FEDERAL BUDGET

The Federal Budget was handed down on 25 October 2022. Labour ruled out making any changes to the contentious stage three tax cuts package. The third tranche of tax cuts is set to be the biggest expense to the budget at $20bn a year when it comes into effect in 2024. The cuts mean anyone earning $45,000 to $200,000 will pay no more than 30c in tax for every dollar they earn.

Powering Australia – Electric Car Discount

The Government will cut taxes on electric cars so that more Australians can afford them. From 1 July 2022, the measure will 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. 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 – expanding eligibility for downsizer contributions

The Government will allow more people to make downsizer contributions to their superannuation by reducing the minimum eligibility age from 60 to 55 years of age. The measure will have effect from the start of the first quarter after the Royal Assent of the enabling legislation.

The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute, and contributions do not count towards non-concessional contribution caps.

This measure provides greater flexibility to contribute to superannuation and aims to encourage older Australians to downsize sooner to a home that better suits their needs, thereby increasing the availability of suitable housing for Australian families.

New Energy Apprenticeships

The Government will provide $95.6 million over 9 years from 2022–23 to support 10,000 people to complete a New Energy Apprenticeship. Eligible apprentices will be able to claim a New Energy Apprentice Support Payment of up to $10,000 over the duration of the apprenticeship, comprising $2,000 on commencement, $2,000 per year for up to 3 years, and $2,000 on completion.

Additional in-training support places will be made available for all New Energy Apprentices, with extra support for targeted groups, including First Nations peoples, mature-age apprentices, regional and remote Australians, and people from culturally and linguistically diverse backgrounds.

Shadow Economy Program

The Government will extend the existing ATO Shadow Economy Program for a further 3 years from 1 July 2023.

The extension of the Shadow Economy Program will enable the ATO to continue a strong and coordinated response to target shadow economy activity, protect revenue and level the playing field for those businesses that are following the rules.

Tax Avoidance Taskforce

The Government has boosted funding for the ATO Tax Avoidance Taskforce by around $200 million per year over 4 years from 1 July 2022, in addition to extending this Taskforce for a further year from 1 July 2025. The boosting and extension of the Tax Avoidance Taskforce will support the ATO in pursuing new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.

Personal Income Taxation Compliance Program

The Government will provide $80.3 million to the ATO to extend the Personal Income Taxation Compliance Program for 2 years from 1 July 2023.

This extension will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in 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.

Digital currency – clarifying that digital currencies are not taxed as foreign currency

The Government will introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. This maintains the current tax treatment of digital currencies, including the capital gains tax 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 continues to be taxed as foreign currency.

New Energy Skills Program

The Government will provide $9.6 million over 5 years from 2022–23 to support Australia’s workforce to transition to a clean energy economy. This funding will support a new mentoring program to help train and support new energy apprentices, the development of fit-for-purpose training pathways, and a capacity study by Jobs and Skills Australia to evaluate Australia’s workforce needs to transition to a clean energy economy.

Housing Accord

The Australian Government will provide $350.0 million over 5 years from 2024–25 to support funding of an additional 10,000 affordable homes under a Housing Accord with state and territory governments and other key stakeholders.

The Commonwealth support will include availability payments over the longer term to facilitate institutional investment, including by superannuation funds, in affordable homes.

This measure complements the Government’s investment in the Housing Australia Future Fund, which will provide a further 30,000 social and affordable homes over 5 years.

Safer and More Affordable Housing

The Government will invest $10 billion in the newly created Housing Australia Future Fund, managed by the Future Fund Management Agency, to generate returns to fund the delivery of 30,000 social and affordable homes over 5 years and allocate $330 million for acute housing needs.

In the first 5 years, these investment returns will fund:

• $200 million for the repair, maintenance and improvements of housing in remote Indigenous communities, where some of the worst housing standards in the world are endured by our First Nations people
• $100 million for crisis and transitional housing options for women and children fleeing domestic and family violence and older women on low incomes who are at risk of homelessness
• $30 million to build more housing and fund specialist services for veterans who are experiencing homelessness or are at‑risk of homelessness.
• The Government remains committed to ensuring that of the $10 billion fund, the returns from $1.6 billion will be directed to long-term housing for women and children fleeing domestic and family violence and older women on low incomes who are at risk of homelessness.

