Federal Treasurer Jim Chalmers delivered his 2022-23 budget – the first one of the Labor Government in 2022.
The tax team at Prosperity have pulled together the main highlights:
Superannuation – expanding eligibility for downsizer contributions
The Government will allow more people to make downsizer contributions to their superannuation, by reducing the minimum eligibility age from 60 to 55.
The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute, and contributions do not count towards the non-concessional contribution cap of $110,000, and the concessional cap of $27,500.
This measure provides greater flexibility to contribute to superannuation and aims to encourage older Australians to downsize sooner to a home that better suits their needs, thereby increasing the availability of suitable housing for Australian families.
In certain circumstances, for example, a couple eligible to make downsizer contributions may be able to contribute up to $1,315,000 into superannuation when the downsizer contribution is used in conjunction with the non-concessional bring forward cap of $330,000 each and the concessional cap of $27,500 each.
Please contact your financial adviser should you wish to discuss whether this may be suitable for you.
Note that additional tax may apply if superannuation caps are breached.
Electric Car Discounts
The Government will cut taxes on electric cars so that they are affordable for more Australians.
From 1 July 2022, the measure will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars, which for the 2023 financial year is $84,916. The car must not have been held or used before 1 July 2022.
When finalising Single Touch Payroll at the end of the financial year, employers will be required to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.
Digital Currencies are not taxed as foreign currency
The Government will introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency, in line with the Government announcement on 22 June 2022.
This maintains the current tax treatment of digital currencies, including the capital gains tax treatment where they are held as an investment. This measure removes any uncertainty following the decision of the Government of El Salvador to adopt Bitcoin as legal tender and will be backdated to income years that include 1 July 2021.
This does not change the treatment of income earned when holding digital currencies, for example, the tax treatment of staking, air dropping etc.
The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.
ATO Compliance Activity
The Treasurer announced an extension of existing compliance programs continuing the focus on closing the tax gap.
The Personal Income Tax Compliance Program will be extended to 30 June 2025 and the ATO will use this extension to focus on proactive, preventative and corrective activities in the main areas of non-compliance, including over-claiming of deductions and incorrect reporting of income. This is estimated to raise additional tax of $594 million. In the past 12 months the ATO has released several draft advice and guidance products setting out the ATO’s evolving view on trusts and beneficiary entitlements, and we can expect more products in the coming years focusing on income from business structures and deductions.
A regular review of your tax affairs is recommended to ensure you keep up to date with the latest interpretations of the tax rules.
The existing ATO Shadow Economy Program will be extended to 30 June 2026 and receive further funding to tackle the shadow economy tax gap. The funding is expected to increase net tax revenue by $1.4 billion over the four years from 2022–23.
The ATO Tax Avoidance Taskforce has been extended for a further year to 30 June 2026 and supports the ATO new priority areas of observed business tax risks while continuing the ongoing focus on multinational enterprises and large public and private businesses. This is expected to raise net receipts of $1.7 million.
Reversal of the measure allowing taxpayers to self-assess the effective life of intangible depreciating assets
The Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, announced in the 2021–22 Budget.
Previously, it was announced that taxpayers could self-assess the effective life of certain intangible assets, such as patents, copyrights and in-house software, as a means to encourage more investment in R&D. Taxpayers would have had the choice to use a more appropriate effective life for the asset.
Reversing this decision will ensure that the effective lives of intangible depreciating assets will continue to be set by statute, which ranges from 20 years for a standard patent, to five years for in-house software.
Multinational Tax Integrity Package
The Federal Government made an election commitment to strengthen tax integrity on multinational corporations. As part of this package, a range of new tax compliance measures has been announced:
1. Proposed change to thin capitalisation rules to address excessive debt deductions. The Government will propose to change the debt-to-equity and debt-to-asset ratio tests and replace with an earnings-based test to limit debt deductions in line with an entity’s activities (profits). This new test will seek to:
- Limit deductions to 30% of EBITDA, however will allow deductions denied to be carried forward up to 15 years;
- Allow an entity in a group to claim debt-related deductions up to the level of the worldwide group’s net interest expense as a share of earnings; and
- Retain an arm’s length debt test as a substitute test.
These new rules apply to any inward or outward investor, in line with the existing capitalisation regime.
2. Proposed changes to anti-avoidance rule to prevent SGEs from claiming tax deductions for payments made to related parties in relation to intangibles. This will apply to intangible assets held in low- or no-tax jurisdictions – generally those with less than 15% tax rate.
This is part of the Federal Government’s commitment to implement OECD’s BEPS 2.0 model.
This new rule will be applicable from 1 July 2023.
