On Tuesday, 25 October 2022, Treasurer Jim Chalmers handed down the 2022-23 October Federal Budget, his first Budget.
While a Budget was handed down on 29 March 2022, this second Budget for 2022-23 updates economic forecasts and outlines the new Labor Government’s priorities following the May 2022 Federal election.
The Budget estimates an underlying cash deficit of $36.9 billion for 2022-23 (and $44bn for 2023-24). While the economy is expected to grow by 3.25% in 2022-23, it is predicted to slow to 1.5% for 2023-24, a full percentage point lower than forecast in March 2022. Inflation is expected to peak at 7.75% later in 2022, but is projected to moderate to 3.5% through 2023-24, and return to the Reserve Bank’s target range in 2024-25.
Against this backdrop, the Treasurer has sought to exercise fiscal “restraint” so as not to put more pressure on prices, and make the Reserve Bank’s job even harder. Rather, the Budget sets out a 5-point plan for cost-of-living relief in the areas of:
Expanding paid parental leave
Getting wages moving
In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.
A summary of the 2022-23 tax rates and income thresholds for residents (unchanged from 2021-22) and then Stage 3 rates and thresholds from 2024-25 onwards are:
|Rate||2022-23 to 2023-24||From 1 July 2024 (unchanged)|
|Nil||$0 – $18,200||$0 – $18,200|
|19%||$18,201 – $45,000||$18,201 – $45,000|
|30%||N/A||$45,001 – $200,000|
|32.5%||$45,001 – $120,000||N/A|
|37%||$120,001 – $180,000||N/A|
|Low and middle income tax offset (LMITO)||N/A||N/A|
|Low income tax offset (LITO)||Up to $700||Up to $700|
The 2022-23 October Budget did not announce any extension of the Low and Middle Income Tax Offset (LMITO) to the 2022-23 income year. The LMITO has now ceased and been fully replaced by the Low Income Tax Offset (LITO).
With no extension of the LMITO announced in the October Budget, 2021-22 was the last income year for which the offset was available. As a result, low-to-middle income earners may see their tax refunds from July 2023 reduced by between $675 and $1,500 (for incomes up to $90,000 but phasing out up to $126,000), all other things being equal.
For completeness, and as a reminder, low and middle income taxpayers are entitled to one or two offsets: LMITO (until the 2021-22 income year) and the low income tax offset (LITO). No changes were made to the LITO in the 2022- 23 October Budget. The LITO will continue to apply for the 2022-23 income years and beyond.
Under the current thin capitalisation rules, a non-financial entity’s allowable debt (interest) deductions in relation to its cross- border investments are limited by the application of a number of statutory tests under which its maximum allowable debt is the greatest of:
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.
More specifically, the thin cap rules will be amended to:
The arm’s length debt test will be retained as a substitute test which will apply only to an entity’s external (third party) debt, disallowing deductions for related party debt under this test.
The changes will apply to multinational entities operating in Australia and any inward or outward investor. Financial entities and ADIs will continue to be subject to the existing thin capitalisation rules.
Date of effect:
The new tests will apply to income years commencing on or after 1 July 2023.
The Government will not proceed with the proposal to allow taxpayers to self-assess the effective life of intangible depreciating assets. The measure was announced in the 2021-22 Budget and was to apply to assets acquired from 1 July 2023. This means that effective lives of intangible depreciating assets will continue to be set by statute, ie reversing this decision will maintain the status quo.
The Government intends 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.
There is no detail in the Budget Papers nor in any associated media releases on the night as to what precisely is intended.
We will share more information on this matter as it comes to hand.
For purchases of battery, hydrogen, or plug-in hybrid cars with a retail price below $84,619 (the luxury car tax threshold for fuel efficient vehicles) after 1 July 2022, fringe benefits tax and import tariffs will not apply. Note: Employers will still need to account for the cost in an employee’s reportable fringe benefits.
The Government will introduce reporting requirements to enhance the tax information made available to the public. The Government will require:
Date of effect:
These new reporting requirements will apply for income years commencing from 1 July 2023.
The Government will increase funding for the ATO in the following areas. The moral for taxpayers and their advisors is that the ATO will be getting better and better at detecting variances which will require explanation. Areas of focus are:
This will focus on key areas of non-compliance, including overclaiming of deductions and incorrect reporting of income. The funding will enable the ATO to modernise its guidance products, engage earlier with taxpayers and tax agents and target its compliance activity.
The boosting and extension of the Tax Avoidance Taskforce will support the ATO to pursue new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.
In a slightly different category to the above, the Government will provide additional funding of $166.2 million over four years from 2022-23 to continue delivery of the Modernising Business Registers program that will consolidate over 30 business registers onto a modernised registry platform.
The Government will increase the amount of the Commonwealth penalty unit from $222 to $275, from 1 January 2023. The increase will apply to offences committed after the relevant legislative amendment comes into force.
The Government has made the following State and Territory COVID-19 grant programs eligible for non-assessable, non- exempt (NANE) treatment, which will exempt eligible businesses from paying tax on these grants.
The Government is to introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. The measure has already been released in draft legislation.
By way of background and as a reminder, this will maintain the current tax treatment of digital currencies, including the CGT treatment where they are held as an investment. This measure removes uncertainty following the decision of the Government of El Salvador to adopt Bitcoin as legal tender and will be backdated to income years that include 1 July 2021.
The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.
The Government confirmed that the changes to the SMSF residency rules, previously announced in the 2021-22 Budget to commence from 1 July 2022, will now start from the income year commencing on or after the date of assent of the enabling legislation (yet to be introduced).