In addition, the Government will provide $348.6 million over 4 years from 2022–23 for a number of further initiatives to deliver more social and affordable housing. Funding includes:

• $324.6 million over 4 years from 2022–23 to establish the Help to Buy scheme to assist people on low to moderate incomes to purchase a new or existing home with an equity contribution from the Government
• $15.2 million over 4 years from 2022–23 (and $4.4 million per year ongoing) to establish a National Housing Supply and Affordability Council to support the Australian Government in developing housing supply and affordability policy through research and advice
• $0.5 million over 4 years from 2022–23 (and $0.1 million per year ongoing) to establish Housing Australia by renaming and expanding the remit of the National Housing Finance and Investment Corporation to deliver the Australian Government’s social and affordable housing programs
• $8.3 million over 4 years from 2022–23 to the Treasury and Housing Australia to administer the Housing Australia Future Fund.

The Government will also:

• establish the Regional First Home Buyers Guarantee to support 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 per cent deposit, with 10,000 places per year to 30 June 2026, by redirecting funding from the Regional Home Guarantee component of the 2022–23 March Budget measure titled Affordable Housing and Home Ownership, with no financial impact
• broaden the remit of the National Housing Infrastructure Facility to directly support new social and affordable housing in addition to financing critical housing infrastructure, with no financial impact, as announced at the Jobs and Skills Summit.

See the related payment measures titled Housing Accord in the Treasury Portfolio and National Housing and Homelessness Plan in the Social Services Portfolio.

HOME AFFAIRS

Migration Program – 2022–23 planning levels

As announced at the Jobs and Skills Summit, the Government will increase the 2022–23 permanent Migration Program planning level from 160,000 to 195,000. This will help ease widespread, critical workforce and skills shortages. Priority will be given to offshore applicants and on-hand applications for the Skilled Independent visa – New Zealand stream.

Jobs and Skills Summit – incentivise pensioners into the workforce

The Government will provide $61.9 million over two years from 2022–23 to provide aged and veteran pensioners a once-off credit of $4,000 to their Work Bonus income bank.

The temporary income bank top-up will increase the amount pensioners can earn in
2022–23 from $7,800 to $11,800 before their pension is reduced, supporting pensioners who want to work or work more hours to do so without losing their pension.

Personal income tax receipts are also expected to increase by $15.0 million in 2023–24 as a result of this measure. This measure implements an outcome from the Jobs and Skills Summit.

Lifting the Income Threshold for the Commonwealth Seniors Health Card

The Government will provide $69.6 million over 4 years from 2022–23 to increase the income threshold for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.

The Government will also freeze social security deeming rates at their current levels for a further two years until 30 June 2024 to support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living.

The cost of this measure will be partially met from within the existing resourcing of the Department of Veterans Affairs.

Making COVID-19 business grants non-assessable non-exempt

In response to COVID-19, payments from certain state and territory business grants made before 30 June 2022 can be made non-assessable, non-exempt (NANE) for income tax purposes, subject to eligibility. This tax treatment is only provided in exceptional circumstances, such as businesses’ severe economic consequences during the COVID-19 pandemic.

The Government has made the following state and territory COVID-19 grant programs eligible for NANE treatment, which will exempt eligible businesses from paying tax on these grants:

• Victoria 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,
• Australian Capital Territory HOMEFRONT 3, and
• Australian Capital Territory Small Business Hardship Scheme.

SOCIAL SERVICES

Fraud Fusion Taskforce

The Government will provide $126.3 million over 4 years from 2022–23 to establish a cross-agency Fraud Fusion Taskforce to address fraud and serious non-compliance in the National Disability Insurance Scheme (NDIS).

The Taskforce will comprise a range of Commonwealth agencies delivering government programs, with the support of law enforcement, regulatory and intelligence agencies. The Fraud Fusion Taskforce replaces the existing NDIS Fraud Taskforce. As part of this measure, the Government will also extend funding for the existing Taskforce Integrity within Services Australia until 30 June 2024 as it transitions into the Fraud Fusion Taskforce.

Boosting Parental Leave

The Government will enhance economic security, improve gender equality, and enhance and provide more flexibility for shared care arrangements at a cost to the budget of
$531.6 million over 4 years from 2022–23 (and $619.3 million per year ongoing).

The Government will introduce reforms from 1 July 2023 to make the Paid Parental Leave Scheme flexible for families 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.

Case Study

Next year, Grace and Chris plan to have a child and want to share work and care responsibilities. Under the expanded Paid Parental Leave scheme, they can access PPL for 22 weeks from July 2024 and use it flexibly. Grace will take leave to recover from the birth and breastfeed when the baby arrives. Once she is ready to return to work, Grace will take leave two days a week, and Chris will take leave three days a week, with each accessing a total of 11 weeks of leave.

