Federal Budget 2022-23 – overview of taxation measures

On 29 March 2022, the Treasurer handed down the Federal Budget for 2022-23.

Detailed below is a summary of the significant tax measures announced, followed by further detail regarding each of those measures.

Significant tax announcements

• Personal Income Tax – the low and middle income tax offset and Medicare levy low-income thresholds will be increased;
• Small Business – a new skills and training boost and a technology investment boost will be introduced to support small businesses;
• Employee Share Schemes – the Government will expand access to employee share schemes and reduce red tape;
• COVID-19 Response Package – certain payments from state and territory COVID 19 business support programs will be made non-assessable non-exempt, and the costs of taking a COVID-19 test to attend a workplace will be tax deductible for individuals from 1 July 2021;
• Excise – there will be a temporary 50% reduction of the excise and excise-equivalent customs duty rate that applies to petrol and diesel for six months;
• Trust Income and Reporting – the Government will digitalise trust and beneficiary income reporting and processing;
• Patent Box – the tax concession will be extended to the agricultural sector, low emissions technology innovations, and medical and biotechnology innovations.

Comment

Given that we are in an election year, the Budget does not announce significant changes to corporate and international taxation. It is expected that we will see substantive announcements during the next term of Government.

The focus of the Budget was to deliver Australia’s plan for a stronger future through building a more productive economy to create more jobs, addressing the cost of living pressures, strengthening critical infrastructure and investing in national security and defence capabilities.

The Budget estimates that tax receipts for 2021-22 will be $512.5 billion, and tax receipts for 2022-23 will be $508.4 billion. Actual tax collected for 2020-21 totalled $473.9 billion.

Tax measures in detail

Personal income tax

Cost of living tax offset

The Government will increase the low and middle income tax offset (LMITO) for the 2021-22 income year. The LMITO is targeted at low- and middle-income earners who are most susceptible to cost of living pressures.

The LMITO for the 2021-22 income year will be paid from 1 July 2022 when Australians submit their tax returns for the 2021-22 income year. This measure will increase the LMITO by $420 for the 2021-22 income year, which increases the maximum LMITO benefit to $1,500 for individuals and $3,000 for couples.

Increasing the Medicare levy low-income thresholds

The Government will increase the Medicare levy low-income thresholds for seniors and pensioners, families and singles from 1 July 2021 to take into account movements in the consumer price index.

The threshold for singles will be increased from $23,226 to $23,365. The family threshold will increase from $39,167 to $39,402. The threshold for single seniors and pensioners will increase from $36,705 to $36,925. The family threshold for seniors and pensioners will increase from $51,094 to $51,401.

For each dependent child or student, the family income thresholds will increase by a further $3,619 instead of the previous amount of $3,597.

Small business

Skills and training boost

The Government will introduce a skills and training boost to support small businesses to train and upskill their employees. The boost will apply to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2024.

Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024 will be included in the income year in which the expenditure is incurred.

Technology investment boost

The Government will introduce a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2023.

Small businesses will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.

An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year, and the boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.

Employee share schemes

Expanding access and reducing red tape

The Government will expand access to employee share schemes and further reduce red tape so that employees at all levels can directly share in the business growth they help to generate.

Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:

• $30,000 per participant per year, accruable for unexercised options for up to five years, plus 70% of dividends and cash bonuses; or
• any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.

The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.

Covid-19 response package

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

The Government will extend the measure, which enables payments from certain state and territory COVID-19 business support programs to be made non-assessable non-exempt (NANE) for income tax purposes until 30 June 2022.

In recognition that NANE tax treatment is only to be provided in exceptional circumstances, eligibility is limited to COVID-19 grant programs directed at supporting businesses that are the subject of a public health directive applying to a geographical area in which the businesses operate and whose operations have been significantly disrupted as a result of the public health directive.

The consequence of the amount being characterised as NANE income are as follows:

• the amount is tax-free;
• outgoings incurred in deriving NANE income are not deductible;
• NANE income is not taken into account when calculating the amount of a deduction allowed for a tax loss – i.e. there is no need to offset the NANE income against an entity’s losses (unlike ‘exempt income’, which is taken into account when calculating losses).

Tax deductibility of covid-19 test expenses

The Government will 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. In making these costs tax deductible, the Government will also ensure fringe benefits tax will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose.

Excise

Temporary reduction in fuel excise

The Government will help reduce the burden of higher fuel prices by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel for six months.

The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50% for six months.

This measure will commence from 12.01am on 30 March 2022 and will remain in place for six months, ending at 11.59pm on 28 September 2022.

The rate of excise and excise-equivalent customs duty currently applying to petrol and diesel is 44.2 cents per litre. This measure will halve the rate on petrol and diesel to 22.1 cents per litre from 30 March 2022, with the price faced by consumers expected to be reduced by a larger magnitude, given that GST will be levied on the lower excise rate.

Superannuation

Supporting retirees – extension of temporary reduction in super minimum drawdown rates

The Government will extend the 50% reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023.

The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions.

Given ongoing volatility, this change will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.

Tax administration

Digitalising trust income reporting and processing

The Government will digitalise trust and beneficiary income reporting and processing by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes.

Trust income reporting and assessment calculation processes have not been automated to the same extent as individual or company tax returns, resulting in longer processing times and limited pre-filling opportunities. This measure is expected to reduce the compliance burdens on taxpayers, reduce processing times and enhance ATO processes.

The measure will commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.

The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications.

