2022-23 Federal Budget tax & superannuation brief

The 2022-23 Australian Federal Government Budget Tax and Superannuation Highlights

The Australian Federal Treasurer, Mr Josh Frydenberg, handed down the 2022–23 Federal Budget at 7:30pm (AEDT) on 29 March 2022.

After two years of budgets with overwhelming stimulus designed to encourage businesses to spend their way out of a covid fueled recession, the 2022-23 Budget is in comparison underwhelming.

In an economy emerging from the pandemic, the Treasurer has confirmed an unemployment rate of 4% and an expected budget deficit of $78 billion for 2022–23. As international uncertainties add pressure on the cost of living, key measures in the Budget provide cost of living relief in the form of an increased Low and Middle Income Tax Offset, a one off $250 payment for welfare recipients and pensioners and a 6-month fuel excise relief.

Other measures for business seek to promote innovation, with expanded “patent box” tax concessions proposed, and provide tax incentives for small businesses to invest in the skills of their employees.

The Australian Taxation Office (ATO) will receive a significant funding boost to extend its anti-avoidance taskforce, with Trusts being a key target.

It was a quiet night for superannuation with only a minor measure announced.

This Mazars Federal Budget Brief summarises the key tax and superannuation announcements that we expect will most affect Mazars individual and business clients. 

Please note that as these are just announcements they cannot be regarded as law until legislated.

The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au

Should you wish to discuss how these proposed measures may affect you, please contact your Mazars advisor.

Read ahead:

Individuals

Business

Indirect Taxes

Innovation

Tax Administration

Superannuation

 

 

 

Individuals

Low and middle income tax offset to be increased by $420

The low and middle income tax offset (LMITO) will include a cost of living tax offset in the 2021–22 income year only. The cost of living tax offset is a flat $420 to be applied to all recipients of LMITO when they lodge their tax return.

The increased LMITO will be paid when individuals lodge their 2022 income tax returns.

The LMITO is a non-refundable tax offset, so if you have not paid any tax during the 2022 year, you will not get a refund.  The LMITO has not been proposed to be extended beyond 2022.

Income Tax Rates remain unchanged

Individual resident income tax rates remain constant as follows:

The non-resident tax rates remain as follows:

One-off payment to ease cost of living pressures

Individuals who are currently in receipt of an Australian government allowance or pension will receive a one-off payment of $250 in April 2022 to ease the cost of living pressures. Certain concession card holders will also get the payment.

The cost of living payment will be exempt from tax and will not count towards an individual’s income for social security income test purposes.

The payment will cover individuals in receipt of the age pension, disability support pension, parenting payment, carer payment, carer allowance, JobSeeker payment, youth allowance, Austudy and Abstudy living allowance, double orphan pension, special benefit, farm household allowance and eligible Veterans’ Affairs payments.

The payment will also go to individuals who hold a Pensioner concession card, a Commonwealth seniors health card or a Veteran Gold card.

However, if an individual receives multiple pensions or allowances, they will only receive the one-off payment once.

Work-related COVID-19 tests tax deductible from 1 July 2021

Costs of taking a COVID-19 test to attend a place of work will be tax deductible for individuals and exempt from fringe benefits tax from 1 July 2021.

Legislation will be introduced to clarify that work-related COVID-19 test expenses incurred by individuals are tax deductible. Employers will not incur fringe benefits tax if they provide COVID-19 testing to their employees for work-related purposes.

Paid Parental Leave scheme enhancements

The Paid Parental Leave scheme will be overhauled by combining the current Parental Leave Payment (18 weeks paid leave for the primary carer) and the Dad and Partner leave payment (2 weeks paid leave) into a single combined Paid Parental Leave pay scheme of up to 20 weeks.

Leave will be fully flexible and both parents will be able to choose how they split the leave periods between themselves.

The Paid Parental Leave can be taken any time within 2 years of the birth or adoption of their child.

The income test will also be broadened to have an additional household income eligibility test. 

Medicare low-income thresholds for 2021–22

The CPI indexed Medicare levy low-income threshold amounts for singles, families, and seniors and pensioners for the 2021–22 year of income have been announced. The new thresholds are: 

Increased support for affordable housing and home ownership

The number of guarantees under the Home Guarantee Scheme will be increased to 50,000 per year for 3 years from 2022–23 and then 35,000 a year thereafter to support home buyers to purchase a home with a lower deposit.