Incentivising Pensioners to Downsize

The Government will provide $73.2 million over 4 years from 2022–23 (and $0.4 million per year ongoing), including:

• extending the assets test exemption for principal home sale proceeds from 12 months to 24 months for income support recipients
• changing the income test to apply only the lower deeming rate (0.25 per cent) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.
• This measure will reduce the financial impact on pensioners looking to downsize their homes to minimise the burden on older Australians and free up housing stock for younger families.

Child Care Subsidy

From July 2023, Child Care Subsidy 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 zero per cent for families earning $530,000. Families will continue to receive existing higher subsidy rates for their second and subsequent children aged five and under in care, up to 95 per cent.

Case Study

Gita and Matt have a combined income of $120,000. Their 2-year-old child attends centre-based daycare 3 days a week, costing $4,700 a year in out-of-pocket childcare fees. From July 2023, Gita and Matt will receive a Child Care Subsidy of 82 per cent, an increase from the current 71 per cent. This will save them $1,780 in out-of-pocket childcare fees in 2023–24.

 CORPORATE TAX MEASURES

Improving the integrity of off-market share buybacks

The Government will improve the integrity of the tax system by aligning the tax treatment of off-market share buybacks undertaken by listed public companies with the treatment of on-market share buybacks. This measure will apply from an announcement on Budget night (7:30 pm AEDT, 25 October 2022). This measure is estimated to increase receipts by $550.0 million over the 4 years from 2022–23.

Multinational Tax Integrity Package – amending Australia’s interest limitation rules

The Government will strengthen Australia’s thin capitalisation rules to address risks to the corporate tax base arising from excessive debt deductions. This measure will apply to income years commencing on or after 1 July 2023.

The current thin capitalisation regime limits debt deductions to the maximum of three tests: a safe harbour (debt to asset ratio) test, an arm’s length debt test, and a worldwide gearing (debt to equity ratio) test. 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 activities (profits).

This measure includes changes to:

• limit an entity’s debt-related deductions to 30 per cent of profits (using EBITDA —earnings before interest, taxes, depreciation, and amortisation – as the measure of profit). This new earnings-based test will replace the safe harbour test
• allow deductions denied under the entity‑level EBITDA test (interest expense amounts exceeding the 30 per cent EBITDA ratio) to be carried forward and claimed in a subsequent income year (up to 15 years)
• allow an entity in a group to claim debt-related deductions up to the worldwide group’s net interest expense level as a share of earnings (which may exceed the 30 per cent EBITDA ratio). This new earnings-based group ratio will replace the worldwide gearing ratio
• retains an arm’s length debt test 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, in line with the existing thin capitalisation regime. Financial entities will continue to be subject to the existing thin capitalisation rules.

This measure is estimated to increase receipts by $720.0 million and increase payments by $5.4 million over the 4 years from 2022–23.

Deductions for payments relating to intangibles held in low‑ or no-tax jurisdictions

The Government will introduce an anti-avoidance rule to prevent significant global entities (entities with global revenue of at least $1 billion) from claiming tax deductions for payments made directly or indirectly to related parties in relation to intangibles held in low‑ or no‑tax jurisdictions. For the purposes of this measure, a low‑ or no‑tax jurisdiction is a jurisdiction with:

• a tax rate of less than 15 per cent or
• a tax preferential patent box regime without sufficient economic substance.

The measure will apply to payments made on or after 1 July 2023. This measure is estimated to increase receipts by $250.0 million and increase payments by $6.7 million over the 4 years from 2022–23.

TREASURY

Modernising Business Registers

The Government will provide additional funding of $166.2 million over 4 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. Funding includes:

• $80.0 million in 2022–23 for the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) to continue the design and delivery of the modernised registry platform
• $86.2 million over 4 years from 2022–23 ($119.5 million over 6 years from 2022–23 and $15.9 million per year ongoing) for ATO and ASIC to operate and regulate the Director Identification Numbers regime and maintain ASIC’s registry systems.

Improving the NBN

The Government will provide an equity investment of $2.4 billion to NBN Co over 4 years from 2022–23 to upgrade the National Broadband Network (NBN) to deliver fibre-ready access to a further 1.5 million premises by late 2025.

The additional investment will support nearly 90 per cent of Australia’s fixed line footprint to have access to world-class gigabit speeds by late 2025.

The Government will also provide $4.7 million over 3 years from 2022–23 to support the delivery of free broadband for up to 30,000 unconnected families with school-aged students during the 2023 calendar year.

