‑based tests to limit debt deductions in line with an entity’s profits.

This measure includes amendments which will:

• limit an entity’s debt-related deductions to 30% of profits (using EBITDA — earnings before interest, taxes, depreciation, and amortisation — as the measure of profit). This new earnings-based test will replace the safe harbour test;
• allow deductions denied under the entity-level EBITDA test (interest expense amounts exceeding the 30% EBITDA ratio) to be carried forward and claimed in a subsequent income year (up to 15 years);
• allow an entity in a group to claim debt-related deductions up to the level of the worldwide group’s net interest expense as a share of earnings (which may exceed the 30% EBITDA ratio). This new earnings-based group ratio will replace the worldwide gearing ratio; and
• retain an arm’s length debt test as a substitute test which will apply only to an entity’s external (third party) debt, disallowing deductions for related party debt under this test.

The changes will apply to multinational entities operating in Australia and any inward or outward investor, in line with the existing thin capitalisation regime. Financial entities will continue to be subject to the existing thin capitalisation rules.

Denying deductions for payments relating to intangibles

The Government will introduce an anti-avoidance rule to prevent significant global entities (entities with global revenue of at least $1 billion) from claiming tax deductions for payments made directly or indirectly to related parties in relation to intangibles held in low- or no-tax jurisdictions.

For the purposes of this measure, a low- or no-tax jurisdiction is a jurisdiction with a tax rate of less than 15%, or a tax preferential patent box regime without sufficient economic substance.

The measure will apply to payments made on or after 1 July 2023.

Improved tax transparency

The Government will introduce reporting requirements for relevant companies to enhance the tax information they disclose to the public, for income years commencing from 1 July 2023.

The Government will require:

• significant global entities to prepare for public release of certain tax information on a country-by-country basis and a statement on their approach to taxation, for disclosure by the ATO;
• Australian public companies (listed and unlisted) to disclose information on the number of subsidiaries and their country of tax domicile; and
• tenderers for Australian Government contracts worth more than $200,000 to disclose their country of tax domicile (by supplying their ultimate head entity’s country of tax residence).

Tax administration

Extended ATO compliance programs

The operation of the following ATO Compliance Programs will be extended:

• The Government will provide $80.3 million to the ATO to extend the Personal Income Taxation Compliance Program for two years from 1 July 2023. This Compliance Program will focus on key areas of non-compliance, including overclaiming of deductions and incorrect reporting of income.
• The existing ATO Shadow Economy Program will be extended for a further three years from 1 July 2023.
• The Government has increased funding for the ATO Tax Avoidance Taskforce by around $200 million per year over four years from 1 July 2022, in addition to extending this Taskforce for a further year from 1 July 2025. This increased funding and extension is stated to support the ATO to pursue ‘new priority areas of observed business tax risks’.

Compliance program for the Tax Practitioners Board

The Government will provide $30.4 million to the Tax Practitioners Board (TPB) to increase compliance investigations into high-risk tax practitioners and unregistered preparers over four years from 1 July 2023. The TPB will use new risk engines to better identify tax practitioners who engage in unlawful tax advice, in order to improve tax compliance and raise industry standards.

Other significant tax announcements

Electric car discount

The Government will reduce taxes on electric cars. From 1 July 2022, the measure will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars. The car must not have been held or used before 1 July 2022.

Employers will need to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.

This measure will be reviewed after three years.

Improving the integrity of off-market share buy-backs

The Government will align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on‑market share buy-backs. This measure will apply from announcement on Budget night (7:30pm AEDT, 25 October 2022).

Making COVID-19 business grants non-assessable non-exempt

Certain payments from certain state and territory business grants which were made prior to 30 June 2022 can be made non-assessable, non-exempt (NANE) for income tax purposes.

The Government has announced a list of various state and territory COVID-19 grant programs eligible for NANE treatment, which will exempt eligible businesses from paying taxation on these grants.

Philanthropy — updates to listed deductible gift recipients

The Government will amend the tax law to specifically list Australians for Indigenous Constitutional Recognition as a deductible gift recipient (DGR) for donations made from 1 July 2022 to 30 June 2025.

The Government will also extend the listing of Australian Women Donors Network as a DGR for five years, for gifts made from 9 March 2023 to 8 March 2028.

Australia-Iceland Tax Treaty

On 12 October 2022, the Government signed the Double Taxation Agreement (DTA) between Australia and Iceland. The DTA will facilitate trade and investment between Australia and Iceland by relieving double taxation and lowering withholding taxes.

Tax measures previously announced by the former Government

The Government has confirmed that it will not proceed with the following measures that were announced but not legislated by the previous Government:

• The 2013-14 Mid-Year Economic and Fiscal Outlook (MYEFO) measure that proposed to amend the debt/equity tax rules.
• The 2016-17 Budget measure that proposed changes to the taxation of financial arrangements (TOFA) rules (a delayed start date was announced in 2018–19 Budget).
• The 2016-17 Budget measure that proposed changes to the taxation of asset-backed financing arrangements.
• The 2016-17 Budget measure that proposed introducing a new tax and regulatory framework for limited partnership collective investment vehicles.
• The 2018-19 Budget measure that proposed changing the annual audit requirement for certain self-managed superannuation funds (SMSFs).
• The 2018-19 Budget measure that proposed introducing a limit of $10,000 for cash payments made to businesses for goods and services.
• The 2018-19 Budget measure that proposed introducing a requirement for retirement income product providers to report standardised metrics in product disclosure statements.
• The 2021-22 MYEFO measure that proposed establishing a deductible gift recipient category for providers of pastoral care and analogous well-being services in schools.

Further the Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, as announced in the 2021–22 Budget. As a result, the effective lives of intangible depreciating assets will continue to be set by statute.

Deferral of start dates

The Government will defer the start dates of the following measures to allow sufficient time for policies to be legislated and implemented:

• The 2019-20 MYEFO measure that proposed introducing a sharing economy reporting regime, to 1 July 2023 for transactions relating to the supply of ride sourcing and short-term accommodation, and 1 July 2024 for all other reportable transactions.
• The 2021-22 Budget measure that proposed relaxing residency requirements for SMSFs, from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.
• The 2021-22 Budget measure that proposed making technical amendments to the TOFA rules, from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.

How can Rigby Cooke help?

If you would like to discuss the announced tax measures in greater detail, please contact Tamara Cardan, Tax Counsel.

Reference:

1. Budget Paper No.1 – Budget Strategy and Outlook
2. Budget Paper No.2 – Budget Measures