The guarantees will be allocated to provide:

  • 35,000 guarantees per year ongoing for the First Home Guarantee (formerly the First Home Loan Deposit Scheme)
  • 5,000 places per year to 30 June 2025 for the Family Home Guarantee
  • 10,000 places per year to 30 June 2025 for a new Regional Home Guarantee that will support eligible citizens and permanent residents who have not owned a home for 5 years to purchase a new home in a regional location with a minimum 5% deposit. 

 

 

Business 

More COVID-19 business grants will be tax exempt

Payments from additional state and territory COVID-19 business support grant programs will be made non-assessable non-exempt income (NANE) for income tax purposes until 30 June 2022. The NANE treatment is to support businesses affected by state or territory lockdowns during the pandemic.

Since the 2021–22 MYEFO, the following 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
  • South Australia COVID-19 Business Hardship Grant.

Increased deduction for small business external training expenditure

Small and medium businesses will be able to deduct an additional 20% of expenditure incurred on external training courses provided to their employees.  This means if $1,000 is spent on an eligible training course, the business will receive a $1,200 tax deduction.

The additional deduction will apply for businesses with aggregated turnover of less than $50 million. The external training course must be delivered by an Australian entity and provided to employees in Australia or online. In-house or on-the-job training and expenditure for persons other than employees will be excluded.

The measure will apply for eligible expenditure incurred from Budget night until 30 June 2024. Where eligible expenditure is incurred before 1 July 2022, the additional deduction will be claimed in the tax return for the following income year.

Increased deductions for digital adoption by small businesses

Small and medium businesses will be able to deduct an additional 20% of eligible expenditure supporting digital adoption.   Similar to the training measure above, this means businesses will receive a $1,200 deduction for every $1,000 spent.

The additional deduction will apply for businesses with aggregated turnover of less than $50 million. Eligible expenditure will include the cost of depreciating assets and business expenses supporting digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services. An annual cap of $100,000 will apply to expenditure eligible for the additional deduction.

The measure will apply for eligible expenditure incurred from Budget night until 30 June 2023. Where eligible expenditure is incurred before 1 July 2022, the additional deduction will be claimed in the tax return for the following income year.

Apprenticeship wage subsidy extended

The Boosting Apprenticeship Commencements wage subsidy will be extended to support businesses and Group Training Organisations that take on new apprentices and trainees. The subsidy will now be available to 30 June 2022. This measure will provide for an additional 35,000 apprentices and trainees. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages of up to $7,000 per quarter for 12 months.

Primary Producers - Concessional tax treatment for carbon abatement and biodiversity stewardship income

Concessional tax treatment will apply from 1 July 2022 for primary producers selling Australian Carbon Credit Units (ACCUs) and biodiversity certificates.

Proceeds from the sale of ACCUs and biodiversity certificates generated from on-farm activities will be treated as primary production income, providing access to existing income tax averaging arrangements and the Farm Management Deposits scheme. The taxing point of ACCUs for primary producers that are eligible for tax averaging or the Farm Management Deposits scheme will also be changed to the year in which they are sold. Similar treatment will be extended to biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market scheme.

Currently, proceeds from selling ACCUs are treated as non-primary production income and ACCU holders are taxed based on annual changes in the value of their ACCUs.  

Expanded access to unlisted company employee share schemes

For employers that 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 5 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.

Regulatory requirements for offers to independent contractors will be removed, where they do not have to pay for interests.

While removal of red tape and expansion of eligibility to access employee share schemes is welcome, it is disappointing that further tax reform did not occur to link the timing of the taxation with the ability to access the underlying economic benefits. Furthermore, an opportunity has been missed to increase the number of unlisted companies that can offer meaningful employee share schemes as a real incentive for the people building innovative enterprises. 

PAYG income tax instalment system set for structural overhaul

The gross domestic product (GDP) uplift rate that applies to pay-as-you-go (PAYG) instalments and GST instalments will be set at 2% for the 2022–23 income year.

The GDP adjustment factor is usually calculated by using data from the Australian Bureau of Statistics and is based on GDP changes over the previous 2 calendar years. Using this statutory formula, it was expected that the GDP uplift for PAYG instalments would be much higher, causing potential cash flow issues for businesses. The 2% uplift rate will apply to instalments for the 2022–23 income year that fall due after amending legislation receives assent.

