2022-23 Federal Budget

The Federal Treasurer, Mr Josh Frydenberg, handed down the 2022–23 Federal Budget at 7:30pm (AEDT) on 29 March 2022.

The Budget’s headline measures are designed to address cost of living pressures through a temporary halving of fuel excise and a one-off cost-of-living payment for low- and medium-income earners.

Budget as expected with a focus on jobs, cost of living, home ownership, and health. But, it is also a Budget that drives digitisation. Not just to support innovation but to streamline compliance, create transparency and more readily identify anomalies. Single touch payroll was the first step, the PAYG instalment system, trust compliance, and payments to contractors are next.

Other measures for business seek to promote innovation, with expanded “patent box” tax concessions proposed, and provide tax incentives for small business to invest in the skills of their employees. A lower GDP uplift rate for PAYG and GST instalments has also been proposed to support cash flows of small and medium businesses.

Our Summary

Individuals

The low and middle income tax offset will be increased by $420 in the 2021–22 income year to ease the current cost of living pressures. A one-off payment of $250 will be made to individuals who are currently in receipt of Australian government social security payments, including pensions, to ease cost of living pressures.

A single Paid Parental Leave scheme of up to 20 weeks paid leave will replace the existing system of 2 separate payments.

The number of guarantees under the Home Guarantee Scheme will be increased to 50,000 per year to assist home buyers who have a lower deposit.

Business

Additional state and territory COVID-19 business support grant programs will be eligible for tax treatment as non-assessable non-exempt income until 30 June 2022.

Small and medium businesses will be able to deduct an additional 20% of expenditure incurred on external training courses provided to their employees.

Business registry fees will be streamlined over 3 years from 2023–24.

Superannuation

The 50% reduction of the superannuation minimum drawdown requirements for account-based pensions will be extended for an additional year.

Innovation

Corporate income from the commercialisation of patents, issued from 29 March 2022, in respect to agricultural and veterinary (agvet) chemical products will be taxed at an effective rate of 17% for income years starting from 1 July 2023.

The effective tax rate of 17% for the “patent box” regime will also be expanded to include patents that have the potential to lower emissions.

Tax administration

Companies will be able to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments.

Businesses will be allowed the option to report taxable payments reporting system data (via accounting software) on the same lodgment cycle as their activity statements.

Individuals

One-off cost of living tax offset

From 1 July this year, over 10 million low and middle-income earners will receive a one-off $420 cost of living tax offset. This is in addition to the Low and Middle Income Tax Offset (LMITO).

Combined with the Low and Middle Income Tax Offset (LMITO), eligible low- and middle-income earners will receive up to $1,500 for a single income household, or up to $3,000 for a dual income household.

Taxable income	Offset
$37,000 or less	$675
Between $37,001 and $48,000	$675 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500
Between $48,001 and $90,000	$1,500
Between $90,001 and $126,000	$1,500 minus 3 cents for every dollar of the amount above $90,000

The minimum LMITO for 2021–22 will be $675 for all individuals with a taxable income up to $37,000.

Individuals between $37,000 and $48,000 will receive $675 plus 7.5% of the amount of the income that exceeds $37,000.

Individuals between $48,000 and $90,000 will receive the increased maximum of $1,500.

Individuals over $90,000 in taxable income will have the maximum amount reduced by 3 cents for every dollar above $90,000, tapering off to an offset of $420 at $126,000 taxable income.

The LMITO is a non-refundable tax offset.

One-off payment to ease cost of living pressures

Individuals who are currently in receipt of an Australian government allowance or pension will receive a one-off payment of $250 in April 2022 to ease the cost of living pressures. Certain concession card holders will also get the payment.

The cost of living payment will be exempt from tax and will not count towards an individual’s income for social security income test purposes.

The payment will cover individuals in receipt of the age pension, disability support pension, parenting payment, carer payment, carer allowance, JobSeeker payment, youth allowance, Austudy and Abstudy living allowance, double orphan pension, special benefit, farm household allowance and eligible Veterans’ Affairs payments.

The payment will also go to individuals who hold a Pensioner concession card, a Commonwealth seniors health card or a Veteran Gold card.

However, if an individual receives multiple pensions or allowances, they will only receive the one-off payment once.

Work-related COVID-19 tests tax deductible from 1 July 2021

Costs of taking a COVID-19 test to attend a place of work will be tax deductible for individuals and exempt from fringe benefits tax from 1 July 2021.

Legislation will be introduced to clarify that work-related COVID-19 test expenses incurred by individuals are tax deductible. Employers will not incur fringe benefits tax if they provide COVID-19 testing to their employees for work-related purposes.

The amendments will take effect from the beginning of the 2021–22 tax year.