These measures propose to relax the SMSF residency rules by extending the central management and control test safe harbour from two to five years, and removing the active member test for both SMSFs and small APRA funds. Until this 2021-22 Budget measure is enacted, SMSF trustees need to ensure that they satisfy the current requirements. Even if the CM&C safe harbour is extended to five years from the date of assent, an SMSF trustee still needs to establish (before they leave) that their planned absence from Australia will be ”temporary”.
The Government will not proceed with the former government’s proposal to change the annual audit requirement for certain self-managed superannuation funds (SMSFs) to allow a 3-yearly cycle for funds with a history of good record-keeping and compliance.
The Government also announced that it will not proceed with the proposal to report standardised metrics in product disclosure statements (PDS) for retirement income products.
While not mentioned in the Budget papers, it is worth noting that the Labor Government is yet to provide an update on the status of a number of other superannuation measures announced by the former Government, including:
The Government confirmed its election commitment that the minimum eligibility age for making superannuation downsizer contributions will be lowered to age 55 (from age 60).
This measure will have effect from the start of the first quarter after assent to the enabling legislation.
The proposed reduction in the eligibility age will allow individuals aged 55 or over to make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their main residence outside of the existing contribution caps. Either the individual or their spouse must have owned the home for 10 years.
As under the current rules, the maximum downsizer contribution is $300,000 per contributor (ie $600,000 for a couple), although the entire contribution must come from the capital proceeds of the sale price. A downsizer contribution must also be made within 90 days after the home changes ownership (generally the date of settlement).
The Government also confirmed its election commitments that seek to assist pensioners looking to downsize their homes, by:
Date of effect:
Commencing 1 January 2023 (or 1 month after the day the Bill receives the assent).
The Government has announced that it will establish the “Regional First Home Buyers Guarantee”. Its aim will be to encourage home ownership in regional locations.
It will apply to eligible citizens and permanent residents who have lived in a regional location for more than 12 months to purchase their first home in that location with a minimum 5% deposit. It aims to reach 10,000 places per year to 30 June 2026.
In other measures, the Government will invest $10 billion in the newly created “Housing Australia Future Fund”, to be managed by the Future Fund Management Agency. Its aim will be to generate returns to fund the delivery of 30,000 social and affordable homes over five years and allocate $330 million for acute housing needs.
The Government will expand the Paid Parental Leave (PPL) scheme from 1 July 2023 so that either parent is able to claim the payment and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.
From 1 July 2024, the Government will start expanding the scheme by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026. Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.
The amount of PPL available for families will increase up to a total of 26 weeks from July 2026, benefiting over 180,000 families each year. An additional two weeks will be added each year from July 2024 to July 2026, increasing the overall length of PPL by six weeks.
To further increase flexibility, from July 2023 parents will be able to take Government-paid leave in blocks as small as a day at a time, with periods of work in between, so parents can use their weeks in a way that works best for them.
Further changes to legislation will also support more parents to access the PPL scheme. Eligibility will be expanded through the introduction of a $350,000 family income test, which families can be assessed under if they do not meet the individual income test. Single parents will be able to access the full entitlement each year. This will increase support to help single parents juggle care and work.
The Government will provide $4.7bn over 4 years from 2022-23 (and $1.7bn per year ongoing) to deliver cheaper child care and reduce barriers to workforce participation. This includes $4.6bn over 4 years from 2022-23 to:
The Government will also provide $43.9m over four years from 2022-23 for measures to improve early childhood outcomes for First Nations children.
The Government will not proceed with the Pension Supplement changes announced by the previous Government in the 2016- 17 MYEFO to the payment of the Pension Supplement for permanent departures overseas and temporary absences.
The Government has reviewed a number of tax and superannuation related measures that had been announced by the previous Government, but not enacted. It states in the Budget papers that it will abandon 8 of these, while 3 will have deferred start dates.
The following finance-related proposed changes have been abandoned.
The following proposed superannuation and retirement related measures have been abandoned.
The 2021-22 Budget measure that proposed relaxing residency requirements for SMSFs will be deferred from 1 July 2022 to the income year commencing on or after the date of assent of the enabling legislation.
More information and background on these superannuation proposals can be found under the “Superannuation” heading in this summary.
The Government intends to defer the start date for the following proposed third-party reporting rules:
It proposes to extend the third-party reporting regime to the operators of electronic distribution platforms that facilitate supplies from one entity to another entity. It will cover platforms operating over the internet, including through applications, websites or other software. However, a service will not be considered to be an electronic distribution platform if it only advertises or creates awareness of possible supplies, operates as a payment platform or serves a communications function.
Transactions will need to be reported to the ATO if they involve the provision of consideration by a buyer to a seller for a supply made through the platform by the seller. Transactions that only involve the sale of goods or real property (the transfer of legal title to the goods or real property) or financial supplies will not be captured. The supply must also be connected to the indirect tax zone (ie Australia).
In addition, the 2018-19 Budget measure that proposed introducing a limit of $10,000 for cash payments made to businesses for goods and services (and for which a delayed start date was announced in 2018-19 MYEFO) has been abandoned.
The 2021-22 MYEFO measure that proposed establishing a deductible gift recipient category for providers of pastoral care and analogous well-being services in schools has been abandoned.
If you would like assistance understanding how announcements in this Budget impact you, please contact your AFS accountant or our office on 03 5443 0344.
The 2022-23 Budget Papers are available from the following website: