Federal Budget 2022-23

The election of the Australian Labor Party to Federal Government earlier this year, has triggered a second Federal Budget for the 2022‐23 financial year, which was handed down on Tuesday 25 October 2022 by Treasurer Jim Chalmers.

While there are no major tax changes, there are some personal and business tax, superannuation and other measures to be aware of.

Here’s a summary followed by more detailed information.

Tax measures

• The Government has announced that it will not proceed with the measure announced in the 2021‐22 Budget to allow taxpayers to self‐assess the effective lives of intangible depreciating assets.
• COVID grants treated as non-assessable non-exempt (NANE) income.
• The tax treatment of off-market share buy-backs undertaken by listed public companies will be aligned with the treatment of on-market share buy-backs.
• The current Government is increasing the amount of a penalty unit from its current amount of $222 to $275 applicable from 1 January 2023.
• More funding for ATO compliance programs to investigate high-risk task practitioners and unregistered preparer.
• Digital currencies such as Bitcoin will continue to be excluded from the Australian income tax treatment of foreign currency.
• The Government intends to defer the start date for the proposed third-party reporting rules for transactions relating to the supply of ride sourcing and short-term accommodation from 1 July 2022 to 1 July 2023 and all other reportable transactions from 1 July 2023 to 1 July 2024.
• The proposed limit of $10,000 for cash payments made to businesses for goods and services has been abandoned.
• Temporary full expensing measure will end 30 June 2023. The Government has not announced any extension of the temporary full expensing (TFE) measure which currently permits a deduction for the full cost of certain depreciating assets acquired and used by eligible businesses.
   

Superannuation measures
 

• The proposal to extend the central management and control test safe harbour from two to five years in respect of residency rules, as well as removing the active member test, now starts from the income year commencing on or after assent to the enabling legislation (rather than 1 July 2022).
• The former government’s proposal to allow a three-yearly audit cycle for SMSFs with a good compliance history, rather than an annual audit, will not now go ahead.
• The minimum eligibility age for making superannuation downsizer contributions will be lowered to age 55 (from 60). This measure will have effect from the start of the first quarter after assent to the enabling legislation.

Other measures

• Child Care Subsidy rates will be increased from 85% to 90% for families for the first child in care and increase the CCS rate for all families earing less than $530,000 in household income.
• Paid Parental Leave Scheme will be expanded from 1 July 2023 so that either parent can claim the payment. From 1 July 2024, the scheme will be expanded by two additional weeks a year until it reaches 26 weeks from 1 July 2026.

Personal Tax

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Tax Rates

With rising cost of living pressures, no changes have been made to existing personal tax rates and the already legislated stage 3 tax cuts will continue to apply from 1 July 2024.

Under stage 3 of the personal income tax plan, all taxpayers earning over $45,000 and up to $200,000 will pay a marginal rate of tax of 30 per cent. This rate band extension effectively removes the current 37 per cent tax bracket, while taxpayers earning over $200,000 will be subject to a 45 per cent marginal rate of income tax.

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• Low Middle Income Tax Offset (LMITO)

The 2021‐22 income year was the final year that the LMITO applied, however, the Low Income Tax Offset (LITO) remains in place for the 2022‐23 financial year.

The March 2022-23 Budget had increased the LMITO by $420 for the 2021-22 income year so that eligible individuals (who had taxable incomes below $126,000) received a maximum LMITO up to $1,500 for 2021-22 (instead of $1080). With no extension of LMITO, low-to-middle income earners may see their tax refunds from July 2023 reduced.

• ​Low Income Tax Offset (LITO)

Low and middle income taxpayers are entitled to one or two offsets, LMITO (only until the 2021-22 income year) and LITO. No changes were made to the LITO in the recent Budget. The LITO will continue to apply for the 2022-23 income years and beyond. With the maximum amount of LITO at $700, it is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. The rate is 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Business tax

• Thin cap – a new earnings-based test will be used for limiting debt deductions

 

The Government will replace the safe harbour and worldwide gearing tests with earnings-based tests to limit debt deductions in line with an entity’s profits. This applies to multinational entities and any inward or outward investor. Financial entities and ADIs will continue to be subject to the existing thin capitalisation rules.

The thin cap rules will be amended to:

A new earnings-based test under which an entity’s debt-related deductions will be limited to 30% of profits (using EBITDA as the measure of profit.)

Allow deductions denied under the EBITDA test to be carried forward and claimed in a subsequent income year (up to 15 years)

Replace the worldwide gearing test and allow an entity in a group to claim debt deductions up to the level of the worldwide group’s net interest expense as a share of earnings

The arm’s length debt test will be retained as a substitute test which would apply only to an entity’s external debt.

The new tests will apply to income years commencing on or after 1 July 2023.

• Intangible assets depreciation

The Government has announced that it will not proceed with the measure announced in the 2021‐22 Budget to allow taxpayers to self‐assess the effective lives of intangible depreciating assets.

This was due to apply to assets acquired on or after 1 July 2023. As a result, the statutory effective lives of intangible depreciating assets will continue to be used in determining deductions for depreciation in respect of intangible assets from 1 July 2023.

• Off-market share buy-backs

The Government plans to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. This will affect Capital Gains Tax relief. The measure will take effect from 7.30pm on the 25 October 2022.

• New tax transparency reporting requirements

The Government will require all Australian public companies (listed and unlisted) to disclose information on the number of subsidiaries and their country of tax domicile. This new reporting requirement will apply for income years commencing 1 July 2023.

• COVID grants declared as Non-Assessable Non-Exempt (NANE)

The Government has made the following State and Territory COVID-19 grant programs eligible for NANE treatment, which means businesses will be exempt from paying tax on the following grants:

• 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 (Victoria)

• HOMEFRONT 3 (ACT), and

• Small Business Hardship Scheme (ACT).

• Digital currencies are not foreign currency

Current tax treatment of digital currencies will continue including the CGT treatment where they are held as an investment. New legislation will be brought in to clarify that digital currencies, (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency.

Superannuation

• The proposal to extend the central management and control test safe harbour from two to five years in respect of residency rules, as well as removing the active member test, now starts from the income year commencing on or after assent to the enabling legislation (rather than 1 July 2022).

Until this 2021-22 Budget measure is enacted, SMSF trustees need to ensure that they satisfy the current requirements. Even if the safe harbour is extended to five years from the date of assent, an SMSF trustee must establish (before leaving) that their planned absence from Australia will be ‘temporary’.

• The former government’s proposal to allow a three-yearly audit cycle for SMSFs with a good compliance history, rather than an annual audit, will not now go ahead.

• The Government has stuck to its election commitment that the minimum eligibility age for making superannuation downsizer contributions will be lowered to age 55 (from 60). This measure will have effect from the start of the first quarter after assent to the enabling legislation.

Here to help

If you have any queries or need help with any of the issues raised by the Federal Budget please contact your local TaxAssist Accountant for expert advice and guidance.

We can file your in-year and year-end returns for you with ATO and provide you with PAYG withholding tax declarations to distribute to your employees at the year-end.

We can advise you regarding all aspects of payroll preparation and compliance, making sure your calculations are correct and that you meet your deadlines and requirements.

TaxAssist Accountants can also assist with:

• Setup and Administration of Self-Managed Super Funds (SMSF)
• Assistance with Lump Sum withdrawals
• Assistance on Property, Shares & Investments inside Superannuation Funds
• Audits on Super Funds

The responsibilities faced by employers can be intimidating, but we can guide you through the processes, costs, calculations and deadlines and take care of everything for you. Call us on 08 6245 7506 or make an enquiry here.

Last updated: 7th November 2022