Federal budget 2022

Australian treasurer Jim Chalmers announced the federal budget on Tuesday, October 25, 2022. This budget aims to create jobs, develop infrastructure, guarantee services and provide confidence to Australian businesses.

We are delighted to bring highlights of the budget that will impact the business and individual taxpayers today.

Executive summary of the Federal Budget 2022-23

• The government has expanded paid parental leave by two weeks a year while assessing couples based on a combined income of up to $350,000.
• 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 government will also allocate $50 million over three years to fund grants to support early and mid-stage critical minerals projects.
• The asset test exemption for principal home sale proceeds will be extended from 12 months to 24 months for income support recipients.
• The government will provide $69.6 million over four 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 legislation will be introduced to clarify that digital currency (or cryptocurrencies) will not be treated as foreign currency for income tax purposes.
• Financial penalties for breaches of foreign investment compliance will be doubled as of January 1, 2023.
• Electric vehicles under the luxury car tax threshold will be exempt from fringe benefits tax and import tariffs.

Superannuation

From a superannuation perspective, there were some welcome announcements that will benefit SMSF members funding their retirement. Please remember the following budget announcement are not yet law.

Reducing the eligibility age for downsizer contributions

The eligibility age to make downsizer contributions into superannuation is set to be reduced from 60 to 55 years of age. All other eligibility criteria will remain unchanged.

This change will provide a boost to the number of individuals eligible to make a one-off, post-tax contribution to their superannuation of up to $300,000, using the sale proceeds of their family home – regardless of their superannuation balance.

Relaxing residency requirements for SMSFs

As declared earlier announced in the 2021-2022 Budget, the residency requirements applicable to SMSFs and small APRA funds were set to be relaxed through:

• The extension of the central management and control “safe harbor” test from two to five years.
• The removal of the “active member” test – which would allow members who are temporarily absent from Australia to continue contributing to their SMSF.

Both proposals have been planned to commence on July 1, 2022.

The government has confirmed that these changes, broadly aimed at allowing greater flexibility for SMSF members who are temporarily overseas, are still set to go ahead. However, the start date for both measures has been deferred.

Incentivising Pensioners to Downsize

The current Centrelink asset test exemption for proceeds from the sale of a family home, intended for the purchase of a new home, will be extended from 12 months to 24 months.

Additionally, for income test purposes, only the lower deeming rate (currently 0.25%) will apply to these exempted proceeds over the 24-month period. These changes will allow pensioners more time to purchase, build or renovate a new home before their pension is affected.

Freezing of deeming rates

The government has also confirmed that it will freeze the social security deeming rates at their current levels until June 30,  2024.

This change will support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living.

Financial Services

Despite higher tax revenues, the Government has opted to hold on to some of the savings and pursue family-oriented policies that align with the RBA’s goal of bringing inflation back down to its target range of 2–3%. A proper perusal of the documents could help Financial Analysts to forecast the consequences on their model portfolio and help them set proper measures and to set appropriate expectations.

In summary, the budget effects on Australian businesses address the following targets:

• Financial Services sector
• Agribusiness
• Small and Medium Enterprises
• Funding for economic growth

The following are the impacts that have reverberated across the following industries:

Financial Services Sector:

• The financial services sector remains unchanged in the Budget, with no significant changes announced and a few legacy measures discontinued or deferred.

• Previously announced measures
  • The budget lists numerous previously announced measures that the government has decided to scrap, including several Taxation of Financial Arrangements (TOFA) measures.

• Off-market share buy-backs
  • The tax treatment for off-market share buy-backs undertaken by listed public companies will now be aligned with the treatment of on-market share buy-backs.
  • Under the current tax treatment for an off-market buy-back, the difference between the purchase price in respect to buy-back which is debited against the company’s share capital account is taken to be a dividend. Franking credits may be available with respect to such a dividend.
  • In the case of an on-market buy-back, no part of the buy-back price is treated as a dividend and the total amount received by the shareholder is treated as consideration for the share sale.
  • This measure would take effect from October 25, 2022.
• Digital currency will not be taxed as foreign currency
  • The legislation will be introduced to clarify that digital currency (or cryptocurrencies) will continue to not be treated as foreign currency for income tax purposes.
  • The treatment does not apply to digital currencies issued by, or under the authority of, a government agency, which continues to be taxed as foreign currency.
  • This tax treatment for the digital currency will be retroactive to apply to income years that include July 1, 2021.

Agribusiness:

• The Budget focuses on climate change, environment, and water, including carbon and biodiversity, and recognition of the challenging environment driving natural disasters and biosecurity threats to the industry.
• Climate change and Environment
  • $1.1 billion in funding over six years from 2022-23 to continue to support the sustainable management of Australia’s natural resources through the next phase of the Natural Heritage Trust.
  • The government will establish a Powering the Regions Fund from 2022-23, with $1.9 billion allocated to assist industries and communities with the transition to net zero emissions.
  • Several carbon market initiatives were announced, including $20.3 million over 4 years from 2022-23 to establish an outreach program to empower farmers and land managers to participate in carbon markets and integrate low-emission technologies and practices.

