2022/23 Federal Budget Special
Last night, Treasurer Jim Chalmers handed down his first Federal Budget, against the backdrop of a very difficult global economic landscape.
Whilst this Budget’s key focus is the cost of living pressures faced by Australians, that has meant that there was no place for tax reform or even the “tax tinkering” that we have seen in recent Budgets.
Most of the tax focus pre-Budget was on what would happen to previously announced tax changes, rather than proposed new changes. Nevertheless, we have carefully summarised what is relevant in this Budget Tax Flash.
PERSONAL
Stage 3 Tax Cuts – Start Date Unchanged
As expected, the Government did not announce any changes to the Stage 3 tax cuts, as previously legislated. The Stage 3 tax cuts will commence from 1 July 2024. From this date onwards, the personal tax rates will be as follows:
| Taxable income ($) | Tax payable ($) |
| 0 – 18,200 | Nil |
| 18,201 – 45,000 | 19% of excess over 18,200 |
| 45,001 – 200,000 | 5,092 + 30% of excess over 45,000 |
| 200,000+ | 51,592 + 45% of excess over 200,000 |
The significant difference between the current tax rates and the rates above is the 30% marginal tax rate for income between $45,000 – $200,000. With the changes, it is expected that around 94% of Australian individual taxpayers will face a marginal tax rate of 30% or less.
Maroo Advisory Comment
Whether these changes survive the next Federal Budget in May 2023, when it returns to its normal timeslot, will no doubt be a hot topic over the next 6 months.
Child Care Measures
The Government will increase the maximum Child Care Subsidy (CCS) rate from 85 per cent to 90 per cent for families for the first child in care and increase the CCS rate for all families earning less than $530,000 in household income.
From July 2023, CCS rates will lift from 85 per cent to 90 per cent for families earning less than $80,000. Subsidy rates will then taper down one percentage point for each additional $5,000 in income until it reaches 0% for families earning $530,000 (up from $356,756). Families will continue to receive existing higher subsidy rates for their second and subsequent children aged five and under in care, up to 95%
Maroo Advisory Comment
These changes, together with changes to Paid Parental Leave enabling either parent to claim the payment and the increase in Australia’s migration cap are aimed at bridging the skills and employment gap being felt across Australia.
BUSINESS
Funding Boost to Extend Compliance Programs
The Government announced that it would boost funding and extend several ATO compliance programs currently operating, as well as the Tax Practitioners Board’s (TPB) compliance investigations.
ATO Compliance Programs
The Government has announced that it will extend ATO compliance programs in the following areas:
- Personal Income Taxation Compliance – provide $80.3 million to the ATO to extend this program for an additional two years from 1 July 2023. The extension of the Program is intended to enable the ATO to: “continue to deliver preventative and corrective activities in key areas of non-compliance and modernise its guidance products and engage earlier with taxpayers and tax agents.
- ATO Shadow Economy – the existing ATO Shadow Economy Program will be extended for a further three years from 1 July 2023. The extension of the Shadow Economy Program is intended to enable the ATO to: “continue a strong and coordinated response to target shadow economy activity “protect revenue” level the playing field for those businesses that are following the rules”.
- ATO Tax Avoidance Taskforce – an additional funding boost of some $200 million per year, over four years from 1 July 2022 will be provided to the ATO Tax Avoidance Taskforce to extend this program for a further year from 1 July 2025. “This measure is intended to support the ATO to pursue new priority areas of observed business tax risks”
TPB Compliance Investigations
The TPB’s compliance investigations into high-risk tax practitioners and unregistered preparers will increase over four years from 1 July 2023 with the Government announcement that it will provide $30.4 million to the program.
Maroo Advisory Comment
It is evident from the direction of funding to boost compliance measures that the Government has seen a return on their investment of these compliance programs in terms of additional revenue collections arising from reviews and penalty imposition. You should expect continued engagement with the ATO in the coming year, be it formal or informal, review or audit, as the ATO seeks to close the Tax Gaps they estimate the Government is not collecting. It remains a good time to consider Tax Audit insurance!
Intangible Asset Depreciation – Option to Self-Assess of Effective Lives Reversed
Ahead of the 2022 Federal Budget in May 2021, the Morrison Government announced that one of its key innovation policies was to allow businesses to self-assess the effective lives of intangible depreciating assets, which include patents, copyrights and in-house software. This formed part of the previous Government’s $1.2 billion Digital Economy Strategy.
The purpose of this measure was to provide taxpayers with the option to match the tax treatment of intangible assets to the period these assets provide economic benefits. This, in turn, would encourage further investment in such assets and hiring in research and development. The measure was set to apply for assets acquired from 1 July 2023.
In yesterday’s Budget, the Government announced that it will not proceed with this measure. That is, reversing this will maintain status quo – effective lives of intangible assets will continue to be set by statute. This will “avoid the potential integrity concerns with the previously announced measure and contribute to budget repair”.
Maroo Advisory Comment
The reversal of this measure is unfortunately timed as it was previously meant to commence from 1 July 2023, which would coincide with the expiry of Temporary Full Expensing. Businesses will be facing a significant timing issue from the 2024 year onwards where TFE will not be allowed and large assessable balancing adjustments are likely to occur (from previously fully expensed assets). The ability to self-assess effective lives would have provided some relief by way of allowing larger write offs over the economic lives of intangible assets. Further, this measure would simply have been a timing issue for the Government. The Budget announcement that the reversal of this measure is “estimated to increase receipts by $550 million over the 4 years from 2022-23” does not factor into account that over the long-term, the net effect of depreciation deductions should provide a tax neutral outcome with stimulus measures.
Electric Cars to be FBT Free
Although previously announced, legislation will be introduced with effect from 1 July 2022, to exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 in 2022‑23). The car must not have been held or used before 1 July 2022.
Employers will need to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.
SUPERANNUATION
The good news is there are NO major changes to Superannuation in the Budget. However, the Treasurer announced that the previously announced Superannuation change allowing a 3 yearly Audit cycle for funds with good record keeping and compliance history will not proceed.
This measure was criticized by the SMSF industry as leading to increased non-compliance across the SMSF sector.
The Treasurer confirmed his Election commitment to reduce the eligibility age to 55 years for an individual to be eligible for the Super Downsizer contributions of up to $300,000 per contributor, provided they have held the house for 10 years or more.
Further to this announcement, the Government has also announced further (non-tax) measures to reduce the financial impact on pensioners looking to downsize their homes in an effort to free up housing stock for younger families, as follows:
- Extending the assets test exemption for principal home sale proceeds from 12 months to 24 months for pensioners.
- Changing the income test to apply only the lower deeming rate (0.25%) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.
Unfortunately, there was no mention in the Budget on legislative change around what is and isn’t Non Arm’s Length Expenditure (NALE) in the light of the ATO’s views in 2021
Maroo Advisory Comment
Anytime a Budget does not make changes to Superannuation brings a heavy sigh of relief, but we certainly need some clarity on what the Parliament intends NALE to mean, in light of the ATO’s recent narrow interpretation.
Clarify
Simplify
Empower