Paid Parental Leave scheme enhancements

The Paid Parental Leave scheme will be overhauled by combining the current Parental Leave Payment (18 weeks paid leave for the primary carer) and the Dad and Partner leave payment (2 weeks paid leave) into a single combined Paid Parental Leave pay scheme of up to 20 weeks.

Leave will be fully flexible and both parents will be able to choose how they split the leave periods between themselves.

The Paid Parental Leave can be taken any time within 2 years of the birth or adoption of their child.

The income test will also be broadened to have an additional household income eligibility test.

Medicare low-income thresholds for 2021–22

The CPI indexed Medicare levy low-income threshold amounts for singles, families, and seniors and pensioners for the 2021–22 year of income have been announced. The new thresholds are:

	Medicare levy low-income threshold (at or below which no Medicare levy payable) 2021–22 (2020–21)
Class of people	*Single*	*Family*
Individual	$23,365 ($23,226)	$39,402 ($39,167)
Senior Australians and eligible pensioners	$36,925 ($36,705)	$51,401 ($51,094)
Threshold increment for each additional dependent child/student	$3,619 ($3,597)

Increased support for affordable housing and home ownership

The number of guarantees under the Home Guarantee Scheme will be increased to 50,000 per year for 3 years from 2022–23 and then 35,000 a year thereafter to support home buyers to purchase a home with a lower deposit.

The guarantees will be allocated to provide:

35,000 guarantees per year ongoing for the First Home Guarantee (formerly the First Home Loan Deposit Scheme)
5,000 places per year to 30 June 2025 for the Family Home Guarantee
10,000 places per year to 30 June 2025 for a new Regional Home Guarantee that will support eligible citizens and permanent residents who have not owned a home for 5 years to purchase a new home in a regional location with a minimum 5% deposit.

Companies and Businesses

Technology investment boost

Small and medium businesses will be able to deduct an additional 20% of eligible expenditure supporting digital adoption.

The additional deduction will apply for businesses with aggregated turnover of less than $50 million. Eligible expenditure will include the cost of depreciating assets and business expenses supporting digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services. An annual cap of $100,000 will apply to expenditure eligible for the additional deduction.

The measure will apply for eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023. Where eligible expenditure is incurred before 1 July 2022, the additional deduction will be claimed in the tax return for the following income year.

Skills and training boost

Small and medium businesses will be able to deduct an additional 20% of expenditure incurred on external training courses provided to their employees.

The additional deduction will apply for businesses with aggregated turnover of less than $50 million. The external training course must be delivered by an Australian entity and provided to employees in Australia or online. In-house or on-the-job training and expenditure for persons other than employees will be excluded.

The measure will apply for eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024. Where eligible expenditure is incurred before 1 July 2022, the additional deduction will be claimed in the tax return for the following income year.

Tax relief on more COVID-19 business grants

Payments from additional state and territory COVID-19 business support grant programs will be made non-assessable non-exempt income (NANE) for income tax purposes until 30 June 2022. The NANE treatment is to support businesses affected by state or territory lockdowns during the pandemic.

Since the 2021–22 MYEFO, the following programs have been made eligible:

New South Wales Accommodation Support Grant
New South Wales Commercial Landlord Hardship Grant
New South Wales Performing Arts Relaunch Package
New South Wales Festival Relaunch Package
New South Wales 2022 Small Business Support Program
Queensland 2021 COVID-19 Business Support Grant
South Australia COVID-19 Tourism and Hospitality Support Grant
South Australia COVID-19 Business Hardship Grant.

Temporary fuel excise relief

From 12:01 am on 30 March 2022, the excise and excise-equivalent customs duty on petrol and diesel will be reduced by 50%. The reduction in fuel excise will be in place for 6 months, ending at 11:59pm on 28 September 2022.

The 50% reduction will reduce the excise from 44.2 cents per litre to 22.1 cents per litre, and applies to petrol, diesel and all other fuel and petroleum-based products except for aviation fuels.

For businesses who usually claim fuel tax credits for heavy vehicles on public roads, this reduction in excise brings the full credit rate below the road user charge of 26.4 cents per litre. This will effectively reduce the fuel tax credits down to zero for 6 months.

Changes to the GDP uplift factor for PAYG and GST instalments

The gross domestic product (GDP) uplift rate that applies to pay-as-you-go (PAYG) instalments and GST instalments will be set at 2% for the 2022–23 income year.

The GDP adjustment factor is usually calculated by using data from the Australian Bureau of Statistics and is based on GDP changes over the previous 2 calendar years. Using this statutory formula, it was expected that the GDP uplift for PAYG instalments would be much higher, causing potential cash flow issues for businesses. The 2% uplift rate will apply to instalments for the 2022–23 income year that fall due after amending legislation receives assent. This would likely be after the May election, given there are only two sitting days with both houses scheduled before then, but the government is confident it can be done before the next financial year starts in July.

