The 2022 Federal Election triggered a second Federal Budget for the 2022-23 financial year and beyond and was handed down on 25th October 2022. This was a budget that focussed on targeted cost of living relief and investments in response to Covid and other recent national disasters, and estimates an underlying cash deficit of $36.9 billion for 2022-23 (and $44 billion for 2023-24). However, there were certain tax-related measures that will affect Australians across the nation.
Personal Tax Rates
While there were no further changes to personal tax rates, the standing marginal tax rates set to take effect from 1 July 2024 still stands. The 32.5% marginal tax rate will be reduced to 30% and embrace the largest earnings of between $45,000 and $200,000. The 37% marginal tax rate and current bracket will be abolished. From 1 July 2024, there will only be 3 income tax brackets of 19%, 30% and 45%.
Digital Currencies
Digital currencies, such as Bitcoin, will continue to attract capital gains tax and are considered in most cases to be an investment. They are not classified as foreign currency.
Personal Income Taxation Compliance Program
The budget will increase funding to the Australian Taxation Office (ATO) and spend $80.3 million to extend the Personal Income Taxation Compliance Program. This compliance program focuses on taxpayers who overclaim deductions and incorrectly report income.
Other measures will focus on the shadow economy and income tax deductions. This year, the ATO resumed its enforcements activities including collecting small business debts and issuing director penalty notices. Funding for the Tax Avoidance Taskforce has increased by $200 million for four years, effective from 1 July 2022 and further extended another 12 months through to July 2025.
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Covid 19 Grants
Many businesses reached out to the government to receive a range of Covid19 grants. These grants, prior to June 30, 2022 will be made non-assessable, non-exempt (NANE) for income tax purposes and remain subject to eligibility. Payments or income defined as NANE means a business is not required to pay tax on the funds and does not need to declare it in their tax return.
The full list of payments categorised as NANE is below.
- Alpine Business Fund
- Alpine Resorts Support Program (Streams 1, 2 and 3)
- Business Continuity Fund
- Business Costs Assistance Program Round Two
- Business Costs Assistance Program Round Two – July Extension
- Business Costs Assistance Program – Top Up1 – new (added 22 August 2022)
- Business Costs Assistance Program Round Three – new (added 22 August 2022)
- Business Costs Assistance Program Round Four – new (added 22 August 2022)
- Business Costs Assistance Program Round Five – new (added 22 August 2022)
- Business Support Fund 3
- Commercial Landlord Hardship Fund 3
- Impacted Public Events Support Program
- Impacted Public Events Support Program Round Two – new (added 22 August 2022)
- Independent Cinema Support Program
- Licensed Hospitality Venue Fund
- Licensed Hospitality Venue Fund 2021
- Licensed Hospitality Venue Fund 2021 – July Extension
- Licensed Hospitality Venue Fund 2021 – Top Up Payments2 – new (added 22 August 2022)
- Live Performance Support Program
- Live Performance Support Program Round 2 (both Presenters and Suppliers streams) – new (added 22 August 2022)
- Melbourne City Recovery Fund – Small business reactivation grants
- Outdoor Eating and Entertainment Package
- Small Business COVID Hardship Fund
- Sole Trader Support Fund
- Sustainable Event Business Program
Intangible Assets Depreciation
The decision was made not to proceed with a previous Coalition policy to allow businesses operators to self-assess intangible depreciating assets, such as patents, registered designs, copyrights and in-house software. This policy was part of a $1.2 billion package included in the previous government’s digital economy strategy and was due to commence from 1 July 2023. This means that the effective life on intangible deprecating will continue to be treated without change.
Significant Global Entities Intangible Deductions
The government will introduce an anti-avoidance rule to prevent significant global entities with global revenue of at least $1 billion from claiming tax deductions for payments made directly or indirectly to low or no-tax jurisdictions. Payments include royalties and other payments made for intangible assets. This measure will apply to payments made on or before 1 July 2023. A low or no-tax jurisdiction is either a tax rate of less than 15% or tax preferential patent box regime without sufficient economic substance. This measure is not yet law. Consultation is expected to occur on the technical design.
Off-market share buy-backs This measure will improve the integrity of the tax system by aligning the tax treatment of off-market share buybacks undertaken by listed public companies with the treatment of on-market share buybacks where companies compensate investors for a price shortfall by streaming franking credits as dividends and capital returns. The measure will remove a distortion between on- and off-market share buybacks and will be applied from 25 October 2022, 7:30pm AEDT.
Temporary Full Expensing
The temporary full expensing measure brought in to help businesses though the Covid 19 crisis will not be extended beyond 30 June 2023. This measure currently allows a full cost deduction for depreciating assets acquired and used by eligible businesses and applies to eligible depreciating assets which are installed and ready for use by 30 June 2023.
The accelerated depreciating measures and other instant assets write-offs under the small business simplified depreciation rules will revert to an asset cost cap of $1,000 and will be limited to taxpayers with an aggregated turnover of less than $10 million.
No changes were made to the temporary loss carry back offset and will expire with the 2022-23 income year. This will be the last year for which the loss carry back offset can be claimed.
Penalty Increase
Higher fines and penalties for late lodgements will increase from $222 to $275 from 1 January 2023. The cost will continue to be indexed each three years in line with inflation and will be set to increase again on 1 July 2023.
Superannuation
Super Guarantee
The scheduled increase of the super guarantee will not change. The SG will continue to increase by 0.5% on the 1st of July each year until it reaches 12% in 2025.
Downsizer Contributions
The age for the downsizer contribution scheme will decrease from 60 to 55 years of age. This measure will come into effect from the start of the first quarter after the Royal Assent of the enabling legislation. Downsizer contributions allow Australians to make a once-off post-tax contribution to their superannuation funds 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 contribute towards their concessional contributions cap.
SMSF Residency Changes
The start date of a number of legacy tax and superannuation measure will be deferred. The proposed relaxing of residency requirements for SMSF funds, scheduled to come into effect from 1 July 2022, will be deferred to a non-specified later financial year.
These measures propose to relax the SMSF residency rules by extending the central management and control test safe harbour from two to five years (ss 295-95(2)(b) and 295-95(4) of the ITAA 1997), and removing the active member test for both SMSFs and small APRA funds (ss 295-95(2)(c) and 295-95(3).
SMSF 3-year audits
The Government will not proceed with the former government’s proposal to change the annual audit requirement for certain self-managed superannuation funds (SMSFs) to allow a three-yearly cycle for funds with a history of good record-keeping and compliance.
8 previously announced measures were introduced by the former government were abandoned, and 3 others have been deferred. While this budget doesn’t contain major tax changes, it does seek to begin some ‘budget repair work’ via tax integrity measures concerning international tax matters and debt funding by foreign controlled entities. This information is not financial advice. If you wish to understand how these changes affect your personal situation, it’s recommended to chat with a tax professional before you make any decisions.