March 31, 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.
Business tax measures
Expanding patent box tax regime
This Budget builds on last year's announcement of a new Australian patent box regime, by:
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.
Temporary reduction in fuel excise
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.
Small business measures
Technology investment boost
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.
Skills and training boost
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.
COVID-19 business grants
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.
Grant funding for industry - commitment to advancing the Australian economy
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.
The Government announced several budget tax measures ahead of budget night.
Cash flow support and red tape reduction to help small business
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:
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.
Farmers to access primary production concessions for carbon credit income
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.
Employee share schemes - regulatory simplification
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:
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.
Personal Income Tax Changes
Cost of living tax offset
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:
The LMITO, which is due to be removed at the end of the 2021/22 income year, has not been extended.
The Low-Income Tax Offset (LITO) is unchanged for 2022/23 (maximum $700).
Cost of living payment
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.
No new personal tax bracket adjustments
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.
*Rates do not include Medicare levy of 2%
Medicare levy threshold increases
The Medicare levy thresholds will also be adjusted from the 2022-23 income year, to take account of recent Consumer Price Index movements.
Extension of temporary reduction in Superannuation minimum drawdown rates
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:
Extension of Funding for Australian Taxation Office (ATO) Tax Avoidance Taskforce
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 $2.1 billion.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Australia), Sydney
Ernst & Young (Australia), Perth
Ernst & Young (Australia), Melbourne
Ernst & Young (Australia), Brisbane
Ernst & Young (Australia), Canberra
Ernst & Young LLP (United States), Australia Tax Desk, New York
Ernst & Young LLP (United Kingdom), Australia Tax Desk, London
1 Currency references in this Alert are to the AU$.