2022-23 Labor Government's Federal Budget: Building a better future
26 October 2022
On Tuesday, 25 October, the Labor Government delivered the second Federal Budget for the year, following the May election and change in government. The main themes of this budget were stated to:
- provide responsible cost-of-living relief that delivers an economic dividend;
- build a stronger, more resilient and more modern economy;
- begin the hard task of budget repair to pay for what is important.
Only a small number of tax measures were delivered in this budget, mostly making good on the pre-election commitments to strengthen the laws targeted at multi-national corporations and strengthen tax integrity.
The budget now forecasts a cash deficit of $36.9 billion (1.5% of GDP) for 2022/23, and a redistribution of expenditure signals the new Government's change in focus.
Key budget announcements
- No changes
- Electric car discount – exemption of electric cars from FBT and import tariffs.
- Taxation of COVID grants – additional grants listed as being non-assessable, non-exempt income.
- Thin capitalisation – a partial rewrite of the rules.
- Digital currencies – confirmation that digital currencies will be excluded from the taxation treatment of foreign currencies.
- Additional funding provided for ATO compliance activities.
- Audit cycle – the proposal for a 3-year audit cycle of SMSF’s will not proceed.
- Downsizer contributions – minimum age to decrease from 60 to 55.
- Residency rule changes – deferred from 1 July 2022 until the ultimate legislation receives Royal Assent.
- Paid parental leave – expanded from 1 July 2023, allowing either parent to claim the payment. Then, from 1 July 2024, the program will be expanded by an additional 2 weeks a year until it reaches 26 weeks from 1 July 2026.
- Child care subsidy – maximum rate to be increased from 85% to 90% for the first child in care. The rate will increase for all families earning less than $530,000 in household income.
- Regional first home buyer scheme – establish a fund to support eligible first home buyers in a regional area to purchase their first home with a minimum 5% deposit.
- Penalty units – increasing from $222 to $275 from 1 January 2023.
Electric car discount
The Government has announced that, from 1 July 2022, it will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 for 2022/23) and providing the car has not been held or used before 1 July 2022. Employers will still need to include these exempt benefits in an employee’s reportable fringe benefits amount.
Taxation of COVID grants
The following COVID related grants have been added to the list of grants eligible to be treated as non-assessable, non-exempt income (meaning business are not required to pay tax on them):
- Victoria Business Costs Assistance Program Four – Construction
- Victoria Licenced Hospitality Venue Fund 2021 – July Extension
- Victoria License, 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
- Australian Capital Territory HOMEFRONT 3 and
- Australian Capital Territory Small Business Hardship Scheme.
The only announced significant rewrite of taxation legislation under this budget is to the thin capitalisation provisions. These rules essentially limit tax deductions in relation to debt for certain cross-border investments where certain limits are exceeded.
Under current legislation these limits are the greater of the amounts allowed under:
- the safe harbour debt test
- the arm’s length debt test and
- the worldwide gearing debt test.
It is now being proposed to:
- replace the safe harbour debt test with a new test where debt related deductions would be limited to 30% of profits (using EBITDA — earnings before interest, taxes, depreciation, and amortisation – as the measure of profit)
- allow deductions limited under this new profits-based test to be carried forward and claimed in a subsequent income year (up to 15 years) and
- replace the worldwide gearing test and allow an entity in a group to claim debt-related deductions up to the level of the worldwide group’s net interest expense as a share of earnings (which may exceed the 30 per cent EBITDA ratio).
The Government has confirmed its intention to introduce legislation to ensure digital currencies are not taxed under the rules for foreign currencies unless a digital currency is issued by or under the authority of a government agency.
Additional funding provided for ATO compliance activities
While the Government has continued with its pre-election promise to crack down on multi-national tax avoidance and tax compliance by providing significant additional funding to a number of ATO programs, many of these programs apply to small businesses.
- As a result, it is anticipated that there will also be a significant increase in the number of small business taxpayers receiving additional scrutiny from the ATO under these programs.
