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30 March 2022 Australia issues 2022/23 Federal Budget On 29 March 202, the Australian Federal Budget 2022 was delivered by the Federal Treasurer Josh Frydenberg. This Tax Alert focuses on the key announced tax measures that impact business tax planning and compliance processes. The broader economic and policy issues in the 2022 budget are on the EY Australia website. From a business perspective, the Federal Budget should have two principal tasks. The first is to avoid creating unwanted demand that might push the Reserve Bank to raise rates sooner or push them higher. The second is to unlock supply constraints arising from a lack of skilled migrant workers, globally disrupted supply chains and the challenges of a decarbonizing economy all in order to increase the productive capacity of the economy. However, it appears that easing cost of living pressures was the Government’s priority in this pre-election Budget. There were some encouraging announcements for business, but what appears not to be covered are reforms needed to improve Australia’s productivity. On the tax front, there are some positive developments, including an expansion of the Patent Box Tax Regime to new innovations in the agricultural chemical and low emission technologies areas, a 20% bonus deduction for small business training and technology incentives, positive changes to better encourage employee share schemes and easier tax administration measures related to pay-as you-go (PAYG) systems. However, these changes are unlikely to attract the significant investment needed to generate meaningful productivity increases. Indeed, the expiry soon of the 100% Full Tax Expensing measure for plant and equipment purchases, will have a material adverse impact on additional investment and productivity enhancement. Expanding support from the current focus on medical and biotechnology industries to new innovations in the agricultural chemical and low emission technology areas. The expanded patent box regime will provide an incentive for companies to innovate with a concessional patent tax rate of 17% to apply to income derived from patents which have the potential to lower emissions, or patents linked to agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority (APVMA), PubCRIS (Public Chemicals Registration Information System) register, or eligible Plant Breeder’s Rights (PBRs). This will apply to patents granted or issued after 29 March 2022, and for income years from 1 July 2023. Expanding the 2021 Budget measure to allow patents granted or issued for medical and biotechnology innovations after 11 May 2021 to be eligible as well as allowing standard patents granted by IP Australia, utility patents issued by USPTO and European patents granted under EPC to be eligible. However, taxpayers will still only benefit from the concessional tax treatment to the extent that the research and development (R&D) occurred in Australia. (In Bill introduced.) While it is positive that the patent box regime has been extended to new industry areas, it still applies to a narrow range of industries, as most global patent box regimes are industry agnostic. Also, there is a misalignment of the eligible patent dates between different industry sectors. It is expected that there will be a consultation period around these proposed measures. In a targeted response to rapidly rising fuel prices, fuel excise rates will be reduced by 50% for the next six months. The Government expects that the reduction in excise will translate to a household saving of between AU$9.721 to $19.45 per tank of fuel depending on the size of the vehicle. Businesses consuming fuel in transport on public roads should also see some benefits with an expected reduction of 4.3 cents per liter for fuel used in heavy vehicles and up to $17.68 per tank of fuel for their light vehicle fleet. Despite the immediate reduction in excise rates, it can be expected to take up to two weeks for those savings to reach petrol bowsers. Businesses with aggregated turnover of less than $50m annually will be entitled to an additional 20% tax deduction for eligible expenses and assets acquired relating to digital uptake, such as portable payment devices, cyber security systems or subscriptions to cloud-based services. There is an annual spending cap of $100,000 which will cap the additional deduction at $20,000 annually. The measures will apply from Budget night (claims for expenditure incurred by 30 June 2022 to be made in the following income year) until 30 June 2023. Small businesses will also be entitled to the same 20% additional deduction for eligible expenditure on Australian-registered external training courses for employees only. This measure will apply to eligible expenditure from Budget night (claims for expenditure incurred by 30 June 2022 to be made in the following income year) until 30 June 2024. Payments from certain additional State and Territory COVID-19 business support and grant programs have been made non-assessable non-exempt (NANE) for income tax purposes until 30 June 2022, under the current measure. The Government will provide $3.9 billion in funding to incentivize industry to invest in strategic areas of growth that are designed to shift Australia into a modern and globally competitive economy. The Government has made a commitment to increase regional growth, continue to modernize local manufacturing capability for global competitiveness, stimulate sovereign capability in the space sector and create a new resilient critical minerals industry. Regional