The Government handed down the 2022-23 Federal Budget last night. The key tax related measures are outlined below.
Cost of living tax offset
The Government will increase the low- and middle-income tax offset (LMITO) for the 2021 22 income year. The LMITO for the 2021 22 income year will be paid from 1 July 2022 when Australians submit their tax returns for the 2021 22 income year. This proposal will increase the LMITO by $420 for the 2021 22 income year. This increases the maximum LMITO benefit in 2021 22 to $1,500 for individuals and $3,000 for couples.
COVID 19 Response Package – making COVID 19 business grants non-assessable non exempt
The Government has extended the measure which enables payments from certain state and territory COVID 19 business support programs to be made non assessable non-exempt (NANE) for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.
COVID 19 Response Package – tax deductibility of COVID 19 test expenses
The Government will ensure that the costs of taking a COVID 19 test to attend a place of work are tax deductible for individuals from 1 July 2021. In making these costs tax deductible, the Government will also ensure fringe benefits tax (FBT) will not be incurred by businesses where COVID 19 tests are provided to employees for this purpose.
Deferral of Shadow Economy – strengthening the Australian Business Number system measure
The Government will defer the start date of the Black Economy – strengthening the Australian Business Number (ABN) system measure, announced in the 2019 20 Budget, by 12 months to assist with integration into the Australian Business Registry Services (ABRS).
Digitalising trust income reporting and processing
The Government will digitalise trust and beneficiary income reporting and processing, by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing prefilling and automating ATO assurance processes. The measure will commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.
Trust income reporting and assessment calculation processes have not been automated to the same extent as individual or company tax returns, resulting in longer processing times and limited prefilling opportunities. This measure will reduce the compliance burdens on taxpayers, reduce processing times and enhance ATO processes.
Employee Share Schemes – expanding access and further reducing red tape
The Government will expand access to employee share schemes and further reduce red tape so that employees at all levels can directly share in the business growth they help to generate.
Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:
- $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70 per cent of dividends and cash bonuses; or
- any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.
The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.
Modernisation of pay as you go (PAYG) instalment systems
The Government will enable companies to choose to have their pay as you go (PAYG) instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. This will support business cash flow by ensuring instalments reflect current performance.
Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.
Patent Box – expanding the patent box tax concession to agricultural sector innovations
The Government will expand the patent box, announced in the 2021 22 Budget and currently before Parliament, to support practical, technology focused innovations in the Australian agricultural sector.
The Government will provide concessional tax treatment for corporate taxpayers who commercialise their eligible patents linked to agricultural and veterinary (agvet) 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).
Eligible corporate income will be subject to an effective income tax rate of 17 per cent for PBRs and patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023. Eligible income will be taxed at the concessional tax rate to the extent that the research and development of the innovation took place in Australia.
Patent Box – expanding the patent box tax concession to low emissions technology innovations
The Government will expand the patent box, announced in the 2021 22 Budget and currently before Parliament, to support the Government’s technology focused approach to reducing emissions in line with the Government’s target to achieve net zero emissions by 2050.
The expanded patent box will provide concessional tax treatment for corporate taxpayers who commercialise their patented technologies which have the potential to lower emissions. Eligible corporate income will be subject to an effective income tax rate of 17 per cent, for patents granted after 29 March 2022 and for income years starting on or after 1 July 2023. Eligible income will be taxed at the concessional tax rate to the extent that the research and development of the innovation took place in Australia.
Patent Box – tax concession for Australian medical and biotechnology innovations: updated policy specifications
The Government has expanded the 2021 22 Budget measure Patent Box – tax concession for Australian medical and biotechnology innovations.
The Government will now allow patents granted or issued after 11 May 2021 to be eligible for the regime. This will incentivise further research and development (R&D) to be undertaken in Australia on medical and biotechnology patents, much of which occurs after the patent application.
The Government will also now allow standard patents granted by IP Australia, utility patents issued by the United States Patent and Trademark Office (USPTO), and European patents granted under the European Patent Convention (EPC) to be eligible. This will remove regulatory barriers to accessing the patent box regime for Australian developed innovations patented in the major overseas jurisdictions with equivalent patent regimes. However, taxpayers will still only benefit from the concessional tax treatment under the patent box to the extent that the R&D occurred in Australia.
Personal Income Tax – increasing the Medicare levy low income thresholds
The Government will increase the Medicare levy low income thresholds for seniors and pensioners, families and singles from 1 July 2021. The increase in thresholds takes account of recent movements in the consumer price index so that low income individuals continue to be exempt from paying the Medicare levy.
The threshold for singles will be increased from $23,226 to $23,365. The family threshold will be increased from $39,167 to $39,402. For single seniors and pensioners, the threshold will be increased from $36,705 to $36,925. The family threshold for seniors and pensioners will be increased from $51,094 to $51,401. For each dependent child or student, the family income thresholds will increase by a further $3,619 instead of the previous amount of $3,597.
Primary Producers – increasing concessional tax treatment for carbon abatement and biodiversity stewardship income
The Government will allow the proceeds from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates generated from on farm activities to be treated as primary production income for the purposes of the Farm Management Deposits (FMD) scheme and tax averaging from 1 July 2022. The Government will also change the taxing point of ACCUs for eligible primary producers to the year when they are sold, and extend similar treatment to biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market scheme, from 1 July 2022. Eligible primary producers are those who are currently eligible for the FMD scheme and tax averaging.
Small Business – skills and training boost
The Government is introducing a skills and training boost to support small businesses to train and upskill their employees. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.
Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.
Some exclusions will apply, such as for in house or on the job training and expenditure on external training courses for persons other than employees.
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.
Small Business – technology investment boost
The Government is introducing a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023.
Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services.
An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.
Smarter reporting of Taxable Payments Reporting System data
The Government will allow businesses the option to report Taxable Payments Reporting System data (via accounting software) on the same lodgment cycle as their activity statements. Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.
Supporting Retirees – extension of the temporary reduction in superannuation minimum drawdown rates
The Government has extended the 50 per cent reduction of the superannuation minimum drawdown requirements for account based pensions and similar products for a further year to 30 June 2023.
Tax Integrity – extension of the Australian Taxation Office (ATO) Tax Avoidance Taskforce on multinationals, large corporates and high wealth individuals
The Government will provide $325.0 million in 2023 24 and $327.6 million in 2024 25 to the ATO to extend the operation of the Tax Avoidance Taskforce by 2 years to 30 June 2025. The Taskforce was established in 2016 to undertake compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. It also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies
Varying the GDP uplift factor for tax instalments
The Government has decided to set the GDP uplift factor for pay as you go (PAYG) and GST instalments at 2 per cent for the 2022 23 income year. This uplift factor is lower than the 10 per cent that would have applied under the statutory formula.
The 2 per cent GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2022 23 income year and fall due after the enabling legislation receives Royal Assent.
Reducing compliance costs for business through enhanced sharing of single touch payroll data
The Government will commit $6.6 million over the forward estimates period for the development of IT infrastructure required to allow the ATO to share single touch payroll (STP) data with State and Territory Revenue Offices on an ongoing basis.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.