Before we get into today’s main topic – Budget 2022/23 – we wanted to note with you all that earlier this month we were in a Zoom call with over 5,500 other accountants and taxation specialists across Australia, working through some of the curlier aspects of the ATO’s recently proposed changes to family trust distributions. We will get down to “brass tacks” another time as the changes are still only in draft at this stage and subject to change. Essentially, however, the Tax Office has announced its intentions to apply Section 100A of the Income Tax Assessment Act 1936 – an anti-avoidance measure – to family trust distributions.
When Section 100A was originally introduced in 1978, the explanation given for the legislation was that it was attempting to stop a specific type of tax avoidance. At the time, some tax-exempt bodies (like schools or community service organisations) were receiving trust distributions they didn’t have to pay tax on and then paying the majority of that money on to other trust beneficiaries who then also didn’t have to pay tax. The legislation was intended to close a glaring loop-hole that saw people using trusts in this quite specific way from completely avoiding paying any tax at all on trust distributions. It was not intended to target families distributing payments to adult, tax-paying children, which is now what appears to be the ATO’s focus.
Needless to say, the proverbial “temperature in the room” during the Zoom call was heated, with many of our colleagues expressing indignation at the various possible ramifications Taxpayer Alert TA 2022/1 ”Parents benefitting from the trust entitlements of their children over 18 years of age” could have for specific clients. Moreover, there was concern that the ATO could choose to go back multiple successive years and require certain trustees to unravel family trust transactions that the Tax Office deems do not represent “normal” family behaviour. (With “normal” at this stage being ill-defined, subjective and contextual.)
As we said above, we will elaborate further at a later date once there is more certainty around what any applicable changes will look like. At the time of writing this there are numerous industry professionals across Australia providing feedback on the ATO’s proposed changes and lobbying Members of Parliament against what is being seen as Tax Office over-reach.
For now, we encourage those of you with family trusts and adult children to “Keep calm and carry on.” We will be in touch with you directly to discuss your options in the event we believe any specific changes will impact you.
– Jody and the Team
Up-To-Date Accounting Services
- The Fringe Benefits Tax year ends today, Thursday the 31st of March 2022. For those of you with company cars, all odometer readings must be taken at the end of the day today for operating cost method calculation purposes. Please be sure to take photos of your readings and email us through your information at your earliest opportunity.
- WA Government-funded COVID-19 Business Relief Grants are available. We recommend every business owner takes a look and considers their eligibility. Please let us know if you need help applying.
- Fuel Tax Credits, claimed via Business Activity Statements, can be claimed within four years of purchasing eligible fuel. The amount of credit changes every six months (February and August, annually). In line with February’s CPI index factors, Fuel Tax Credits have now increased by 1.021 until the 30th of June 2022.
- As there were no changes announced to the Superannuation Guarantee rate adjustment scheduled for the 1st of July 2022, the rate will increase as planned from 10% to 10.5% in the new financial year.
- Director IDs need to be applied for prior to Wednesday the 30th of November 2022 for anyone who was a director prior to 31 October 2021. Visit the Australian Business Registry Services website for more information and to apply. Once you have your Director ID, please call us if you’d like us to maintain a record of it, as we will likely have to provide these to ASIC at some stage.
Budget 2022/23 In Brief
(Or at least as brief as we can be…)
Individuals and Families
- As previously announced, work‐related COVID‐19 test expenses incurred by individuals will be made tax deductible for testing taken to attend a place of work. Changes will also be made to ensure that FBT will not be payable by employers if they provide fringe benefits relating to COVID‐19 testing to their employees for work‐related purposes. The changes for deductions will be effective from the 1st of July 2021, with the FBT changes to apply from the 1st of April 2021. At this stage, it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home. The initial media release indicates that the measure will cover situations where the individual has the option of working remotely, while the Budget only refers to costs of taking a COVID-19 test to attend a place of work but doesn’t specifically refer to employees who can work from home.