Accelerator Program (RAP) Boosting modern manufacturing Critical minerals strategy Support for the Australian space industry This package of measures is intended to reduce red tape and boost cashflow of small business entities (aggregated turnover less than $50m) and sole traders: New measures to automate tax reporting requirements and align installment payment obligations with financial performance. Allowing companies to calculate PAYG installments based on financial performance, accessing automatic refunds if performance declines – expected by 1 January 2024. Facilitating Single Touch Payroll data sharing with State & Territory Governments to cater pre-filling payroll tax returns – expected late 2023. Allow option to report taxable payments reporting system data at same time as activity statements – expected by 1 January 2024. Allow alcohol and fuel sector SMEs to file and pay excise/excise equivalent customs duty on a quarterly basis – from 1 July 2023. The GDP uplift rate that applies to small to medium businesses, sole traders and others who use the installment amount method for PAYG and GST instalments will also be reduced from 10% to 2% for the 2022-23 income year. It is proposed that primary producers will treat revenue from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates as primary production income, providing access to income tax averaging arrangements and the Farm Management Deposit Scheme. The Government will also change the taxing point of ACCUs and biodiversity certificates to the year they are sold. Application from 1 July 2022. Following last year’s Budget announcement and subsequent Treasury consultation on exposure draft (ED) law, the Government has confirmed it will reduce red tape for employee share schemes (ESS) by simplifying the regulatory framework to make ESS offers. Based on the budget announcement and ED: If an ESS offer does not require a payment from employees (and contractors) to participate, the ESS offer will qualify for regulatory relief from disclosure and other related requirements, and no filings need to be made. Regulatory relief also streamlined where an ESS offer requires a payment from participants, provided certain disclosure and filing requirements are met. For unlisted companies, the ESS offer must also comply with a monetary cap of $30,000 per year, plus 70% of any dividends and 70% of any cash bonuses received during the year. This monetary cap can be accrued over five years, up to a maximum of $150,000, with no limit applying if participants can immediately take advantage of a planned sale of listing of the company to sell their interests at a profit. Legislation has already been enacted to remove the cessation of the employment taxing point with effect from 1 July 2022, applying to all deferred tax ESS grants where the taxing point occurs on or after 1 July 2022. The Government will increase the low- and middle-income tax offset (LMITO) by a “cost of living tax offset” of $420 for the 2021-22 income year. All LMITO recipients will benefit from the full $420 increase (up to tax payable). Taxpayers with taxable income: More than $37,000 will see offset increase by 7.5c per dollar (maximum $1,500 for incomes $48,000 - $90,000) Over $90,000 the offset will reduce by 3 cents per dollar in excess, phasing out at a $420 tax reduction at $126,000. In addition to increasing the LMITO, the Government will provide a one-off $250 tax-free payment in April 2022 to certain Australian resident age pension, social security, veteran and other income support recipients and eligible concession card holders. There will be one payment per recipient regardless whether the person qualifies to receive the payment through meeting multiple eligibility criteria. The personal income tax brackets remain unchanged for the 2022/23 income year. The legislated Stage 3 of the 2019-20 Budget personal income tax relief plan changes commence from the 2024/25 income year.
The Medicare levy thresholds will also be adjusted from the 2022-23 income year, to take account of recent Consumer Price Index movements. The Government has extended the existing 50% reduction in minimum annual pension withdrawal requirements for the year ended 30 June 2023. The minimum amount is calculated by multiplying your member balance as at 1 July by the rate below:
The Government will provide approximately $650m in additional funding to the ATO to extend the Tax Avoidance Taskforce on multinationals, large corporates and high wealth individuals by two years to 30 June 2025. It is estimated this measure will increase receipts by $2.1 billion. Alf Capito, Tax Policy Services | alf.capito@au.ey.com Jamie Munday, Business Tax Services | jamie.munday@au.ey.com Belinda Townsend, Global Compliance & Reporting | belinda.townsend@au.ey.com Sean Monahan, Consumer | sean.monahan@au.ey.com Antoinette Elias, Financial Services | antoinette.elias@au.ey.com Joe Lawson, Transfer Pricing | joe.lawson@au.ey.com Gavin Shanhun, Indirect Tax | gavin.shanhun@au.ey.com Mark McKenzie, Built Environment and Resources | mark.mckenzie@au.ey.com Anne Giugni, People Advisory Services | anne.giugni@au.ey.com Sarah Ralph, Law | sarah.a.ralph@au.ey.com Dianne Cuka, Private | dianne.cuka@au.ey.com Reid Zulpo, International Tax and Transaction Services | reid.zulpo@au.ey.com Andrew Van Dinter, Markets Enablement | andrew.van.dinter@au.ey.com Todd Wills, Government, Health and Life Sciences | todd.wills@au.ey.com David Burns | david.burns1@ey.com Naomi Ross | naomi.ross@uk.ey.com Document ID: 2022-5333 | ||||||||||||||||||||||||||||||||||||||||||