Multinational Tax Integrity Package – improved tax transparency

The Government will introduce reporting requirements for relevant companies to enhance the tax information they disclose to the public for income years commencing from 1 July 2023.

The Government will require:

• large multinationals, defined as significant global entities, to prepare for the public release of certain tax information on a country-by-country (CbC) basis and a statement on their approach to taxation for disclosure by the ATO
• Australian public companies (listed and unlisted) to disclose information on the number of subsidiaries and their country of tax domicile and
• tenderers for Australian Government contracts worth more than $200,000 to disclose their country of tax domicile (by supplying their ultimate head entity’s country of tax residence).

This measure is estimated to have an unquantifiable impact on receipts and increase payments by $5.1 million over the 4 years from 2022 to 23.

Providing certainty on unlegislated tax and superannuation measures

The Government has reviewed and will not proceed with the following legacy tax and superannuation measures that were announced but not legislated by the previous Government:

• The 2013-14 MYEFO measure proposed to amend the debt/equity tax rules.
• The 2016–17 Budget measure proposed changes to the taxation of financial arrangements (TOFA) rules (a delayed start date was announced in the 2018–19 Budget).
• The 2016–17 Budget measure proposed changes to the taxation of asset-backed financing arrangements.
• The 2016–17 Budget measure proposed introducing a new tax and regulatory framework for limited partnership collective investment vehicles.
• The 2018–19 Budget measure proposed changing the annual audit requirement for certain self-managed superannuation funds (SMSFs).
• The 2018–19 Budget measure proposed introducing a limit of $10,000 for cash payments made to businesses for goods and services (a delayed start date was announced in 2018–19 MYEFO).
• The 2018–19 Budget measure proposed introducing a requirement for retirement income product providers to report standardised metrics in product disclosure statements.
• The 2021–22 MYEFO measure proposed establishing a deductible gift recipient category for providers of pastoral care and analogous well-being services in schools.

Further, the Government will defer the start dates of the following legacy tax and superannuation measures to allow sufficient time for policies to be legislated and implemented:

• The 2019–20 MYEFO measure that proposed introducing a sharing economy reporting regime from:
• 1 July 2022 to 1 July 2023 for transactions relating to the supply of ride-sourcing and short-term accommodation, and
• 1 July 2023 to 1 July 2024 for all other reportable transactions (including but not limited to asset sharing, food delivery and tasking-based services).
• The 2021–22 Budget measure proposed relaxing residency requirements for SMSFs, from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.
• The 2021–22 Budget measure proposed making technical amendments to the TOFA rules from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.

This measure is estimated to increase receipts by $29.4 million and decrease GST payments to the States and Territories by $4.1 million over the 4 years from 2022–23.

Reverse the measure to self-assess the effective life of intangible depreciating assets

The Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, announced in the 2021–22 Budget. Reversing this decision will maintain the status quo – effective lives of intangible depreciating 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. This measure is estimated to increase receipts by $550.0 million over the 4 years from 2022–23.

Australia’s Foreign Investment Framework – increase fees and penalties

The Government has increased foreign investment fees and will increase financial penalties for breaches that relate to residential land. Fees doubled on 29 July 2022 for all applications made under the foreign investment framework. The maximum financial penalties that can be applied for breaches in relation to residential land will also double on 1 January 2023.

Fees ensure Australians do not bear the cost of administering the foreign investment framework, and penalties encourage compliance with these rules.

Commonwealth Penalty Unit – increase in the amount

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 amount will continue to be indexed every 3 years in line with the CPI as per the pre-existing schedule, with the next indexation occurring on 1 July 2023.

Penalty units are used to describe the amount payable for fines under Commonwealth laws, including in relation to communication, financial, tax and fraud offences. Fines are calculated by multiplying the value of one penalty unit by the number of penalty units prescribed for the offence. This measure ensures that financial penalties for Commonwealth offences continue to remain effective in deterring unlawful behaviour and contribute to budget repair.

This measure is estimated to increase receipts by $31.6 million over the 4 years from
2022–23. This substantial increase means more than ever, and it is vital to lodge income tax returns and BAS on time. Make sure you comply with other Commonwealth Statutes.

Heavy Vehicle Road User Charges increase

The Government will increase the Heavy Vehicle Road User Charge rate from 26.4 cents per litre to 27.2 cents per litre of diesel fuel. This will decrease the Fuel Tax Credit expenditure by $215.7 million over 4 years from 2022–23.

The change to the Road User Charge was a decision of the Infrastructure and Transport Ministers in April 2022. The Road User Charge contributes to road maintenance and repair.