It’s the first Labor budget in almost 10 years.
The Federal Treasurer, Dr Jim Chalmers, handed down the Labor government’s Federal Budget on 22 October 2022. The budget included some expectations and some items we were not expecting.
There was much focus on budget repair, cost of living relief and delivering the Labor Government’s election promises.
Here are some of the key highlights from the budget announcements.
Key Tax Administration Announcements
- Penalty unit increase to $275 from 1 January 2023.
- Personal Income Taxation Compliance Program extended a further 2 years to 30 June 2025.
- Shadow economy compliance program extended to 30 June 2026.
- The ATO tax avoidance task force will receive additional funding and is being extended to 30 June 2026.
- Financial penalties for breaches of foreign investment compliance to double from 1 January 2023.
- The proposed extension of reportable transactions relating to the sharing economy was deferred by 12 months to 1 July 2024.
Stage 3 – Individual tax cuts [already legislated]
There was a great deal of media speculation prior to budget night that the Stage 3 Tax Cuts would be abolished or extended out. There was no such announcement in the budget, therefore at this stage, the already legislated tax cut will continue for 2024-2025 and onwards, this is what they will be:
|New Thresholds||Tax Rate|
|$200,001 and over||45%|
These tax rate changes in 2024-25 are significant in that the government estimates around 95% of taxpayers will pay a marginal tax rate of 30% or less. This is significant from a structuring perspective when you look at what the company tax rate will be at that point in time [25%].
Pensioner earnings and income thresholds
The amount pensioners can earn in 2022-23 will increase by $4,000 before their pension is reduced, supporting pensioners who want to work or work more hours to do so without losing their pension.
Additionally, the income threshold for the Commonwealth Seniors Health Card will be increased from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.
Digital Currencies are not Taxed as Foreign Currency
The Government will introduce legislation to clarify that digital currencies (cryptocurrencies such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency, in line with the Government announcement on 22 June 2022.
Child Care Subsidy – extending eligibility From 1 July 2023
Child Care Subsidy rates will increase from 85% to 90% for families earning less than $80,000. Subsidy rates will then taper down 1% for each additional $5,000 in family income until the maximum income threshold of $530,000 is reached. Families will continue to receive the existing higher subsidy rates of up to 95% for their second and subsequent children in care, who are under age 5.
Paid Parental Leave Boost
Currently, families can access Paid Parental Leave under the scheme for up to 18 weeks. This comprises 16 weeks for the birth mother (or an adoptive parent) and 2 weeks for their partner. It is proposed that the number of weeks will increase to 20 weeks in 2023-24, 22 weeks in 2024-25, 24 weeks in 2025-26 and 26 weeks from 2026-27.
Eligibility will be expanded through the introduction of a $350,000 family income test, which families can be assessed under if they don’t meet the individual income test.
The 1 July 2023 proposals are aimed at making the scheme more flexible by:
- Giving parents the ability to take government-paid leave up to the maximum number of weeks and use it flexibly between the parents.
- Enabling parents to take government-paid leave in blocks as small as a day at a time, with periods of work in between, so they can use their weeks in a way that works best for them.
- Providing single parents access to 26 weeks of leave entitlement.
- Implementing a ‘use it or lose it’ of weeks for each parent, designed to encourage each of them to take that portion of the parental leave.
- Giving either parent the ability to claim Paid Parental Leave first and both parents can receive the payment at the same time as any employer-funded parental leave.
Heavy Vehicle Road User Charge
The Government will increase the Heavy Vehicle Road User Charge rate from 26.4 cents per litre to 27.2 cents per litre of diesel fuel. This will decrease expenditure on the Fuel Tax Credit by $215.7 million over 4 years from 2022–23.
The practical implications of this will be a reduction in the Fuel Tax Credit entitlement for eligible recipients. Primary producers will be most affected by this.
FBT on electronic vehicles
The Government will cut taxes on electric cars so that they are affordable for more Australians.
From 1 July 2022, the measure will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars, which for the 2023 financial year is $84,916. The car must not have been held or used before 1 July 2022.
Eligible electric cars will include:
- Battery electric vehicles
- Hydrogen fuel cell electric vehicles
- Plug-in hybrid electric vehicles
When finalising Single Touch Payroll at the end of the financial year, employers will be required to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.
ATO Compliance Programs
The Treasurer announced a focus on closing the tax gap with an extension of existing compliance programs.
The Personal Income Tax Compliance Program will be extended to 30 June 2025 and the ATO will use this extension to focus on proactive, preventative and corrective activities in the main areas of non-compliance, including over-claiming of deductions and incorrect reporting of income.
The 3-year SMSF audit requirement has been scrapped. In the 2018-19 Budget, it was announced that SMSFs with a history of good record-keeping and compliance will only be required to have their fund audited every 3 years. The recent Budget announcements in October 2022 indicated that this measure will not be proceeding.
The government will also defer the 1 July 2022 start date of the 2021–22 Budget measures which proposed relaxing the residency requirements for self-managed funds. The revised start date is the financial year commencing on or after the date of Royal Assent of the enabling legislation. This aims to provide some certainty to fund trustees and advice practitioners.
Additionally, more people will have the option to make downsizer superannuation contributions. This will be made possible due to reducing the minimum eligibility age from 60 to 55 years. This measure will take effect from the start of the first quarter after the Royal Assent of the enabling legislation.
What else is not proceeding?
- The 2021-22 Budget measure to allow taxpayers to self-assess the effective life of intangible depreciating assets will not proceed.
- Amendments to simplify the taxation of financial arrangements (TOFA) rules proposed in the 2016-17 Budget will not proceed.
- The proposed measure from the 2018-19 Budget to impose a limit of $10,000 for cash payments will not proceed.
- Proposed changes in the 2016-17 Budget to amend the taxation of asset-backed financing arrangements will not proceed.
- The new tax and regulatory regime for limited partnership collective investment vehicles proposed in the 2016-17 Budget will not proceed.
If you would like to know more information about any of these measures from the Budget announcement, please do not hesitate to contact our tax specialists.