Modernisation of pay as you go (PAYG) instalment systems

The Government will enable companies to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. This will support business cash flow by ensuring instalments reflect current performance.

Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.

This measure is intended to improve alignment between PAYG instalment liabilities and profitability and support companies in managing cash flows.

The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications of this measure.

Varying the GPD uplift factor for tax instalments

The Government has decided to set the GDP uplift factor for pay as you go (PAYG) and GST instalments at 2% for the 2022-23 income year. This uplift factor is lower than the 10% that would have applied under the statutory formula.

The lower uplift rate will provide cash flow support to small businesses, including sole traders, and other individuals with investment income, helping them invest and grow.

The 2% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2022-23 income year and fall due after the enabling legislation receives Royal Assent.

Smarter reporting of taxable payments reporting system data

The Government will allow businesses the option to report Taxable Payments Reporting System data (via accounting software) on the same lodgment cycle as their activity statements.

This measure will increase the accuracy and timeliness of reporting while lowering compliance costs for taxpayers.

Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.

Patent box

Expanding tax concession to the agricultural sector

The Government will expand the patent box tax concession to support practical, technology-focused innovations in the Australian agricultural sector.

The Government will provide concessional tax treatment for corporate taxpayers who commercialise their eligible patents linked to agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority, the Public Chemicals Registration Information System register, or eligible for a certificate of Plant Breeder’s Rights (PBRs).

Eligible corporate income will be subject to an effective income tax rate of 17% for PBRs and patents granted or issued after 29 March 2022 and for income, years starting on or after 1 July 2023. Eligible income will be taxed at the concessional tax rate to the extent that the research and development (R&D) of the innovation took place in Australia.

The patent box will offer a competitive tax rate for profits generated from eligible Australian owned and developed patents, supporting the commercialisation of innovation in Australia.

Expanding tax concession to low emissions technology innovations

The Government will expand the patent box concession to support the Government’s technology-focused approach to reducing emissions in line with the Government’s target to achieve net zero emissions by 2050.

The expanded patent box will provide concessional tax treatment for corporate taxpayers who commercialise their patented technologies, which have the potential to lower emissions. Eligible corporate income will be subject to an effective income tax rate of 17% for patents granted after 29 March 2022 and for income years starting on or after 1 July 2023.

Eligible income will be taxed at the concessional tax rate to the extent that the R&D of the innovation took place in Australia.

Tax concession for medical and biotechnology innovations

The Government will allow patents granted or issued after 11 May 2021 to be eligible for the regime, which will incentivise further R&D to be undertaken in Australia on medical and biotechnology patents, much of which occurs after the patent application.

The Government will now allow standard patents granted by IP Australia, utility patents issued by the United States Patent and Trademark Office (USPTO), and European patents granted under the European Patent Convention (EPC) to be eligible. This will remove regulatory barriers to accessing the patent box regime for Australian developed innovations patented in the major overseas jurisdictions with equivalent patent regimes.

However, taxpayers will still only benefit from the concessional tax treatment under the patent box to the extent that the R&D occurred in Australia.

Other significant tax announcements

Tax integrity – extension of the ATO tax avoidance taskforce

The Government will provide $325 million in 2023-24 and $327.6 million in 2024-25 to the ATO to extend the operation of the Tax Avoidance Taskforce by two years to 30 June 2025. The Taskforce was established in 2016 to undertake compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals.

Foreign investment framework – reducing regulatory burden

The Government will amend Australia’s foreign investment framework to reduce the regulatory burden faced by investors and support Australia’s economic recovery from the COVID-19 pandemic.

The amendments will streamline the requirement for some investors to notify the Government before acquiring an interest while still maintaining the Government’s ability to address national interest concerns as they arise. These amendments are due to commence on 1 April 2022.

Future fund – extending income tax exemption to wholly-owned Australian incorporated subsidiaries

The Government will amend the law to exempt wholly-owned Australian incorporated subsidiaries of the Future Fund Board of Guardians (Future Fund Board) from corporate income tax. The Future Fund Board is currently exempt from income taxes, but this exemption does not extend to its wholly owned subsidiaries.

The measure will have effect from subsidiaries’ first income year after Royal Assent of the enabling legislation.

Indirect tax concession scheme – diplomatic, consular concessions

The Government has granted or extended access to refunds of indirect tax under the Indirect Tax Concession Scheme (ITCS) to the diplomatic and consular representations of Fiji, India, Indonesia, Latvia, Malaysia, Nauru, Papua New Guinea, the Taipei Economic and Cultural Office, the Democratic Republic of Timor-Leste, Tonga, Samoa, the Solomon Islands, the United Kingdom and Vanuatu.

Under the ITCS, diplomatic and consular representations receive refunds for indirect taxes, including GST, fuel and alcohol taxes.

Primary producers – carbon abatement and biodiversity stewardship income

The Government will allow the proceeds from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates generated from on-farm activities to be treated as primary production income for the purposes of the Farm Management Deposits (FMD) scheme and tax averaging from 1 July 2022.

The Government will also change the taxing point of ACCUs for eligible primary producers to the year when they are sold and extend similar treatment to biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market scheme from 1 July 2022. Eligible primary producers are those who are currently eligible for the FMD scheme and tax averaging.

These changes are intended to encourage more primary producers in regional and remote areas to undertake additional carbon abatement and biodiversity stewardship activities.

How can Rigby Cooke help?

If you would like to discuss the above Budget measures, please contact the Tax team.

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