The current annual aggregated turnover thresholds for using the GST instalment method is $10 million and $50 million for PAYG instalments.

Boosting Apprenticeship Commencement wage subsidy extended

The Government announced an expansion of its apprenticeship and training schemes in the Budget.

This measure will provide for an additional 35,000 apprentices and trainees. Eligible businesses will be reimbursed up to 50% of an apprentice or trainee’s wages of up to $7,000 per quarter for 12 months.

Enrolments for the Boosting Apprenticeship Commencement wage subsidy are being extended to the end of the 2021‑22 financial year (30 June 2022).

Business registry fees to be streamlined

Fees associated with Australia’s business registers will be streamlined over 3 years from 2023–24.

Company registration and lifecycle management are scheduled to move to a modernised platform in September 2023. These reforms to Australia’s business registers will:

remove the companies annual late review fee
reduce the number of fees paid for ad hoc lodgments under existing requirements
remove fees for searches conducted on the new platform, and
provide $300,000 to the Department of Treasury to redesign wholesale business register search services facilitated by third-party services.

Concessional tax treatment for primary producers

Concessional tax treatment will apply from 1 July 2022 for primary producers selling Australian Carbon Credit Units (ACCUs) and biodiversity certificates.

Proceeds from the sale of ACCUs and biodiversity certificates generated from on-farm activities will be treated as primary production income, providing access to existing income tax averaging arrangements and the Farm Management Deposits scheme. The taxing point of ACCUs for primary producers that are eligible for tax averaging or the Farm Management Deposits scheme will also be changed to the year in which they are sold. Similar treatment will be extended to biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market scheme.

Currently, proceeds from selling ACCUs are treated as non-primary production income and ACCU holders are taxed based on annual changes in the value of their ACCUs.

Expanding access to unlisted company employee share scheme

The Government has announced that it will expand access to employee share scheme (ESS) and further reduce red tape so that employees at all levels can participate in the scheme.

Participants of ESS in unlisted companies will be allowed 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 advantage of a planned sale or listing of the company to sell their purchased interests at a profit.

Regulatory requirements for offers to independent contractors will be removed, where they do not have to pay for interests.

No effective date has been specified in the Budget papers.

COVID-19 tariff concession to be made permanent

The temporary tariff concession for certain medical and hygiene products to treat, diagnose or prevent the spread of COVID-19 will be made permanent.

In addition, the range of products eligible for the “free” rate of customs duty will be expanded and the current end-use restriction will be removed. The measure will apply from 1 July 2022.

Fuel and alcohol businesses

Fuel and alcohol businesses with annual turnover of less than $50 million will be able to lodge and pay excise and excise-equivalent customs duty on a quarterly basis, rather than on a weekly or monthly basis.

Businesses that import fuel and alcohol products for further manufacture or distribution that want to defer payment of excise or excise-equivalent customs duty will be able to transfer fuel or alcohol directly into a warehouse administered by the ATO after Australian Border Force customs clearance. Tax on direct imports will continue to be collected by the Australian Border Force.

Aligning excise system licensing requirements

Licensing requirements across the excise system will be streamlined by:

removing all renewal requirements for excise and excise-equivalent customs goods licences, removing licence fees, enabling the ATO and Australian Border Force to issue entity-level licences in addition to site-level licences, and providing blanket permission to move goods between sites controlled by licensed businesses
removing onshore producers of crude oil and condensate from the excise system until and unless they exceed the relevant production threshold to be liable for excise payments
extending the time limit to apply for a refund of excise overpayments from 12 months to 4 years after payment, and
creating a public register of excise and excise-equivalent customs goods licences administered by the ATO.

Excise and excise-equivalent customs duty for fuel

Amendments will be made to the excise and excise-equivalent customs duty regime for fuel to:

introduce a refund provision for excise-equivalent customs duty on petroleum-based oils used in the further manufacture of petroleum lubricants, ending double taxation of these oils
remove the requirement to pay and subsequently claim fuel tax credits in respect of excise or excise-equivalent customs duty on fuels used in domestic commercial shipping, and
set a single rate for businesses to calculate and claim Vapour Recovery Unit refunds.

A targeted exemption from excise licensing requirements will also apply for licensed hospitality venues to fill beer from kegs into sealed, non-pressurised containers of no more than 2 litres capacity that are not designed for medium to long term storage.

The changes will apply from 1 July 2023.

Extending tax exemption to wholly owned Australian incorporated subsidiaries

Wholly owned Australian incorporated subsidiaries of the Future Fund Board of Guardians will be exempt from corporate income tax.

