The first Labor budget in almost a decade was handed down on Tuesday night by Treasurer Jim Chalmers. As with all budgets, some measures were foreshadowed by the government before the 25th and some items were announced that we weren’t expecting. There is a strong focus on social spending including the environment, education, and families, with little in it for businesses and minimal tax announcements.
However, what makes this budget a little bit different from the last few is the change of government and the short period since the last budget [7 months ago]. This means that not only do we look at new announcements, but we also need to review what has been kept and what’s been left behind since May 2022.
what measures are not proceeding
With the government going into caretaker mode in April 2022 after the Federal election was called, several measures and bills that were not passed prior to caretaker mode have subsequently lapsed. We have outlined some of the notable measures that have lapsed and are either no longer continuing or it is unclear if the current government will continue these measures.
Patent Box Regime
The previous government had announced several measures around introducing a Patent Box Regime, that would see the introduction of a concessional rate of tax of 17% for income generated from eligible patents. This measure was designed to promote the development of technologies in the biotech, medical, agriculture and low-emissions sectors.
This is one of the Bills introduced by the former government but lapsed when once the government went into caretaker mode. There was no indication in the budget papers if this measure will not proceed so we will have to await further announcements from the current government if this measure will be given further consideration in next year’s budget.
There has been no indication from the current government if this consultation in relation to car parking fringe benefits will continue.
Based on recommendations contained in the 2019 Board of Tax report Reforming Individual Tax Residency Rules – a model for modernisation, the previous government announced a new framework for individual tax residency rules.
The primary ‘bright line’ test will mean individuals who have been present in Australia for 183 days or more in an income tax year, will be an Australian tax resident.
There were no measures contained in this week’s budget as to whether the current government would continue with a ‘bright line’ residency test.
Self-assess the effective life of intangible assets
The government have confirmed they will not continue with the measure to self-assess the effective life of intangible depreciating assets, this will maintain the status quo in that the effective life of intangible depreciating assets is set by statute.
previous measures already announced
120% Deduction for skills and training costs + 120% Deduction for Digital Adoption
On 29 March 2022, the then government announced a skills and training boost. Small businesses with a turnover of less than $50 million will be entitled to an additional 20% tax deduction for eligible training expenditure [i.e. for every $100 spent by businesses, they will receive a $120 tax deduction].
Similar to the skills and training boost, on 29 March 2022, the then government proposed an investment boost to support digital adoption by businesses. Again, the technology investment boost will be available to small businesses with a turnover of less than $50 million and expenditure will be capped at $20,000 annually [reduced from the previously announced $100,000].
The current government continued consultation for both measures, which are currently before Treasury for consideration.
Should these measures become law, they will apply for expenditure incurred from budget night [7:30 pm AEDT on 29 March 2022] until 30 June 2022 and from 1 July 2022 to 30 June 2024 for the skills & training boost, to 30 June 2023 for the technology boost.
Important note for businesses: expenditure incurred during the 30 June 2022 year, will be eligible for the additional 20% deduction in the 30 June 2023 income year. For 30 June 2023 and 30 June 2024 expenditures, the 120% deduction will be available for the year in which the expenditure is incurred.
As with any measure that is not current law, the devil will be in the detail. While there is a current bill that was open for consultation, we will need to await the final detail. Once legislated we will provide more details on the enacted measure.
Stage 3 – Individual tax cuts [already legislated anyway]
Most personal tax cuts have already been legislated including some that were backdated to 1 July 2020 [when the then government did their mini-budget in October 2020] and some that are yet to come into effect in 2024-25 when the big tax cuts really come into play.
There was a great deal of media speculation prior to budget night that the Stage 3 Tax Cuts would be abolished or extended out. There was no such announcement in the budget, therefore at this stage, the already legislated tax cut will continue for 2024-2025 and onwards, this is what they will be:
|Tax rate on this income
|$18,200 to $45,000
|$45,001 to $200,000
|$200,001 and over
These tax rate changes in 2024-25 are significant in that the government estimates around 95% of taxpayers will pay a marginal tax rate of 30% or less. This is significant from a structuring perspective when you look at what the company tax rate will be at that point in time [25%].
FBT on electronic vehicles
In July 2022 a Bill was introduced to remove the Fringe Benefits Tax (FBT) on eligible electric cars provided by employers to current employees for private use. This exemption will be subject to the luxury car limit for fuel-efficient cars ($84,916 for 2022-23). Eligible electric cars will include:
- Battery electric vehicles
- Hydrogen fuel cell electric vehicles
- Plug-in hybrid electric vehicles
The government also announced it will remove the 5% customs duty on electric, plug-in hybrid and hydrogen fuel cell vehicles, subject to the car’s value being below the luxury car limit. Cars imported from Russia and Belarus will not be eligible for this exemption.
It is important to note that when the Bill becomes law the exemption will only apply to fringe benefits provided on or after 1 July 2022 and electric car fringe befits that are exempt from FBT will still be counted towards a current employee’s reportable fringe benefits amount.
