30 March 2022

With economic recovery after COVID-19 stronger than expected and Australia being on the cusp of a Federal Election, the stage was set for a Federal Budget 2022-23 of election promises that would appeal to voters.

On 29 March 2022, the Treasurer, Josh Frydenberg delivered his Budget speech proposing measures to:

• Assist with the rising cost of fuel and other living expenses.

• Help create more jobs.

• Invest in stronger defence, borders and security.

• Continue investing in health, education, women’s safety and other essential services.

• Invest in roads, rail, dams and renewable energy technology.

However, there was a deafening silence on tax reform and most tax changes proposed by the Budget provided only immediate short-term temporary solutions. This was a “safe space” budget with minimal proposed tax changes, no doubt because 2022 is an election year, and the government does not want to upset the status quo too much.

The main tax proposals we have identified in the Federal Budget 2022-23 predominantly focus on providing immediate relief to individuals and families to deal with the rising cost of living as well as to provide support for businesses. Here’s what they mean to you.

Cost of living measures

Temporary six month 50% reduction in fuel excise

This proposal means that excise on petrol, diesel and other fuel and petroleum-based products (except aviation fuels) will be reduced by 50% for six months from 30 March 2022 to 28 September 2022.

This measure will see excise cut on petrol and diesel from 44.2 cents per litre to 22.1 cents per litre. The Government also intends to streamline the administration of fuel and excise requirements from 1 July 2023.

One-off $420 cost of living tax offset

This proposal means that eligible individuals (those with taxable income of less than $126,000) will receive a low and middle income tax offset (LMITO) up to $1,500 when such individuals submit their income tax returns for the 2022 income year. This is an increase to the LMITO offset from $1,080 in 2021.

The 2022 income tax year is the last year taxpayers can claim LMITO. The Government did not extend the LMITO beyond 2022.

Small business measures (aggregated turnover of less than $50 million)

Skills and Training boost

This proposal means that, in the period from 7.30pm on 29 March 2022 to 30 June 2024, eligible businesses will be able to deduct an additional 20% of expenditure incurred on external training courses provided to employees in Australia that are delivered by entities registered in Australia.

The boost for eligible expenditure incurred between 29 March 2022 and 30 June 2022 will only be claimable in the 2023 tax return whereas expenditure incurred between 1 July 2022 and 30 June 2024 can be claimed in the income year in which the expenditure is incurred (in either the 2023 or 2024 tax return).

Technology investment boost

This proposal means that eligible businesses will be able to deduct an additional 20% of expenditure up to $100,000 incurred on portable payment devices, cyber security systems or subscriptions to cloud-based services in the period from 7.30pm on 29 March 2022 to 30 June 2023.

The boost for eligible expenditure incurred between 29 March 2022 and 30 June 2023 will be claimable in the 2023 tax return.

Innovation measures

Extension of patent box regime to other sectors

This proposal means that from 1 July 2023, income derived by companies from certain Australian agricultural and veterinary patents and patented technologies that can lower emissions, will be taxed at a 17 percent concessional corporate tax rate as opposed to a 30 percent or 25 percent corporate tax rate.

Because only Australian developed rights and patents issued or granted after 29 March 2022 will qualify for the concessional taxation treatment, the Government hopes this new regime will stimulate more Australian innovation.

Quo Vadis?

A notable absence from this year’s Budget was no extension was given for the full expensing of depreciating assets (FEDA) measures or the loss carry back measures to 30 June 2024. Currently, these measures are due to end by 30 June 2023.

Because decisions to invest in assets for a business are taken long in advance and can be very capital intensive, it is uncertain why the Government did not extend the FEDA measures in this year’s Budget – especially because stimulating investment plays such an important part in the growth of the economy.

There were also minimal proposed tax changes affecting companies or for businesses operating internationally. There was a proposal dealing with employee share schemes for unlisted companies but no start date was given for this proposal.

The Budget announced additional funding for the ATO’s Tax Avoidance Taskforce. As a result of this and other ATO compliance initiatives, this means that any sizeable business groups need to remain prepared for a visit from the ATO. For multinationals, adequate and contemporaneous transfer pricing documentation is essential. For all large businesses, having sound and well documented tax governance and risk policies and procedures will be a good investment to assist in streamlining any ATO review and supporting any tax positions taken.

As you would probably be aware, a Federal election must be held no later than 21 May 2022. Assuming the election is held on 21 May 2022, this means the election will have to be called around 16 April 2022 to allow the minimum 35-day campaigning period for political parties.

Any Bills that have been introduced into Parliament but have not yet been enacted at the time when the election is called will lapse. If, as per our example, the election is called around 16 April 2022, it is anyone’s guess whether any of this year’s Budget proposals will become law in the 18-day period between 29 March 2022 and 16 April 2022. Nevertheless, it is hoped that the Federal Budget 2022=23 will help Australia’s economy to continue to grow post COVID-19.

Check out the full coveragefrom the Federal Budget 2022-23, which will continue to develop throughout the week as new insights and video content are published.