The Federal Treasurer, Dr. Jim Chalmers, handed down the supplementary 2022 - 2023 Australian Federal Budget, on Tuesday 25th October 2022.
Whilst the Budget did include various tax integrity measures, delivered on some of the ALP election promises, and confirmed that several proposals of the previous Government would not be proceeding, it did not include any structural changes to address the budgetary imbalance and rising national debt nor did it reveal the new Governments much spruiked but yet to be revealed “election plan” to address financial crisis such as rising Government debt, interest rates and costs of living pressures, and falling real wages of workers.
The key elements of the Budget from a personal tax perspective included re:
confirmation of the end of the temporary Low- and Middle-Income Tax Offset, which for the 2022 financial year was capped at $1,500 per person (therefore the maximum LITO for the 2023 financial year is $700 and reduces by 5 cents per dollar for taxable incomes between $37,500 and $45,000 and by 1.5 cents per dollar until it cuts out at $66,667);
no changes (yet) to the previously legislated Stage 3 tax cuts were announced – these are legislated to commence from 1/7/2024 and will change the 32.5% marginal tax rate to 30%, raising the upper income threshold for the 30% tax bracket from $90K to $120K, removing the 37% tax bracket, and raising the 45% marginal tax bracket from $180K to $200K;
from 1 July 2022 exempt battery, hydrogen fuel cell and plug in hybrid electric cars (priced below the luxury car tax threshold for fuel efficient cars) from fringe benefits tax and import tariffs;
new legislation will be introduced to clarify that digital currencies (such as Bitcoin) will be excluded from the usual tax treatment of foreign currencies, and continue to be assessed under normal capital gains tax rules;
an additional $80 million will be provided to the ATO to enhance its income tax compliance program for two years from 1 July 2023 to crack down on deduction over claims and incorrect reporting of income; and
the addition of two new entities that are eligible for deductible donations of $2 or more i.e. Australians for Indigenous Constitutional Recognition & Australian Woman Donors Network.
Further in moves that affect families,
the extension of the paid parental leave scheme to allow either parent to access the payment from 1 July 2023 & from 1 July 2024 the scheme will expand by an additional 2 weeks leave until it reaches 26 weeks from 1 July 2026;
no announcement was made regarding the payment of SGC super contributions on paid parental leave – although this appears to remain under consideration; the expansion of the maximum child care subsidy from 85% to 90% for the first child in care and an increase in the CCS rate for all families earning less than $530K in combined household income;
the maximum co-payment under the PBS will decrease from $42.50 per script to $30 per script from 1 January 2023;
the commitment of $1.7 billion to support the implementation of the new National Plan to End Violence Against Woman and Children;
the establishment of a New Housing Accord with the aim to build one million homes over five years from 1 July 2024 commencing with the commitment of $350 million over 5 years towards a Housing Accord that will provide 10,000 affordable dwellings;
the establishment of a $10 billion Housing Australia Future Fund with the aim of building 30,000 new social and affordable homes in its first five years, and he Help to Buy Scheme with the aim of providing housing to 40,000 eligible people with a 5% deposit;
the establishment of the Regional First Home Buyers Guarantee Scheme aim is for 10,000 homes a year to 1 July 2026 for people who have resided in a rural area for at least 12 months to be able to purchase a first home with a 5% deposit; and
the introduction of 480,000 fee-free TAFE and community based vocational education places (including 180,000 places next year), and the funding of 20,000 new university places over the next two years for students from disadvantaged backgrounds; and.
In superannuation, retirement and finance measures the following policies were announced re:
the lifting of the income threshold for Commonwealth Seniors Health Card holders from $61,284 to $90,000 for singles / from $98,054 to $144,000 for couples before their pension is reduced; and formalise an initiative raise at the 2022 Jobs & Skills Summit to allow pensioners to earn up to $11,800 (up from $7,800) in 2022/23 to encourage older Australians to do some form of work before their benefits are reduced (aim is to ease the skills shortage in the labour market);
the extension of older Australians ability to “downsize / right size” their housing by extending the asset test exemption for sales proceeds from 12 to 24 months following the sale of the principal dwelling, and only applying the lower deeming rate of 0.25% on the sale proceeds for 24 months;
confirmed the extension of the 50% temporary reduction in minimum pension draw-down rates for the 2023 financial year;
the Government confirmed that they will proceed but have delayed the commencement of the previously announced proposal to extend the central management and control test safe harbour from two to five years, and remove the active member test – this will now commence from the income year commencing after royal assent is given enabling the legislation (was previously scheduled to commence 1 July 2022);
the Government will not proceed with the former Government’s proposal to allow a three-yearly audit cycle for SMSF’s with a good compliance history; the Government will also not proceed with the former Governments proposal to report standardised metrics in found product disclosures; and
the Government will increase the amount of the Commonwealth penalty unit from $222 to $275 from 1 January 2023 for offences committed after that date e.g. administrative penalties applied for breaches of super laws such as late lodgements, lending money to members, illegal early access to super balances, etc.