• Biosecurity and emergency response
  • A total of $134.1 million over four years has been allocated to assist in bolstering biosecurity capability in Australia and neighboring countries.
  • Significant funding is being directed to Home Affairs, with $630.4 million allocated to the Disaster Ready fund over 2022-2026 to support resilience efforts.

• Export and trade
  • The government will provide $204.8 million over five years from 2022-23 to support the industry to improve innovation and encourage sustainable and productive growth for Australia’s timber production.

• Water and related infrastructure
  • Following the government’s spending audit, $1.67 billion is being removed from the National Water Grid Fund.
  • $258 million would remain for already committed projects across 2022-26, and there is $278.1 million over five years to expand investment in nationally significant water infrastructure projects, predominantly in the Cairns region and Tasmania.

Small Enterprises:

A restrained and prudent budget with a strong focus on ATO review programs, together with some targeted initiatives supports workforce participation in challenging economic conditions.

• ATO Review Programs
  • Additional funding has been announced for the ATO Tax Avoidance Taskforce (established in 2016). The Taskforce will be extended until 30 June 2026 at an additional cost of $1.1 billion.
  • Further funding extensions were also announced to target individual tax compliance and the shadow economy.

• Employer’s take on Parental leave and childcare subsidies
  • The government will add an additional six weeks of paid parental leave for families, increasing the total leave payable by 2 weeks per year from July 1, 2024, reaching 26 weeks from July 1 2026.
  • Cheaper childcare will also apply through an increase in the Child Care Subsidy rate for all families earning less than $530,000, encouraging workforce participation and supporting gender equality.

• Depreciation of intangible assets
  • The Government will not proceed with the previously announced measure to allow taxpayers to self-assess the effective life of certain intangible depreciating assets.

Funding for Economic and Corporate growth:

• The Budget supports the industry via targeted programs consistent with Labor’s ‘Plan for a Better Future’ with no changes to the R&D Tax Incentive and no announcements made on other innovation-related incentives.
• The following table summarizes the key sectors in which grants are provided for in this Budget:

The Australian economy comprises of 98% SME which are now facing into macroeconomic headwinds: higher rates, higher inflation, and slower growth.

A sharp pullback in demand is a key risk for SMEs, which are often more vulnerable to economic slowdowns/downturns.

Measures in the budget aimed at managing household confidence are to be taken as a good step in working to manage such risks and positive for businesses going forward.

Bookkeeping and OSS

Expanding Paid Parental Leave:

The Government is investing $531.6 million over 4 years from 2022–23 to expand the Paid Parental Leave scheme and provide greater support to families. In 2026, families will be able to access up to 26 weeks of Paid Parental Leave.

This expansion is the biggest reform to the scheme since its introduction in 2011. It will enhance economic security, improve gender equality and increase participation and productivity. It will support parents to spend more time with their children and share caring responsibilities more equally.

The modernised scheme will include reserved ‘use it or lose it’ weeks for each parent, to encourage both parents to take parental leave. Either parent will be able to claim Paid Parental Leave first and both parents can receive the payment at the same time as any employer‑funded parental leave. The reforms also improve flexibility, with parents able to take leave in blocks as small as a day at a time, with periods of work in between.

The Women’s Economic Equality Taskforce will examine the optimal model for 26 weeks of Paid Parental Leave including the number of weeks that parents can access at the same time and the mix of ‘use it or lose it’ weeks. This will ensure it delivers the best outcomes for families and encourage more shared parenting.

Securing the NDIS:

Greater independence and better employment opportunities for Australians with disability are at the core of a successful and sustainable National Disability Insurance Scheme (NDIS).

Total funding for the NDIS will reach $166.6 billion over 4 years, an increase of $8.8 billion. This will ensure funding for expected growth in participants’ plans.

As an immediate action, the Government will invest $158.2 million for an additional 380 permanent staff for the National Disability Insurance Agency. This will support Australians with disability to access NDIS funding faster and more efficiently.

Business Services:

• There are no changes to the Stage 3 tax cuts.
• The Low and Middle Income Tax Offset (LMITO) will cease after the 2021-22 year, as previously announced. The Low Income Tax Offset will continue unchanged.
• The Medicare levy remains unchanged at 2% of taxable income.
• The Government will also provide $29.5 million for the new High-Risk Settings Pandemic Payment (HRSPP) from 15 October 2022 to provide targeted financial support for workers in sectors involving frequent close contact with those in care.
• Increased Commonwealth Seniors Health Card income threshold – The Government has confirmed its commitment to increase the income threshold for Commonwealth Seniors Health Card eligibility from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. This change will increase the number of individuals eligible to benefit from a Commonwealth Seniors Health Card.

Source: The Official ATO Website and other verified sources.