The current annual aggregated turnover thresholds for using the GST instalment method is $10 million and $50 million for PAYG instalments.

Continued reforms to insolvency arrangements

Additional funding will be provided to further reform insolvency arrangements. This includes:

  • $22 million to implement reforms to unfair preference rules, including enhancing the Assetless Administration Fund, from 1 July 2023
  • $7 million to clarify the treatment of trusts with corporate trustees under Australia’s insolvency laws, and
  • $0.8 million in 2022–23 to implement the government’s response to the recommendations of the Review of the insolvent trading safe harbour, released in March 2022.

Business registry fees to be streamlined

Fees associated with Australia's business registers will be streamlined over 3 years from 2023–24.

Company registration and lifecycle management are scheduled to move to a modernised platform in September 2023. These reforms to Australia's business registers will:

  • remove the companies annual late review fee
  • reduce the number of fees paid for ad hoc lodgments under existing requirements
  • remove fees for searches conducted on the new platform, and
  • provide $300,000 to the Department of Treasury to redesign wholesale business register search services facilitated by third-party services.

Tax exemption for Australian sovereign wealth fund extended

Wholly owned Australian incorporated subsidiaries of the Future Fund Board of Guardians will be exempt from corporate income tax.

The current income tax exemption applying to the Future Fund Board does not extend to its wholly owned subsidiaries. As a result, these subsidiaries pay corporate income tax and subsequently refund it to the Future Fund Board through franking credits attached to the dividends paid.

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

 

 

 

Indirect Taxes

Excise and customs duty

Temporary reduction in fuel excise

From 12:01 am on 30 March 2022, the excise and excise-equivalent customs duty on petrol and diesel will be reduced by 50%. The reduction in fuel excise will be in place for 6 months, ending at 11:59pm on 28 September 2022.

The 50% reduction will reduce the excise from 44.2 cents per litre to 22.1 cents per litre, and applies to petrol, diesel and all other fuel and petroleum-based products except for aviation fuels.

For businesses who usually claim fuel tax credits for heavy vehicles on public roads, this reduction in excise brings the full credit rate below the road user charge of 26.4 cents per litre. This will effectively reduce the fuel tax credits down to zero for 6 months.

COVID-19 tariff concession to be made permanent

The temporary tariff concession for certain medical and hygiene products to treat, diagnose or prevent the spread of COVID-19 will be made permanent.

In addition, the range of products eligible for the “free” rate of customs duty will be expanded and the current end-use restriction will be removed. The measure will apply from 1 July 2022.

 

Innovation

Expansion of ‘Patent Box Concession’

Medical and biotechnology innovation

Last year’s Federal Budget introduced a ‘Patent Box’ regime, meaning income derived from patents in the medical and biotechnology fields would be taxed at 17%.

The law has not yet passed, but the introduced Bill expanded the original “patent box” to eligible patents issued in the following overseas jurisdictions with equivalent patent regimes:

• IP Australia

• utility patents issued by the United States Patent and Trademark Office (USPTO), and

• European patents granted under the European Patent Convention (EPC).

The measure once enacted will apply in respect of income years starting on or after 1 July 2022 to income attributable to R&D conducted in Australia.

Agricultural innovation

Corporate income from the commercialisation of patents and eligible Plant Breeder’s Rights (PBRs), issued from 29 March 2022, in respect to agricultural and veterinary chemical products will be taxed at an effective rate of 17% to the extent that the R&D took place in Australia, for income years starting from 1 July 2023.

Eligible patents are linked to agricultural and veterinary (agvet) chemical products listed on the:

• Australian Pesticides and Veterinary Medicines Authority (APVMA), or

• PubCRIS (Public Chemicals Registration Information System) register

Finalisation of the detailed design of the “patent box” expansion to agriculture will be subject to industry consultation.

Low emissions innovation: expansion of “patent box” tax concession

Corporate income from the commercialisation of patents, issued from 29 March 2022, that have the potential to lower emissions to the extent that the R&D took place in Australia, will be taxed at an effective rate of 17% for income years starting from 1 July 2023.