The key elements of the Budget from a business tax perspective included re:
confirmation that the Government will not proceed with the previous Governments proposal to allow taxpayers to self-assess the effective lives of intangible depreciating assets (these assets will now continue to be depreciated according to the statutory limits;
the Government will not proceed with the previous Governments proposal to introduce a $10,000 limit for cash payments made to businesses for goods and services;
the Government will defer the commencement date for the implementation of the shared economy reporting regime from 1 July 2022 to 1 July 2023 relating to the supply of ride share and short term accommodation, and from 1 July 2023 to 1 July 2024 for all other reportable activities (e.g. food delivery services);
the Government has pledged $42.2 million to speed up visa application processing to help ease the skills shortage in the jobs market;
the Government will increase penalties for breaches of competition and consumer law (such as data base hacking) to deter conduct that stifles competition and increases costs – increase maximum penalty by the greater of from $10M to $50M, and from 10% to 30% of annual corporation turnover during the period that a breach took place;
the Government has confirmed that certain State and Territory COVID-19 grant programs will be eligible for non-assessable, non-exempt tax treatment which will render such income tax free in the hands of recipients e.g. in Victoria the Business Costs Assistance Program Four, Licensed Hospitality Venue Fund 2021, and Commercial Landlord Hardship Fund 3;
the Government has foreshadowed but provided no details in relation to its intention 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.
the Government will replace the existing safe harbour and worldwide gearing tests with an earnings-based tests to limit debt deductions in line with an entities profits under changes to the thin capitalisation rules;
from 1 July 2023 enhancements will be made to the reporting requirements of significant global entities, Australian public companies and tenders for Australian Government contracts exceeding $200K;
the Government will increase the amount of the Commonwealth penalty unit from $222 to $275 from 1 January 2023 for taxation offences committed after that date; and
the Government will extend the Shadow Economy Program for a further three years from 1 July 2023 to increase tax receipts of $2.1b; the Government will boost funding for the Tax Avoidance Taskforce by $200 million per year for a further 4 years from 1 July 2022 which is expected to increase tax receipts by $2.8b and tax payments by $1.1b.
The Budget fundamentals are re:
a deficit estimated to be $32 billion for 2021/22 (down from the May 2022 forecast of $80b) and $36.9 in 2022/23;
net national debt expected to be $572.2 billion in 2022/23 (down from the May 2022 forecast of $714.9b) and peak at $766.8 billion in 2025/26;
the economy (real GDP) is expected to grow by a rate of 3.25% during 2022/23 & then reduce to 1.5% in 2023/24; inflation is expected to peak at 7.75% in December 2022 and decrease to 3.5% in during 2023/24;
the rate of unemployment is expected to reduce to 3.75% during 2022/23 and increase to 4.5% in 2023/24 & 2024/25;
wages growth is expected to range between 3% to 3.75% for the next four financial years; and
nationally net overseas migration is forecast by the Treasury Centre for Population to rise from 160,000 last year to 235,000 in 2022/23 (which is the
same as pre-covid levels).
Budget Wrap – The Budget was silent of the future of a number of measures e.g. whether SGC super contributions will be mandated on parental leave payments, whether to proceed with the previous Governments proposal to require SMSF’s to prepare accounts and statements at least 45 days before the due date to lodge the fund’s tax return for that year of income, amendments to the non-arms length expense provision of the NALE legislation, and amendments to allow victims of crime to access their perpetrators super to pay restitution or unpaid crime compensation payments. Further, the following issues which were not included in the Budget but are thought to be under consideration by the Government as measures to adopt to either repair the Government deficit or address ideological beliefs include potentially tightening eligibility for the Stage 3 tax cuts, limiting negative gearing deductions, reducing the capital gains tax general discount, and limiting the refund of franking credits.
The Government has indicated that this is the start of their fiscal policy roll out, with this Supplementary Budget being the first of a two-part process with the second installment to be provided in the Federal Budget to be released in May 2023. So for now we remain largely in the dark, but clearly more will and indeed must be done to address debt and cost of living pressures, so expect more unpalatable financial announcements in the lead up to and included in the May 2023 Budget