- Easing some pressure at the fuel bowser, the excise and excise-equivalent customs duty rate applicable to petrol and diesel will be reduced by 50% for six months from midnight 30th of March 2022. That is, the current 44.2 cents per litre excise rate will reduce to 22.1 cents per litre. The measure is still subject to the passage of enabling legislation, however, fuel subject to lower excise is expected to flow through to the majority of service stations and Australian consumers within a few weeks, as stations replenish their supplies.
- For the 2021/22 financial year, the Low and Middle Income Tax Offset (LMITO) will be increased by $420 to $1,500. The LMITO is a tax offset which is claimed on the lodgement of your tax return, reducing your final amount of tax payable, and not a cash payment. The subsequent impact on individuals lodging 2022 tax returns will be as follows:
- A one-off $250 ‘cost of living payment’ will be provided to concession card holders and Australian resident recipients of government payments including the Age Pension, Parenting Payment and Youth Allowance. The payments will be exempt from taxation and will not count as income support for the purposes of any income support payment calculations. You won’t need to do anything to apply for the payment; if you are eligible, the payment will be automatically transferred into your nominated bank account.
- The Medicare levy low income thresholds for singles, families, seniors and pensioners will increase slightly from the 1st of July 2021 (applicable to your 30th of June 2022 tax returns):
- From the 1st of July 2022, First Home Guarantees will increase in number from 10,000 to 35,000 guarantees in an effort to support eligible first homebuyers purchase a new or existing home.
- 5,000 Single Parent Family Home Guarantees will be granted each year from the 1st of July 2022 until the 30th of June 2025 in an effort to support eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as 2%.
- A Regional Home Guarantee is also being introduced, whereby eligible citizens and permanent residents who have not owed a home for five years or more (including non-first home buyers) can purchase or construct a new home in regional areas with a minimum 5% deposit (subject to the passage of enabling legislation).
- The temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023:
Business & Employers
- We’re approaching this next one with some caution as the details still aren’t quite spelled out: the Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, including portable payment devices, cyber security systems or subscriptions to cloud based services. As yet, we don’t know if this will apply only to newly adopted technologies and services or if existing commitments will also be eligible. For example, if you are a Xero subscriber prior to the budget announcement, will your subsequent months’ subscription costs be eligible for the 120% deduction or will you be deemed to have adopted the technology too early? More detail is needed.
What we do know is that the ‘technology boost’ will be available to small business with an aggregated annual turnover of less than $50 million, and an annual expenditure cap of $100,000 will apply. The boost for eligible expenditure incurred by the 30th of June 2022 and between the 1st of July 2022 and the 30th of June 2023 will be included in the 2022/23 financial year.
- The Government also intends to provide a 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. The deduction will be available to small business with an aggregated annual turnover of less than $50 million. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia. Naturally, some exclusions will apply, such as for in-house or on-the-job training, and with regard to expenditure incurred on external training courses for persons other than employees. We assume there will need to be a relationship (or ‘nexus’) between the employee’s employment and the training program undertaken for the boost to apply, however, as with the technology boost, we are awaiting more information, to be certain.
- As announced prior to the Budget, companies will be able to choose to have their Pay As You Go (PAYG) instalments calculated using current financial performance, extracted from business accounting software, with some tax adjustments. The move is intended to ensure that instalment liabilities are aligned to the businesses cashflow. In addition, the digitisation of PAYG instalments will improve transparency and provide more accurate data on performance.
- Ordinarily, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022/23 financial year, however, the Government is setting this uplift factor at 2% instead of the 10% that would have otherwise applied. This 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for GST and PAYG instalments for the 2022/23 financial year and are due after the amending legislation comes into effect. The applicable uplift turnover thresholds are up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalment purposes.
- From the 1st of July 2023, fuel and alcohol businesses with an 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 weekly or monthly. These businesses will lodge returns and pay excise by the 28th day of the month after the end of each quarter.
In addition, businesses that import fuel and alcohol products for further manufacture or distribution, and want to defer payment of excise or excise-equivalent customs duty, will be able to transfer the fuel or alcohol straight into a warehouse administered by the ATO once the products have gone through Australian Border Force (ABF) customs clearance. (The ABF will still collect tax on direct imports.)