Federal Budget October 2022: Business taxation measures
On Tuesday 25 October 2022, Treasurer Jim Chalmers handed down the 2022–2023 October Federal Budget, his first Budget. While a Budget was handed down on 29 March 2022, this second Budget for 2022–2023 updates economic forecasts and outlines the new Labor Government’s priorities following the May 2022 Federal election. While the Budget does not contain major tax changes, it does seek to begin some “Budget repair work” via tax integrity measures relating to multinationals, extending ATO compliance programs and providing additional funding to the ATO.
Previously announced measures: eight abandoned, three deferred
The Labor Government has reviewed a number of tax and superannuation related measures that had been announced by the previous Government, but not enacted. It states in the Budget papers that it will abandon eight of these, while three others will have deferred start dates.
While most of the measures relate to “business taxation”, these proposals also include superannuation and personal tax measures.
Finance related proposals
The following finance related proposed changes have been abandoned:
- the 2013–2014 Mid-Year Economic and Fiscal Outlook (MYEFO) measure that proposed to amend the debt/equity tax rules;
- the 2016–2017 Budget measure that proposed changes to the taxation of financial arrangements (TOFA) rules;
- the 2016–2017 Budget measure that proposed changes to the taxation of asset-backed financing arrangements; and
- the 2016–2017 Budget measure that proposed introducing a new tax and regulatory framework for limited partnership collective investment vehicles.
Taxation of financial arrangements technical amendments: start date deferred
The 2021–2022 Budget measure that proposed making technical amendments to the TOFA rules has been deferred from 1 July 2022 to the income year commencing on or after the date of assent of the enabling legislation.
Superannuation and retirement
The following proposed superannuation and retirement related measures have been abandoned:
- the 2018–2019 Budget measure that proposed changing the annual audit requirement for certain self managed superannuation funds (SMSFs);
- the 2018–2019 Budget measure that proposed introducing a requirement for retirement income product providers to report standardised metrics in product disclosure statements.
Residency requirements for certain self managed super funds: start date deferred
The 2021–2022 Budget measure that proposed relaxing residency requirements for SMSFs will be deferred from 1 July 2022 to the income year commencing on or after the date of assent of the enabling legislation.
Tax compliance: third-party reporting for electronic distribution platforms, cash payments
The Government intends to defer the start date for the following proposed third-party reporting rules:
- transactions relating to the supply of ride sourcing and short-term accommodation – from 1 July 2022 to 1 July 2023; and
- all other reportable transactions (including but not limited to asset sharing, food delivery and task-based services) – from 1 July 2023 to 1 July 2024.
The Government proposes to extend the third-party reporting regime to the operators of electronic distribution platforms (EDPs) that facilitate supplies from one entity to another entity. It will cover platforms operating over the internet, including through applications, websites or other software. However, a service will not be considered to be an electronic distribution platform if it only advertises or creates awareness of possible supplies, operates as a payment platform or serves a communications function.
Transactions will need to be reported to the ATO if they involve the provision of consideration by a buyer to a seller for a supply made through the platform by the seller. Transactions that only involve the sale of goods or real property (the transfer of legal title to the goods or real property) or financial supplies will not be captured. The supply must also be connected to the indirect tax zone (i.e. Australia).
Cash payments proposal abandoned
In addition, the 2018–2019 Budget measure that proposed introducing a limit of $10,000 for cash payments made to businesses for goods and services has been abandoned.
Deductible gifts: pastoral care in schools
The 2021–2022 MYEFO measure that proposed establishing a deductible gift recipient (DGR) category for providers of pastoral care and analogous wellbeing services in schools has been abandoned.
TAX COMPLIANCE AND INTEGRITY
Increased funding for ATO compliance programs
As appears to be standard practice in modern Budgets, the Government will increase funding for the ATO in the following areas. The message for taxpayers and their advisors is that the ATO will be getting better and better at detecting variances which will require explanation.
Personal Income Taxation Compliance Program
The Government will provide $80.3 million to the ATO to extend the Personal Income Taxation Compliance Program for two years from 1 July 2023. This will focus on key areas of non-compliance, including overclaiming of deductions and incorrect reporting of income (which was the subject of a recent key address by the Second Commissioner of Taxation). The funding will enable the ATO to modernise its guidance products, engage earlier with taxpayers and tax agents and target its compliance activity.
Shadow Economy Program
The Government will extend the existing ATO Shadow Economy Program for a further three years from 1 July 2023 (read “cash economy”).
Tax Avoidance Taskforce
The Government has boosted funding for the ATO Tax Avoidance Taskforce by around $200 million per year over four 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 to pursue new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.
Modernising Business Registers Program
In a slightly different category, the Government will provide additional ATO and ASIC funding of $166.2 million over four years from 2022–2023 to continue delivery of the Modernising Business Registers program that will consolidate more than 30 business registers onto a modernised registry platform.
Digital currencies not foreign currency
The Budget Papers confirm that the Government is to introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. Exposure draft legislation to implement this measure was released in September 2022.
