2022/23 October Federal Budget Briefing
On the back of the 14 October 2022 4.6% increase in Minimum Wages, and seven months after taking office, Dr Jim Chalmers announced his “family friendly” mini budget.
The underlying Budget Deficit for 2022-23 is estimated to be $44 billion while the economy is expected to grow by 3.25%. It is expected to slow to 1.5% for 2023-24. Inflation is forecast to peak at 7.5% later in 2022.
Inflation presents a significant problem to the Government in that welfare payments are indexed to inflation. Rising interest rates, intended to reduce inflation, also present a problem in the cost of servicing government debt.
Additional pressures on the budget include pressures on the tax system, spending on the NDIS, aged care and defence.
Headline tax changes relate to previously announced tax changes including the FBT exemption for Electric Vehicles and the ALP policy to address tax avoidance by multinational corporations.
There is also additional funding ($1.8 billion) to combat fraud, tax audits and tax compliance.
From 29 July 2022, there is a doubling of certain fees and from 1 January 2023 a doubling of penalties relating to Australia’s Foreign Investment fees that relate to residential land.
What is not in the Budget
No personal tax changes were announced. There are no changes to tax rates or deductions.
No comments were made concerning the taxation of trusts, the ATO’s approach to distributing trust income to adult children (s100A draft ruling), or winding back of taxation concessions such as the small business CGT concessions and the CGT Discount.
No announcements concerning changes to the treatment of loans to shareholders or Division 7A generally.
Multinational and Other Tax Changes that were announced
The tax changes focused on international transactions. From 1 July 2023:
1. There is a denial of deductions for payments by Australian residents for intangible assets (e.g., royalties and licence fees) to low or no tax jurisdictions with a tax rate of less than 15% or tax preferential “patent box” regimes without sufficient economic substance.
2. Interest deductions under the thin capitalisation rules will be limited to 30% of EBITDA (compared to 60% of Average Asset Values under the current test). This measure may not apply to interest arm’s length debt paid to external lenders which can remain deductible “arm’s length test”. Interest on related party debts though will be within the 30% EBITDA cap.
3. Significant Global Entities (SGE) and Australian Public Companies will be required to increase their reporting of tax information on a country by country basis. SGE’s will also have to report their approach to taxation to the ATO.
4. The Government will legislate to tax digital currencies with a view to removing any prospect of allowing a deduction for losses on digital currencies as foreign currencies.
Self-assessment of effective lives of Software, Patents, Copyrights and Designs
The Government will not proceed with the previous Government’s announcement to allow the depreciation of intangible assets based on self-assessed effective life of those assets. The status quo on depreciation for intangible assets where the effective life on intangible assets set by statute will be retained.
Downsizer contributions
Downsizer contributions allow individuals to contribute up to $300,000 (or $600,000 per couple) from the sale of proceeds of their principal place of residence (which must have been owned for at least 10 years) to superannuation.
From the start of the first quarter after the amended law receives Royal Assent the the Government will allow more people to make Downsizer Contributions to superannuation by reducing the minimum eligibility from age 60 to 55.
State based Covid Business Grants will be made Non Assessable Non Exempt (NANE) Income
The Government will extend the tax exemption for most State and Territory Covid Business Grants made prior to 30 June 2022 as NANE income.
morrison’s march 2022 budget v. albanese’s October 2022 budget
The following is a summary of the key tax commitments and promises from the March 2022 Budget by the former government and the ALP’s pre-election promises and their current status:
|
Morrison
Government March 2022 Budget Commitments and previously legislated tax
commitments |
25 October 2022 Federal Budget Outcome |
|
Income Tax relief for Individuals: |
Kept: This
measure was enacted in legislation and is being applied to eligible taxpayers
when they lodge their returns. |
|
Stage 3 Individual Tax Cuts: |
The Budget was silent
on whether these will be repealed from the current tax law. |
|
Downsizer Superannuation Contributions: |
|
|
Intangible Asset Depreciation: |
|
|
Small Business external training: businesses (with an annual turnover less than
$50m) can claim 120% of the cost of external training courses provided in
Australia or online to employees. The provider must be registered in
Australia. |
Kept: The measure
was enacted and is currently being applied to eligible taxpayers. |
|
Albanese Government pre-election
promises |
25 October Federal Budget Outcome |
|
This exemption
will apply to zero-emission cars purchased post 1 July 2022 with a retail
price below the luxury car threshold for fuel efficient cars ($84,916 for 23
FY). |
The Albanese
Government introduced a bill that is currently before the Senate to enact
this election promise. A Customs tariff notice has been made to reduce the tariff
liability for applicable cars from 1 July 2022. |
Tax revenue
ATO resources are to be ramped up and expected to “plug” some of the hole in the budget. The Budget provides funding to the ATO to undertake enforcement activity including the following areas:
Tax avoidance taskforce $200m per year over four years from 1 July 2022
“Shadow economy” program (targeted towards unreported/ dishonest economic dealings)$80m per year over three years from 1 July 2023
Personal taxation $40m per year over two years from 1 July 2023
Have questions? Please get in touch.