The 2022/23 Budget was handed down on Tuesday, 25 October 2022, by the government.
The Budget estimates an underlying cash deficit of $36.9 billion for 2022-23 (and $44bn for 2023-24). While the economy is expected to grow by 3.25% in 2022-23, it is predicted to slow to 1.5% for 2023-24, a full percentage point lower than forecast in March 2022. Inflation is expected to peak at 7.75% later in 2022 but is projected to moderate to 3.5% through 2023-24 and return to the Reserve Bank’s target range in 2024-25.
While the headline for most people will be multinational tax changes, the real money is coming from you and me – individuals and small business in Australia through extra ATO enforcement.
They’re expecting to raise 2.1 billion over the next four years through giving extra funding to the ATO to support their shadow economy activities. When you look at shadow economy activities that’s within the small business segment.
The headline measures included:
- Intangible assets depreciation: option to self-assess effective life dropped
The Government will not proceed with the proposal to allow taxpayers to self-assess the effective life of intangible depreciating assets.
The measure was announced in the 2021-22 Budget and was to apply to assets acquired from 1 July 2023.
This means that effective lives of intangible depreciating assets will continue to be set by statute, ie reversing this decision will maintain the status quo.
The change is estimated to increase receipts by $550 million over the 4 years from 2022-23.
- Anti-avoidance: denial of SGE deductions for payments for intangibles
The Government will introduce an anti-avoidance rule to prevent significant global entities (entities with global revenue of at least $1 billion) from claiming tax deductions for payments made directly or indirectly to related parties in relation to intangibles held in low- or no-tax jurisdictions. For the purposes of this measure, a low- or no-tax jurisdiction is a jurisdiction with:
- a tax rate of less than 15%; or
- a tax preferential patent box regime without sufficient economic substance.
This measure will apply to payments made on or after 1 July 2023.
- Off-market share buy-backs: proposed integrity rules
The Government intends 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.
There is no detail in the Budget Papers nor in any associated media releases on the night as to what precisely is intended.
This measure will take effect from Budget night, ie 7:30pm AEDT, 25 October 2022. It is expected to increase receipts by $550 million over the 4 years from 2022-23.
- 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 moral 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 2 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). The funding will enable the ATO to modernise its guidance products, engage earlier with taxpayers and tax agents and target its compliance activity.
This measure is estimated to increase receipts by $674.4 million and increase payments by $80.3 million over the 4 years from 2022-23.
- Shadow Economy Program
The Government will extend the existing ATO Shadow Economy Program for a further 3 years from 1 July 2023 (read “cash payments”).
This measure is estimated to increase receipts by $2.1 billion over the 4 years from 2022-23. This includes an increase in GST payments to the States and Territories of $442.3 million. The Papers indicate an amount of funding of some $685 million over the 3 years, in which case receipts of some $2.1 billion seem a good return.
- Tax Avoidance Taskforce
The Government has boosted funding for the ATO Tax Avoidance Taskforce by around $200 million per year over 4 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 in pursuing new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.
This measure is estimated to increase receipts by $2.8 billion and increase payments by $1.1 billion over the 4 years from 2022-23.
- Modernising Business Registers
In a slightly different category to the above, the Government will provide additional funding of $166.2 million over 4 years from 2022-23 to continue delivery of the Modernising Business Registers program that will consolidate over 30 business registers onto a modernised registry platform.
- $80.0 million in 2022-23 for the ATO and ASIC to continue the design and delivery of the modernised registry platform;
- $86.2 million over 4 years from 2022-23 ($119.5 million over 6 years from 2022-23 and $15.9 million annually ongoing) for ATO and ASIC to operate and regulate the Director Identification Numbers regime, and maintain ASIC’s registry systems.
- Personal Income Taxation Compliance Program
- COVID grants declared as NANE
The Government has made the following State and Territory COVID-19 grant programs eligible for non-assessable, non-exempt (NANE) treatment, which will exempt eligible businesses from paying tax on these grants.
- Business Costs Assistance Program Four – Construction (Victoria);
- Licenced Hospitality Venue Fund 2021 – July Extension (Victoria);
- Licensed, Hospitality Venue Fund 2021 – Top Up Payments (Victoria);
- Business Costs Assistance Program Round Two – Top Up (Victoria);
- Business Costs Assistance Program Round Three (Victoria);
- Business Costs Assistance Program Round Four (Victoria);
- Business Costs Assistance Program Round Five (Victoria);
- Impacted Public Events Support Program Round Two (Victoria);
- Live Performance Support Program (Presenters) Round Two (Victoria);
- Live Performance Support Program (Suppliers) Round Two (Victoria);
- Commercial Landlord Hardship Fund 3 (Victoria)
- HOMEFRONT 3 (ACT); and
- Small Business Hardship Scheme (ACT).
- 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. The measure has already been released
in draft legislation.
The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.
- Penalty unit to increase 1 January 2023
The Government will increase the amount of the Commonwealth penalty unit from $222 to $275, from 1 January 2023. The increase will apply to offences committed after the relevant legislative amendment comes into force.
Interestingly, the amount will continue to be indexed every 3 years in line with the CPI as per the pre-existing schedule, with the next indexation occurring on 1 July 2023. Presumably the next CPI increase will be based on the mandated amount (which arguably means it is not strictly a CPI-related increase).
This means that there could be 2 increases to the value of a penalty unit in 2023.
Further information for the Budget
The full Budget Papers can be found at https://budget.gov.au/
If you have any questions about what was contained in the Budget and how it may impact you or your business moving forward, contact your advisor. please contact our tax consultants from W Wen & Co on (02) 9871 3429 or (02) 8090 2449.
The information in this article is sourced from Federal budget provided by CAANZ & Thomson Reuters.