By way of background and as a reminder, this proposed legislation will maintain the current tax treatment of digital currencies, including the CGT treatment where the digital currency is 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 from the Australian income tax treatment of foreign currency does not apply to digital currencies issued by, or under the authority of, a government agency, which will continue to be taxed as foreign currency.
SUPERANNUATION
SMSF residency changes delayed
The Government confirmed that the changes to the SMSF residency rules, previously announced in the 2021–2022 Budget to commence from 1 July 2022, will now start from the income year commencing on or after the date of assent of the enabling legislation (yet to be introduced).
These measures propose to relax the SMSF residency rules by extending the central management and control test safe harbour from two to five years, and removing the active member test for both SMSFs and small APRA funds.
Until this 2021–2022 Budget measure is enacted, SMSF trustees need to ensure that they satisfy the current requirements. Even if the central management and control safe harbour is extended to five years from the date of assent, an SMSF trustee still needs to establish (before they leave) that their planned absence from Australia will be “temporary”.
Three-year cycle for SMSF audits will not proceed
The Government will not proceed with the former government’s proposal to change the annual audit requirement for certain SMSFs to allow a three-yearly cycle for funds with a history of good record-keeping and compliance.
The measure, previously announced in the 2018–2019 Budget, was proposed to apply to SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
While the Government did not provide any reasons in the Budget papers for abandoning this proposal, the SMSF audit industry has previously flagged concerns that moving to a three-yearly audit cycle could result in increased non-compliance. The SMSF audit industry had also expressed concern that altering its workflow (and reducing profitability) could potentially lead to a reduction in the number of businesses specialising in SMSF audits and lower quality audits.
Standardised disclosure for retirement income products
The Government also announced that it will not proceed with the proposal to report standardised metrics in product disclosure statements (PDS) for retirement income products.
The former government had proposed to mandate a simplified disclosure document to support the development of the comprehensive income product for retirement (CIPR) framework. The related consultation paper proposed a simplified disclosure document with a range of standardised metrics to assist retirees to assess how a retirement income product aligns with their own preferences in relation to potential income, variations in income, access to capital, death benefits and risk management. The proposed metrics would have been presented as fact sheets to supplement existing disclosure documents.
Super downsizer contributions eligibility age reduction to 55 confirmed
The Government confirmed its election commitment to lower the minimum eligibility age for making superannuation downsizer contributions to age 55 (down from age 60).
The reduction in the eligibility age will allow individuals aged 55 or over to make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their main residence outside of the existing contribution caps. Either the individual or their spouse must have owned the home for 10 years.
Under the current rules, the maximum downsizer contribution is $300,000 per contributor (i.e. $600,000 for a couple), although the entire contribution must come from the capital proceeds of the sale. A downsizer contribution must also be made within 90 days after the home changes ownership (generally the date of settlement).
Assets test exemption for two years; deeming rates frozen
The Government also confirmed its election commitments to assist pensioners looking to downsize their homes, by extending the social security assets test exemption for principal home sale proceeds from 12 months to 24 months; and changing the income test to apply only the lower deeming rate (0.25%) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.
HOUSING MEASURES
Regional First Home Buyers Guarantee Scheme; Housing Australia Future Fund
The Government has announced that it will establish a Regional First Home Buyers Guarantee Scheme. Its aim will be to encourage home ownership in regional locations.
It will apply to eligible citizens and permanent residents who have lived in a regional location for more than 12 months and enable them to purchase their first home in that location with a minimum 5% deposit. The Scheme aims to reach 10,000 places per year to 30 June 2026. The Scheme will be funded by redirecting funding from the Regional Home Guarantee component of the 2022–2023 March Budget measure titled Affordable Housing and Home Ownership.
In other measures, the Government will invest $10 billion in the newly created Housing Australia Future Fund, to be managed by the Future Fund Management Agency. Its aim will be to generate returns to fund the delivery of 30,000 social and affordable homes over five years and allocate $330 million for acute housing needs.
The Government will also “broaden the remit” of the National Housing Infrastructure Facility to directly support new social and affordable housing in addition to financing critical housing infrastructure.
New Housing Accord: $350 million in Government funding
The Government announced that it has struck a new national Housing Accord between state and territory governments, investors and other key stakeholders. This Housing Accord sets an initial, aspirational target of 1 million new homes over five years from 2024.
Under the Accord, the Government will commit $350 million over five years to deliver 10,000 affordable dwellings at an energy efficiency rating of seven stars or greater (or a state or territory’s minimum standard). This commitment is in addition to the 30,000 new social and affordable dwellings delivered through the Housing Australia Future Fund. The states and territories will also build on this commitment by providing in-kind or financial contributions that enable delivery of up to an additional 20,000 homes in total.
By delivering an ongoing funding stream to help cover the gap between market rents and subsidised rents, the Government believes it will make more projects commercially viable to attract much needed investor capital to the sector.
The Government said it has secured endorsement from institutional investors, including superannuation funds, for the Accord. Investors will work constructively with Accord parties to optimise policy settings that facilitate institutional investment in affordable housing.
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