3. The Government will also expand existing tax compliance and disclosure requirements for large multinational corporations, public companies, and foreign businesses, including:
- Requiring SGEs to prepare for public release of certain tax information on a country by country (CbC) basis and a statement on their approach to taxation, for disclosure by the ATO;
- Requiring Australian public companies (listed and unlisted) to disclose information on the number of subsidiaries and their country of tax domicile; and
- Tenderers for Australian Government contracts worth more than $200,000 to disclose their country of tax domicile (by supplying their ultimate head entity’s country of tax residence).
This increased disclosure requirement will have an impact on the compliance costs of Australian subsidiaries of SGEs and large foreign companies.
COVID-19 business grants non-assessable non-exempt
COVID-19 payments from certain state and territory business grant programs, made prior to 30 June 2022, are non-assessable, non-exempt (NANE) for income tax purposes, subject to the following criteria:.
- The payment is received under a state or territory grant, or Australian Government support program that is formally declared by the minister, under a legislative instrument, to be treated as non-assessable non-exempt (NANE) income.
- The entity carried on a business and had an aggregated turnover of less than $50 million in either the income year the payment was received or the previous income year.
- The payment was received in
- the 2020–21 or 2021–22 financial year for eligible state or territory grants, or
- the 2021–22 financial year for eligible Australian Government programs.
If you wish to know if a COVID-19 payment you received has been made NANE, please contact your trusted Prosperity Adviser.
Pandemic Support Payment Extensions
The Pandemic Leave Disaster Payment (PLDP) was extended until the end of mandatory isolation requirements on 14 October 2022. In addition, the Government will provide further funding for the new High Risk Settings Pandemic Payment from 15 October 2022 to provide targeted financial support, on the same basis as the PLDP, for workers in aged care, disability care, aboriginal healthcare and hospital care sectors involving frequent close contact with those in care.
If you are working in a high risk setting, please consider eligibility for this available payment.
Certainty on unlegislated tax and superannuation measures announced by the previous Government
The Government has reviewed and will not proceed with the following legacy tax and superannuation measures that were announced but not legislated by the previous Government.
- Old measures to financial and investment related taxation changes.
- The 2018–19 Budget measure that proposed changing the annual audit requirement for certain self-managed superannuation funds (SMSFs) from every year to every three years.
- The 2018–19 Budget measure that proposed introducing a limit of $10,000 for cash payments made to businesses for goods and services.
Further, the Government will defer the start dates of the following legacy tax and superannuation measures to allow sufficient time for policies to be legislated and implemented:
- The 2019–20 MYEFO measure that proposed introducing a sharing economy reporting regime, from:
- 1 July 2022 to 1 July 2023 for transactions relating to the supply of ride sourcing and short-term accommodation, and
- 1 July 2023 to 1 July 2024 for all other reportable transactions (including but not limited to asset sharing, food delivery and tasking-based services).
- The 2021–22 Budget measure that proposed relaxing residency requirements for SMSFs, from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.
- The 2021–22 Budget measure that proposed making technical amendments to the TOFA rules, from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.
Jobs and Skills Summit – incentivising pensioners into the workforce
Over two years from 2022–23, those on age and veterans pension will receive a once off credit of $4,000 to their Work Bonus income bank. The temporary income bank top up will increase the amount pensioners can earn in 2022–23 from $7,800 to $11,800 before their pension is reduced. This will support pensioners who wish to work or work more hours to do so without losing their pension. This is an effective fortnightly increase from $300 to $453 per fortnight.
Improving the integrity of off-market share buy-backs
The Government will improve the integrity of the tax system by aligning the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs.
This measure will apply from Budget night (7:30pm AEDT, 25 October 2022).
Philanthropy – updates to specifically listed deductible gift recipients
The Government will amend the tax law to specifically list Australians for Indigenous Constitutional Recognition as a deductible gift recipient (DGR) for donations made from 1 July 2022 to 30 June 2025.
The Government will also extend the listing of Australian Women Donors Network as a DGR for 5 years, for gifts made from 9 March 2023 to 8 March 2028.
As donations to DGRs of $2 or more are tax deductible, taxpayers donating $2 or more to these DGRs will be entitled to a tax deduction.
Heavy Vehicle Road User Charge
The Government will increase the Heavy Vehicle Road User Charge rate from 26.4 cents per litre to 27.2 cents per litre of diesel fuel. This will decrease expenditure on the Fuel Tax Credit by $215.7 million over 4 years from 2022–23.
The practical implications of this will be a reduction in the Fuel Tax Credit entitlement for eligible recipients. Primary producers will be most affected by this.
To view our extensive Federal Budget overview, click here.
To view our Tax & Superannuation Federal Budget Report, click here.
We are available to discuss your specific circumstances with you and to assist with any decisions you might be considering. Don’t hesitate to get in touch with your Prosperity Adviser today or give us a call on 1800 855 844.