The Government has announced it will not be proceeding with the 2018-19 budget announcement to allow self-managed superannuation funds with a good compliance history to have a 3-year audit cycle. Instead, the requirement for annual audits will remain.
The Government has confirmed it will reduce the minimum eligibility age to make a downsizer contribution from 60 to 55 years of age.
Under this concession, an individual can make a one-off post-tax contribution to their superannuation of $300,000 per person ($600,000 per couple) from the proceeds of selling their home (noting there are certain conditions that need to be met).
Residency rule changes
The previously announced self-managed super fund residency rule changes have been delayed from 1 July 2022 to a yet to be determined date, after the associated legislation received Royal Assent.
These measures are intended to extend the safe harbour for the central management and control test from a 2-year to a 5-year period and to remove the active member test from both self-managed superannuation funds and APRA funds.
Paid parental leave
The Government has announced it will expand the paid parental leave scheme from 1 July 2023 by making it more flexible. It will do this by making either parent able to claim the payment and both birth parents and non-birth parents eligible to receive the payment if they meet the criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.
From 1 July 2024, the Government will start expanding the scheme by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026.
Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.
Child care subsidy
The Government has announced it will increase the child care subsidy rate from 85% to 90% for a family's first child in care and increase the rate for all families with less than $530,000 in household income.
The rate will lift from 85% to 90% for families earning with household earnings less than $80,000, and the subsidy rate will taper down one percentage point for each additional $5,000 in household income, until the $530,000 maximum limit is reached.
Families will continue to receive the existing higher subsidy rates for multiple children aged 5 or under in child care, with higher rates to cease 26 weeks after the older child’s last session of care, or when the child turns 6 years old.
Regional first home buyer scheme
The Government has announced it will establish a Regional First Home Buyers Scheme to support eligible citizens and permanent residents who have lived in a regional location for more than 12 months to purchase their first home in that location with a minimum 5% deposit. This will be limited to 10,000 places per year to 30 June 2026.
From 1 January, the Government will increase the Commonwealth penalty unit from $222 to $275.
For more information visit budget.gov.au. If you have specific questions about how this budget may impact you or your business, please speak with your local Boyce accountant.
Please note that the budget measures will only take effect once they become law.
WEBINAR - Economic Update with Thomas Pickett-Heaps
13 October 2022
On Thursday 13th October, Boyce Financial Services hosted a webinar with Thomas Pickett-Heaps giving an economic update.
Covered in this webinar was
• Market updates
• Macroeconomics theme shaping the market
• Portfolio construction
The webinar was recorded and can be viewed below.
Apply for your Director Identification Number
16 September 2022
The deadline of 30 November 2022 is fast approaching, it is important that you apply for your Director ID as soon as possible if you haven’t already done so.
PLEASE NOTE: OBTAINING A DIRECTOR ID IS A LEGAL REQUIREMENT
What is a Director ID?
The director ID is a 15-digit unique identifier a director applies for once only and keeps forever, like a Tax File Number. It confirms a director’s identity and (once the functionality is available) will show which companies they’re linked to. The director ID will help prevent the use of false or fraudulent director identities.
How to apply
All directors must apply for your Director ID yourself as you will need to provide proof of your identity.
There are three ways you can apply:
Ø Online – via myGovID
Ø By Phone
Ø By paper
Step 1 – Setup myGovID
You will need a myGovID with a standard or strong identity strength to apply for a Director ID online. You can set up your myGovID here. When setting this up please make sure to include your middle name to help with data matching. It is also a good idea to ensure that the residential address on your proof of identity documents is the same as the address that is held by the ATO.
PLEASE NOTE: myGovID is different from myGov account.
Step 2 – Documents Required
You will need to gather some information that can be compared to information held by the ATO in order to verify your identity when you apply for your director ID. This includes:
· Tax file number
· Residential address as held by the ATO
· Need to provide information from two documents to verify your identity.
