With a Federal election only a couple of months away, the LNP have delivered a relatively stereotypical conservative party budget. There’s cash relief for families; incentives for business to invest in staff, digitisation, and innovation; increased spending on defence; and even a win for the monarchists. Mr Frydenberg appears to have delivered a “small target” budget that will likely receive attention for lack of green programs and initiatives. but otherwise signals business as usual for the Government. Pilot’s summary of the key tax and business announcements follows.
Technology seems to be a recurring theme in this year’s budget, and together with what seems to be a push to upskill Aussie workers through Aussie training providers, there are some “boosts” proposed. In an effort to support the upskilling of employees and increased digital adoption for small businesses (i.e. businesses with aggregated annual turnover less than $50 million), the Government has announced two new incentives:
- Skills and Training Boost
The Skills and Training Boost will allow small businesses to deduct an additional 20% of expenditure incurred on external training courses provided to employees.
To be eligible for the boost, the external training courses will need to be delivered by entities registered in Australia, provided to employees in Australia (or online), and incurred from 29 March 2022 until 30 June 2024. Specific expenditure will be excluded from this boost, including in-house training, on-the-job training and training courses for persons other than employees.
- Technology Investment Boost
The Technology Investment Boost will allow small businesses to claim an additional 20% of their costs incurred on business expenses and depreciating assets supporting their digital adoption. This boost will apply to eligible expenditure incurred from 29 March 2022 until 30 June 2023, and will be limited to an annual cap of $100,000.
For eligible expenditure incurred by 30 June 2022 under the above incentives, the 20% boost will be claimed in the 30 June 2023 income year. However, the 20% boost on eligible expenditure incurred from 1 July 2022 to 30 June 2023 or 2024 (depending on the incentive) will be claimed in the financial year the expenditure is incurred.
Reduction of Business fees
As the Government moves to a modernised company registration platform (currently scheduled for September 2023), they are proposing to streamline fees associated with Australia’s Business Registers. This streamlining will see the removal of the annual late review fee for companies, the removal of some ad hoc lodgement fees, and fees for searches conducted on the new registry website. A slow rollout of the technology on their end, but perhaps a small acknowledgement of the inevitable teething pains yet to come.
Employee Share Scheme Changes
As is customary of recent budgets, this Federal Budget includes further changes to the laws surrounding Employee Share Schemes (ESS).
The Government is proposing to expand access, allowing participants in ESS in unlisted companies to invest up to:
- $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70% of dividends and cash bonuses; or
- Any amount, if it would allow them to immediately take advance of a planned sale or listing of the company to sell their purchased interests at a profit.
In an effect to reduce red tape, this Budget also proposes the removal of regulatory requirements for offers to independent contractors where they do not have to pay for ESS interests.
Modernisation of Pay As You Go (PAYG) Instalment Systems
A welcome and perhaps overdue proposal is the change to how companies can choose to have their Pay As You Go (PAYG) instalments calculated. This is in a move to support business cash flow by ensuring these instalments reflect current business performance, rather than historical data, in the ever-changing business world
Under this system, companies can choose to have their PAYG instalments calculated based on current financial performance which has been extracted from accounting software and may include some tax adjustments. Pending advice from software providers, these systems are anticipated to be in place by 31 December 2023, for commencement on 1 January 2024.
Changes to Taxable Payments Reporting Systems
More technology and data-sharing announcements, wherein the Government proposes that businesses will have the option to report their Taxable Payments Reporting System data (via accounting software) on the same lodgement cycle as their activity statements. Normally an annual compliance requirement, this is proposed to lower compliance costs for business and increase the accuracy and timeliness of the Taxable Payments Reporting – read: more data for the ATO to track and check taxpayers across the board are complying.
These systems are anticipated to be in place by 31 December 2023, for commencement on 1 January 2024.
The Patent Box
Encouragement from the Government to invest in technology continues here, as the 2022-23 Budget expands the patent box initiative (originally announced in the 2021-22 Budget) to cover eligible patents related to:
- Technology-focused innovations in the Australian agricultural sector, including agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority (APVMA), Public Chemicals Registration Information System (PubCRIS) register or eligible Plant Breeder’s Rights (PBRs); and
- Low emissions technology innovations, in line with the Government’s target to achieve net zero emissions by 2050.
The “patent box” legislation was introduced into Parliament in February 2020 and if passed, will reduce the corporate tax rate to 17% (rather than 30% or 25% for SMEs) on profits derived in Australia on eligible patents. It is currently proposed that the patent box treatment will only be available to the extent that the patent was developed in Australia.
The patent box for the above sectors will apply from 1 July 2023, to eligible patents granted after Budget night.
Additionally, the Government will expand the patent box measures previously announced in the 2021-22 Federal budget to:
- Make eligible Australian medical and biotechnology innovation patents granted or issued after 11 May 2021 (even if they were applied for prior to this date); and
- Allow utility patents issued by the United States Patent and Trademark Office or granted under the European Patent Convention to access the regime.