Patented technology that is considered to reduce emissions in the 140 technology areas listed in the Government’s 2020 Technology and Investment Roadmap Discussion Paper or included as priority technologies in the Government’s 2021 and future annual Low Emissions Technology Statements are potentially eligible for the concession.

Finalisation of the detailed design of the “patent box” expansion to low emission technologies will be subject to industry consultation.

 

 

Tax administration

ATO Tax Avoidance Taskforce to be extended

The ATO will be given an additional $652 Million in funding to extend the operation of the Tax Avoidance Taskforce by 2 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. The taskforce also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.  The Government anticipates an additional $2 Billion in revenue to be collected.

We have seen recently the ATO release draft guidance on how it proposes to administer a key trust anti-avoidance measure, which varies significantly from past treatment and indeed settled law.  We therefore expect trusts to be a significant focus of this taskforce, so trustees will need to work closely with their advisors to intelligently manage trust distributions.

PAYG instalment systems to be modernised

Companies will be able to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments.

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

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.

Reporting of taxable payments reporting system data

Businesses will be allowed the option to report taxable payments reporting system data (via accounting software) on the same lodgment cycle as their activity statements.

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.

Consultation with affected stakeholders, tax practitioners and digital service providers will take place to finalise the policy scope, design and specifications of the measure.

Digitalising trust and beneficiary income reporting and processing

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

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

This means that the myTax ATO electronic lodgement system will be extended to trusts.   While this measure might be OK in very simple cases, given the complexities of trust and tax law and the ATO’s recent focus, in our view this will leave taxpayers exposed.

Enhanced sharing of STP data

IT infrastructure will be developed to allow the ATO to share single touch payroll (STP) data with state and territory revenue offices on an ongoing basis.

The government will commit $6.6 million for this measure. Funding has already been provided for by the government. The funding will be deployed following further consideration of which states and territories are able and willing to invest in their own systems and administrative processes to pre-fill payroll tax returns with STP data, to reduce compliance costs for businesses.

Deferral of 2019 Budget measure on Australian Business Numbers

The start date of the 2019–20 Budget measure requiring holders of Australian Business Numbers (ABNs) with an income tax return obligation to lodge their income tax return and to confirm their ABN status annually, will be deferred by 12 months to assist with integration into the Australian Business Registry Services (ABRS). 

 

 

Superannuation

Extension of the temporary reduction in superannuation minimum draw down rates

The Government has extended the 50 per cent reduction of the 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 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 minimum drawdown requirements. 

The 50% reduction in super payments is not compulsory. The important strategic point here is to properly structure your withdrawals from superannuation to ensure that partial commutation of the pension occurs where appropriate to preserve and maximise the tax exempt assets applied to support pensions. 

There are important strategic alternatives to take into account when considering whether to draw down a pension or not, particularly for those in retirement with sufficient income outside of superannuation to cover living expenses. Paying a pension means the super fund will pay less tax, but it also means reducing the assets held in the concessionally taxed superannuation environment. There is no simple answer as it will depend on individual circumstances.

Previous announcements pending

In the 2021/22 Budget plans were announced to relax the residency requirements for SMSFs by extending the central control and management test safe harbour from two to five years and removing the active member test. This was initially intended to take effect from 1 July 2022.

Also announced last year was a legacy pension amnesty allowing individuals to exit a specified range of legacy retirement products together with associated reserves for a two-year period.

Neither of these have had any legislation passed and no announcements were made, so it remains to be seen whether anything further will come of them.

The legislated increase of the Superannuation Guarantee rate to 10.5 per cent from 1 July 2022 also looks to be proceeding with no mention of any freeze to the current rate.

Superannuation summary

With little impacting superannuation in the Federal Budget, the focus now shifts to the upcoming Election. While the government maintains its commitment to make no adverse tax changes to superannuation, it remains to be seen what measures a Labor government may take.

If you have any questions please speak to your usual Mazars adviser or contact our Tax and Superannuation specialists via the form or contact details below:

 

Brisbane – +61 7 3218 3900

Jamie Towers

Clive Todd

Melbourne – +61 3 9252 0800

Evan Beissel

Michael Jones

Sydney –  +61 2 9922 1166

Gaibrielle Cleary

Jeremy Mortlock

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Published : 30 March 2022

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2022-2023 Federal Budget Summary Guide
Federal Budget Summary guide 2022-23