Minimum pensions halved for the 2023 financial year
The measures to assist retirees [due to fluctuations in the superannuation industry during Covid-19] by reducing minimum annual pensions by 50% have been continued for the 2022-2023 financial year. This was announced in the March 2022 budget and the regulations were updated prior to the government going into caretaker mode in the lead-up to the election.
new key budget measures announcements
The government announced in their budget measures a five-point plan aimed to relieve the cost of living pressures currently experienced by many Australian families and individuals.
In summary, the key measures were as follows:
- $4.7 billion over the next 4 years to reduce the cost of childcare for 1.26 million families
- $531.6 million over 4 years to expand Paid Parental Leave to 26 weeks [currently 20 weeks, including partner leave] by 2026. From 1 July 2024, the current scheme will expand by 2 additional weeks each year until it reaches the full 26 weeks from 1 July 2026
- A new national Housing Accord will bring together governments, investors, and industry to boost supply and deliver up to 20,000 new affordable homes
- $787.1 million over 4 years to reduce patient co-payment for treatments on the Pharmaceutical Benefits Scheme [PBS] from $42.50 to $30 per script
- Support wage increases for the lowest-paid Australians
In addition, to address cost of living pressures, the Government has announced additional funding and places for TAFE and universities to combat the skills shortage in Australia, key measures include:
- 480,000 fee-free TAFE places and a $50 million TAFE Technology Fund to modernise TAFEs
- 20,000 additional university places for disadvantaged Australians
COVID-19 grants – non-assessable, non-exempt income
During the Covid-19 pandemic, to support businesses impacted by lockdowns, the State Governments and territories provided business support programs.
The government has announced the following state and territory business support grants are non-assessable, non-exempt income for 30 June 2022:
- Victoria Business Costs Assistance Program Four – Construction
- Victoria Licenced Hospitality Venue Fund 2021 – July Extension
- Victoria License, Hospitality Venue Fund 2021 – Top Up Payments
- Victoria Business Costs Assistance Program Round Two – Top Up
- Victoria Business Costs Assistance Program Round Three
- Victoria Business Costs Assistance Program Round Four
- Victoria Business Costs Assistance Program Round Five
- Victoria Impacted Public Events Support Program Round Two
- Victoria Live Performance Support Program (Presenters) Round Two
- Victoria Live Performance Support Program (Suppliers) Round Two
- Victoria Commercial Landlord Hardship Fund 3
- Australian Capital Territory HOMEFRONT 3, and
- Australian Capital Territory Small Business Hardship Scheme
The government have committed to increase funding to the ATO for compliance programs which are aimed at modernising guidance programs, early engagement, targeting compliance activity and protecting revenue. The compliance programs that will receive funding include:
- Personal Income Taxation Compliance Program
- Shadow Economy Program
- Tax Avoidance Tax Force
Private companies and loans to shareholders [Division 7A]
There were several measures contained within the budget targeted at multinationals and large corporations, it was therefore surprising to not see any measures that dealt with some of the contentious tax provisions for private groups. The tax community has been expecting reforms to Division 7A [the provision in the tax act that deals with loans from private companies to shareholders and their associates] for several years now. It may be on the government’s radar for next year’s budget… so stay tuned for any announcements in relation to private company loans and Division 7A.
some final reminders on measures ceasing 30 June 2023…
Temporary full expensing of Assets coming to an end
Whilst an extension to the temporary full expensing rules were absent from the budget, remember these measures will end on 30 June 2023.
The temporary full expensing measures allow businesses with an aggregated turnover of up to $5 billion to deduct the full cost of eligible assets.
So, what does this mean for business? You have until 30 June 2023 to invest in assets and get an immediate full write-off of pretty much all eligible new assets [remember capital works such as building improvements, assets located outside of Australia or pre-existing commitments are excluded].
The good news for businesses with a turnover of less than $50 million is certain second-hand assets are also eligible for the temporary full expensing.
Remember to ensure the asset is installed and ready for use by 30 June 2023 and you need to be carrying on a business to be eligible.
Loss carry-back rules coming to an end
For companies with a turnover of less than $5 billion, the temporary loss carry-back rules apply until the 2022-23 financial year. This measure allows entities with tax losses from 2019-2020, 2020-2021, 2021-2022 and 2022-2023 financial years to carry back those losses and apply them to previously taxed profits from as far back as the 2018-2019 financial year.
The offset is first available when companies lodge their 2020-2021 tax returns and will offset any tax payable for the 2020-2021 financial year.
However, this measure is only available for corporate entities, compared to the temporary full expensing of assets so this measure does not apply to businesses that operate through a trust structure.
We’re here to help!
If you need help understanding what the budget means for you or you’d just prefer to know exactly how it will affect your affairs, please give us a buzz on 1300BDEPOT or email us at firstname.lastname@example.org and our team of accounting consultants will be happy to help.
Originally authored by Jacquii Reeves.
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General advice disclaimer
The information provided on this website is a brief overview and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision. Please consult with an appropriate professional before making any decision.