The current income tax exemption applying to the Future Fund Board does not extend to its wholly owned subsidiaries. As a result, these subsidiaries pay corporate income tax and subsequently refund it to the Future Fund Board through franking credits attached to the dividends paid.

The measure will have effect from the subsidiaries’ first income year after assent of the enabling legislation.

Superannuation

Minimum drawdown extended

Ahead of the Budget Treasurer Josh Frydenberg announced the Government will extend the 50 per cent reduction to minimum superannuation drawdown requirements for retirees into the next financial year until 30 June 2023.

Originally announced in March 2020 as part of the government’s response to the pandemic, Treasurer Josh Frydenberg said the reduction would now remain in place until 30 June 2023.

The effect of the proposed extension of the temporary reduction to the 2022–23 income year is that the minimum pension drawdown rates for account-based pensions will be:

Age	Default Minimum	Reduced rates by 50% for the 2019-20 to 2022-2023
Under 65 years	4%	2%
65-74 years	5%	2.5%
75-79 years	6%	3%
80-84 years	7%	3.5%
85-89 years	9%	4.5%
90-94 years	11%	5.5%
Over 95 years	14%	7%

The government also renewed its commitment to not introduce any new taxes on super. “At the last election, we promised there would be no new taxes on superannuation. Over the last three years we have honoured that commitment,” said Mr Frydenberg.

Innovation

Agricultural innovation: expansion of “patent box” tax concession

Corporate income from the commercialisation of patents and eligible Plant Breeder’s Rights (PBRs), issued from 29 March 2022, in respect to agricultural and veterinary chemical products will be taxed at an effective rate of 17% to the extent that the R&D took place in Australia, for income years starting from 1 July 2023.

Eligible patents are linked to agricultural and veterinary (agvet) chemical products listed on the:

Australian Pesticides and Veterinary Medicines Authority (APVMA), or
PubCRIS (Public Chemicals Registration Information System) register

Finalisation of the detailed design of the “patent box” expansion to agriculture will be subject to industry consultation.

Low emissions innovation: expansion of “patent box” tax concession

Corporate income from the commercialisation of patents, issued from 29 March 2022, that have the potential to lower emissions to the extent that the R&D took place in Australia, will be taxed at an effective rate of 17% for income years starting from 1 July 2023.

Patented technology that is considered to reduce emissions in the 140 technology areas listed in the Government’s 2020 Technology and Investment Roadmap Discussion Paper or included as priority technologies in the Government’s 2021 and future annual Low Emissions Technology Statements are potentially eligible for the concession.

Finalisation of the detailed design of the “patent box” expansion to low emission technologies will be subject to industry consultation.

Medical and biotechnology innovation: expansion of “patent box” tax concession

The “patent box” tax concession announced in the 2021 Federal Budget in relation to assessable income derived from exploiting a medical or biotechnology patent was introduced into Parliament in Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022 introducing new Div 357 into the ITAA 97 on 10 February 2022. The introduced Bill expanded the original “patent box” to eligible patents issued in the following overseas jurisdictions with equivalent patent regimes:

IP Australia
utility patents issued by the United States Patent and Trademark Office (USPTO), and
European patents granted under the European Patent Convention (EPC).

The measure once enacted will apply in respect of income years starting on or after 1 July 2022 to income attributable to R&D conducted in Australia.

Tax Administration

PAYG instalment systems to be modernised

Companies will be able to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments.

The government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications of this measure.

Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.

Reporting of taxable payments reporting system data

Businesses will be allowed the option to report taxable payments reporting system data (via accounting software) on the same lodgment cycle as their activity statements.

Consultation with affected stakeholders, tax practitioners and digital service providers will take place to finalise the policy scope, design and specifications of the measure.

Digitalising trust and beneficiary income reporting and processing

Trust and beneficiary income reporting and processing will be digitalised, by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes.

The measure is proposed to commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.

Enhanced sharing of STP data

IT infrastructure will be developed to allow the ATO to share single touch payroll (STP) data with state and territory revenue offices on an ongoing basis.

The government will commit $6.6 million for this measure. Funding has already been provided for by the government. The funding will be deployed following further consideration of which states and territories are able and willing to invest in their own systems and administrative processes to pre-fill payroll tax returns with STP data, to reduce compliance costs for businesses.

ATO Tax Avoidance Taskforce to be extended

The ATO will be given funding to extend the operation of the Tax Avoidance Taskforce by 2 years to 30 June 2025.

The taskforce was established in 2016 to undertake compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. The taskforce also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.

Deferral of 2019 Budget measure on Australian Business Numbers

The start date of the 2019–20 Budget measure requiring holders of Australian Business Numbers (ABNs) with an income tax return obligation to lodge their income tax return and to confirm their ABN status annually, will be deferred by 12 months to assist with integration into the Australian Business Registry Services (ABRS).