From 1 July 2022, the Government proposes to change the tax treatment of Australian Carbon Credit Units (ACCUs) and biodiversity certificates generated from on-farm activities. Broadly the proposed changes include:
- Treating the proceeds as “primary production” income for the purposes of the Farm Management Deposit (FMD) and tax averaging schemes. Currently these proceeds are treated as non-primary production income and therefore are generally ineligible for these concessional tax schemes; and
- Changing the taxing point for ACCUs to the year when they are sold. Currently ACCU holders are taxed based on changes in the value of their ACCUs each year, which can result in tax liabilities prior to sale.
Perhaps a small gesture towards ticking some green initiatives off the LNP’s list, but is it too little?
In a push to win over any remaining undecided voters, the Government has announced and extended some incentives impacting individuals.
Temporary Reduction in Fuel Excise
Perhaps the most publicised budget sweetener is the temporary reduction in fuel excise for petrol and diesel by 50%, starting on 30 March 2022 for a six-month period. This will save motorists 22 cents per litre at the bowser over this period, with the overall saving averaging around $300 per vehicle.
Low and Middle Income Tax Offset
The much loved Low & Middle Income Tax Offset (LMITO or ‘Lamington’) has been enhanced for its final year, with the inclusion of a new “cost of living” bonus increasing the maximum offset by $420 to $1,500 per individual for the 2022 financial year. The offset continues to be available to taxpayers with taxable incomes up to $126,000 on lodgement of their tax returns. The LMITO is expected to cease after the 2022 financial year, having first been introduced in 2019.
As an illustration, these changes will result in the following reductions in annual income tax payable:
|Taxable Income ($)||Tax Payable
|Net Tax Saving ($)|
*This does not include the Medicare Levy (which remains unchanged at 2% of taxable income), but includes the LMITO and the Low Income Tax Offset
Deductibility of COVID-19 tests
From 1 July 2021, the cost of obtaining COVID-19 tests required to attend a place of work will be tax deductible to employees. This also ensures that these expenses will be exempt from Fringe Benefits Tax for employers who provide tests or reimburse these costs to their employees.
For retirees, the Government has yet again extended the increasingly questionably named “temporary” reduction in superannuation pension minimum drawdown rates. This was first introduced in the wake of COVID-19 starting from the 2020 financial year. Pension drawdowns will continue to be reduced by 50% for another year to 30 June 2023.
Tax Avoidance Taskforce
More money for ATO Audit & Data Matching Programs
Sometimes spending money creates money, and the ATO have certainly found that over the last few years. With such a rich investment, it comes as no surprise that they do not want the gravy train to end. And thus, the ATO Tax Avoidance Taskforce continues…
The ATO Tax Avoidance Taskforce aims to ensure that multinationals, large public and private groups, trusts and high wealth individuals “pay the right amount of tax” by conducting tax reviews and audits. Since its establishment in 2016, the Taskforce has raised approximately $22.9 billion in tax liabilities – significantly more than the initial predicted recovery of $3.7 billion (in fact, they exceeded this target in the first year alone!). Representing a return on investment of 1,264%, the ATO have decided that, of course, there is more to be found. Therefore, the Government will provide further funding to extend the Taskforce by two years to 30 June 2025. With additional funding of $652.6 million for 2023-24 and 2024-25, they are expecting to raise an additional $2.1 billion of tax liabilities – a meagre return on investment of just 221%. Are they perhaps being too conservative here? Regardless, we are already experiencing the return of the ATO auditor and the extension of this program promises more scrutiny ahead. Caveat emptor indeed!
Further, continuing the theme of technology and data-sharing, the ATO are now planning to buddy-up with the state’s revenue agencies. Since Single Touch Payroll (STP) was established in 2018, the real-time data at the ATO’s fingertips has expanded and increased, providing the ATO with a consistent stream of payroll information from employers. As the information being fed to the ATO expands, so too does their data-sharing reach. These records are shared with other Federal Government departments already (such as Services Australia and Centrelink). This will now be taken a step further, with a pledge of $6.6 million to the development of systems necessary to allow the ATO to continuously forward on STP data to State and Territory Revenue Offices. This initiative is expected to decrease compliance costs through the implementation of a payroll tax return pre-fill function, streamlining the reporting here. However, businesses should be on notice that more data means more visibility, so ensuring that payroll tax obligations are being met becomes ever important. Whilst no forward estimates have been provided about the expected revenue savings for the Government, we expect that there will be rewards to be reaped with the increased data-sharing across the states.
Trees for the Queen
In a win for community-based organisations across the nation, the Government will provide $20.3 million over 3 years from 2021-22 for the Planting Trees for The Queen’s Jubilee Program, to provide grants across Australia for community-led tree planting projects to mark Her Majesty The Queen’s Platinum Jubilee.