Federal Treasurer Josh Frydenberg’s fourth budget, released 29 March 2022, should be considered in the context of the anticipated May 2022 federal election. This Federal Budget has allocated large amounts to fiscal stimulus targeted towards infrastructure, defence, affordable housing and alleviating cost of living pressures for individuals. Most notable was what the Federal Budget did not address. There was no new announcement of any change from a tax perspective, including no change to the superannuation rules or other major structural tax reforms.
Ongoing COVID-19 response measures
COVID-19 business grants
States and territories have provided a range of business support grants to assist small and medium businesses through the COVID-19 pandemic.
Small and medium businesses with an annual aggregated turnover of less than A$50 million are able to treat a range of COVID-19 grants that were received in the 2021 and 2022 income years as non-assessable non-exempt (NANE) income. The 2022/23 Federal Budget expands on the types of grants which are treated as NANE.
Tax deductibility of COVID-19 test expenses
As announced earlier this year, from 1 July 2021 the costs of COVID-19 tests (both polymerase chain reaction (PCR) and rapid antigen test (RAT)) which are used for an individual to attend their place of work will be tax deductible to the individual. Where a business purchases a COVID-19 test and provides the test to an employee to attend their place of work, fringe benefits tax will not be incurred by the business.
Highlights for business
Employee Share Schemes access expanded
In similar fashion to the 2021-22 Federal Budget, the Government has announced its intention to further reduce red tape for companies wanting to incentivise staff with shares or options. Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:
- A$30,000 per participant per year, accruable for unexercised options for up to five 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.
For more details, please refer to our summary of the previously announced measures in relation to employee share scheme regulation and tax.
Patent box – expanding the patent box tax concession to agricultural sector innovations and low emissions technology innovations
The Government will expand the patent box scheme, announced in the 2021-22 Federal Budget and currently before Parliament, to support companies to pursue further research and development (R&D) activities in Australia in the context of:
- agricultural sector technology-focussed innovations; and
- low emissions technology innovations.
This will allow more companies to access tax concessions for R&D activities to the extent that they are performed in Australia. It is proposed that corporate income derived from Australian agricultural sector innovations and low emissions technology innovations will be taxed at a concessional effective corporate tax rate of 17 per cent (rather than the 30 per cent for large businesses and 25 per cent for small enterprises). Eligible patents need to be Australian owned and developed patents.
The concession for agricultural and low emissions technology innovations is proposed to take effect for patents granted or issued after 29 March 2022 and for income years beginning on or after 1 July 2023. The Government has indicated that it will consult with industry before settling the detailed design of the patent box expansions to agriculture and low emissions technology. For more details, please refer to our previous summary here.
Affordable housing and home ownership
As previously foreshadowed prior to budget night, the Government will increase the number of guarantees under the Home Guarantee Scheme to 50,000 per year for three years from 2022-23 and then 35,000 a year ongoing to support homebuyers in purchasing a home with a lower deposit. Under the expanded Home Guarantee Scheme, the Government will make available:
- 35,000 guarantees each year, up from the current 10,000, from 1 July 2022 under the First Home Guarantee, to support eligible first homebuyers to purchase a new or existing home with a deposit as low as five per cent;
- 10,000 guarantees each year from 1 October 2022 to 30 June 2025 under a new Regional Home Guarantee, to support eligible homebuyers, including non-first home buyers and permanent residents, to purchase or construct a new home in regional areas, subject to the passage of enabling legislation; and
- 5,000 guarantees each year from 1 July 2022 to 30 June 2025 to expand the Family Home Guarantee announced in last year’s budget. Australia’s first ever specifically targeted single parent family housing scheme supports eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as two per cent.
Miscellaneous tax measures
Varying the GDP uplift factor for tax instalments
The Government has decided to set the gross domestic product (GDP) uplift factor for pay as you go (PAYG) and Goods and services tax (GST) instalments at 2 per cent for the 2022-23 income year. This uplift factor is lower than the 10 per cent otherwise applicable under the statutory formula.
The lower uplift rate will have cash flow effect on small businesses, including sole traders, and other individuals with investment income. The 2 per cent GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to A$10 million annual aggregated turnover for GST instalments and A$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.
Targeted digitalisation of the Australian Tax System
Modernisation of PAYG instalment systems
Companies will be able to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. This is intended to support business cash flow, by aligning the companies’ PAYG instalment liabilities with their profitability – therefore providing a more accurate indication of a business’ tax liability during the relevant period.
The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications of this measure. 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.
Digitalising trust income reporting and processing
Trust income reporting and assessment calculation processes have not been automated to the same extent as for individual and company tax returns, resulting in higher compliance costs associated with longer processing times and limited pre-filling opportunities.
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 pre filling and automating Australian Taxation Office (ATO) assurance processes. It intended that the measures will commence from 1 July 2024, subject to consultation by the Government.
In a snap shot
This Federal Budget is not about significant tax reform measures but rather positions the Government for the May election. We will leave the political comments to others, but from a tax perspective the 2022-23 Federal Budget represents a combination of extensions to pre-existing concessions related to the pandemic, and a series of measures to streamline reporting and digitise systems to reduce taxpayers’ compliance burden.
There may be more substantive tax reform policies announced by the major parties in the lead up the May election. We shall see!
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.