With a Budget spearheaded by "cost of living" measures including a generous fuel excise relief and a "cost of living" tax offset and payment, it would appear that the Federal Government is looking to reduce inflationary pressures as part of the 2022-23 Budget. The Federal Treasurer stated that these are “temporary, targeted and responsible” measures and as such, are not expected to be inflationary in themselves.
Business will be watching with interest to see if these "cost of living" measures will flow through to further stimulate demand through the availability of further cash for spending by individuals.
The 2022-23 Budget had very little in the way of significant corporate tax measures or meaningful corporate tax reform. Indeed many of the measures such as the patent box tax concession are more in the nature of small-scale expansions on previously announced measures in prior Budgets.
Moreover, the temporary COVID-19 measures which related to full expensing and loss carry back which were first introduced in the 2020-21 Budget will effectively be brought to an end once the extension in last year’s Budget finishes up in June 2023, given there was no further extension in this year’s Budget.
In our 2022-23 Budget Alert, our tax experts at Clayton Utz consider the key tax-related measures.
"Cost of living" measures
Fuel excise relief
The Federal Government has cut the 44.2 cents per litre fuel excise by 50% for six months, at a net cost to the Budget of $2.9 billion.
This measure is anticipated to come into effect from 12.01am on 30 March 2022 and ends at 11.59pm on September 28 2022.
"Cost of living" tax offset and payment
The low and middle income tax offset (LMITO) will be increased for the 2021-22 income year, so that approximately 10 million Australians earning less than $126,000 per year will get a one-off additional payment of $420 this financial year.
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.
The LMITO was introduced four years ago and has already been extended twice during the COVID-19 pandemic. It has been retained in a bid to assist those most susceptible to cost of living pressures but serves as a clear pre-Federal election sweetener as well.
Additionally, in April 2022 the Federal Government will commence making one-off $250 economic support payments to eligible recipients including welfare recipients and concession card holders. The payment is intended to ease higher cost of living pressures.
Australian business measures
Patent box tax concession
The Federal Government first announced the proposed patent box tax concession as part of the 2021-22 Budget measures.
Those measures were included in a Bill introduced into Parliament last month. Under that Bill, eligible corporate income derived from exploiting a medical or biotechnology patent granted or issued after 11 May 2021 is subject to an effective income tax rate of 17%. This is provided that the research and development of the innovation was undertaken in Australia.
In last night's Budget, the Government has also indicated that the patent box tax concession will now be extended to agricultural sector innovations and low emissions technology innovations.
To the extent that the research and development was undertaken in Australia, eligible corporate income derived from certain Plant Breeder's Rights, patents on agricultural and veterinary chemical products and low emissions technologies granted or issued after 29 March 2022 may also be subject to the effective income tax rate of 17%. The expansion of the rules to agriculture and low emissions technologies is intended to apply for income years starting on or after 1 July 2023.
The Federal Government will consult with industry before settling the detailed design of the patent box expansion to agriculture and to low emissions technologies.
Stay tuned for our upcoming video, where Louisa Wu, Tax Special Counsel and Natalie Shoolman, IP & Technology Special Counsel, discuss everything you need to know in relation to the proposed patent box tax concession.
Primary production – increasing concessional tax treatment for carbon abatement and biodiversity stewardship income
As with many of the Budget announcements, the Government has used the occasion to re-announce changes not yet enacted; in this case, certain concessions aimed at both farmers and climate change (a topic which barely rated a mention in the Budget despite the Government pledge to reach net zero by 2050). Consistent with the announcement by Angus Taylor, Minister for Industry, Energy and Emissions Reduction on 21 March 2022, the definition of primary production will be changed to include income arising from the sale of Australian carbon credit units (ACCUs) as well as other biodiversity credits.
This will allow deferral of the taxing point until realisation of the ACCU, farm income averaging applying to ACCU income and continued access to the farm deposit scheme. While this commonsense change is good for farmers, it could hinder foreign capital that may support farmers with the capital required to derive ACCUs. For example, primary production income is expressly excluded from the managed investment trust regime, driving down the economic attraction of Australia for such investments.
Employee share schemes
While they are not strictly tax measures, the Federal Government has expanded on the employee share scheme (ESS) measures in last year’s Budget, which in very broad terms, make certain regulatory improvements and allow employers to issue larger ESS interests in unlisted companies to retain talent.
Concessional FBT treatment for employer-provided COVID-19 testing
COVID-19 testing expenses (including Rapid Antigen Tests) will be tax deductible to an individual who uses a test to attend a place of work. The provision of COVID-19 tests by employers to employees for work-related purposes will not be subject to Fringe Benefits Tax (FBT).
The measures are intended to apply retrospectively from 1 July 2021 (for income tax purposes) and 1 April 2021 (for FBT purposes) and provide much needed clarity on the tax treatment of COVID-19 tests, although evidence should be retained to substantiate any related claims such as receipts or invoices.
PAYG instalment rate change supports company cash flow
The Government will allow companies to choose their pay as you go (PAYG) instalments calculated on current financial performance extracted from accounting software, to support business cash flow.
This measure is expected to commence on 1 January 2024 after consultation with stakeholders, tax practitioners and digital service providers.
The measure is intended to support companies with their cash flow by aligning their PAYG instalment liabilities and profitability.
Anti-avoidance measures
The ATO Tax Avoidance Taskforce is being extended by two years to 30 June 2025, with $652.6 million being spent for a projected recovery of $2.1 billion over the 4 years to 2025-26. The Taskforce was established in 2016 following the 2016-17 Federal Budget for the purpose of undertaking enhanced compliance activities in purported high tax risk sectors, and prior to this measure had funding until 2022-23.
This measure provides further funding until 2024-25 to allow the Taskforce to expand its activities, including increasing its scrutiny of specialist tax advisers and intermediaries that promote tax avoidance schemes and strategies.
Small business
Skills and training boost
Small businesses with a total aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of eligible expenditure incurred on external training courses provided to their employees from 7:30pm on 29 March 2022 until 30 June 2024. These courses will need to be delivered by entities registered in Australia and provided to Australian employees.
Technology investment boost
Small businesses with a total aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of the cost incurred on eligible business expenses and depreciating assets that support their digital adoption which is incurred between 1 July 2022 and 30 June 2023. Such expenditure of up to $100,000 will be eligible for the boost (including certain expenditure related to portable payment devices, cyber security systems or subscriptions to cloud-based services).
Superannuation
Extension of superannuation relief for self-funded retirees
The Federal Government has extended the temporary 50% reduction of superannuation minimum drawdown requirements for account-based pensions announced during the COVID-19 pandemic 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. Drawdown rates range from 4% to 14%, depending on age. The extension of the halved rate would drop the rate from 7% to 3.5% for those aged between 80 and 84.
Given ongoing volatility in the wake of the COVID-19 pandemic, this change is intended to allow people to avoid selling assets in order to satisfy the minimum drawdown requirements.
Personal tax
Increase in Medicare levy low-income thresholds
The Federal Government will increase the Medicare levy low-income thresholds for seniors and pensioners, families and singles from 1 July 2021 in line with the consumer price index:
- the singles threshold will increase from $23,226 to $23,365;
- the family threshold will increase from $39,167 to $39,402;
- the single seniors and pensioners' threshold will increase from $36,705 to $36,925;
- the family threshold for seniors and pensioners will increase from $51,094 to $51,401; and
- the family thresholds for each dependent child or student will increase from $3,597 to $3,619.
This relatively modest measure is intended to assist low income singles, families, seniors, pensioners, families with dependent children and students to continue to be exempt from paying Medicare levy.