Examples of the documents you can use include:
- Bank account details (must be the same as what the ATO has on record)
- An ATO notice of assessment
- Super account details (must match the ATO records)
- A dividend statement
- Centrelink payment summary
- PAYG payment summary
If you require our assistance in finding this documentation, please contact your local Boyce team member.
Once you have your myGovID and two documents from the above list to verify your identity, you are now ready to apply for your Director ID online. You can get started online here.
Once you receive your Director ID you will need to pass onto the company secretary and Boyce team member or your ASIC agent.
Applying by phone – 13 62 50
To apply by phone you will need your Australian tax file number (TFN) and the information to verify your identity (see the list above).
Applying by paper form
If you are unable to apply online or by phone, you can apply by clicking on the following link for a paper form at Application for a director identification number. Please note this is a slower process and you will need to provide certified copies of your documents to verify your identity.
There are penalties for non-compliance
ASIC is responsible for enforcing director ID offences set out in the Corporations Act 2001. It is a criminal offence if you do not apply on time.
More information about the director identification number can be found on the ABRS website here.
Please contact your local Boyce office if you require further assistance.
Unique opportunities for your superannuation
9 September 2022
Work test removal and contribution flexibility
Are you looking to increase your superannuation balance and have cash or shares personally?
Are you aged between 67 and 75 and no longer working?
Or are you over 60 and planning on selling your home?
Removal of the work test requirement for personal non-concessional contributions
The work test changes have created a unique opportunity for individuals aged 67 to 74 who are interested in making additional contributions to super, but were previously ineligible to contribute.
From 1 July 2022, the work test has been removed for non-concessional contributions, meaning eligible individuals can make these until they turn 75. Non concessional contributions are those where you do not claim a tax deduction.
If you are over 67, you were previously restricted in the type and value of superannuation contributions that you could make – mainly due to the requirement to meet the “work test” – that is you would have had to meet a requirement of 40 hours of gainful employment within a 30 consecutive day period before you were eligible to make most types of superannuation contributions.
Now, as long as your total superannuation balance was below the $1.7 million threshold on the 30 June prior to the contribution, you may be eligible to make new contributions to your superannuation balance, for example, by transferring shares or cash into a super fund.
Eligibility for bring forward non-concessional contributions also extended
The age restriction on using the bring forward provisions to make up to three years of contributions in one year has also been lifted.
This means a contribution of up to $330,000 (based on the current limits) could be made up to age 75. The timing and value of the total potential contribution will depend on your individual circumstances but may present an opportunity to add to your superannuation balance.
From an estate planning perspective, adult children pay tax on the taxable component of their parent’s super benefits at a maximum rate of 15% (plus Medicare), if received directly from the super fund.
By converting taxable super components to non-taxable via a “recontribution strategy”, adult beneficiaries can potentially eliminate the tax on these amounts.
If you do not have additional funds to make a contribution to super, instead the new contribution rules can be used to reduce the taxable component within your superannuation fund.
It is important to note any recontribution strategy will use an individual’s existing contribution cap space, without directly increasing their super balance. If you have, or plan, to make additional contributions in the short to medium term, care should be taken to determine the merits of a re-contribution strategy.
Eligibility for downsizer contributions extended to age 60
The downsizer contribution allows many older Australians to make additional contributions to their super when they sell their main residence as there is a separate contribution cap.
From 1 July 2022, if you are over 60 and sell your principal residence (which you and/or your partner has held for more than 10 years) then a contribution of $300,000 per member of a couple may be made to superannuation.
Having more savings inside superannuation and gaining the longer-term benefits from investing in the tax effective environment of super, is a great incentive to utilise this change.
But there are strict rules around advising your super fund that these types of contributions are being used– and the timing of the contributions – so specialist advice is recommended.
If any of the above situations apply to you contact your Boyce adviser.
The heat is on
16 August 2022
The heat has been on central banks around the world trying to keep inflation under control. We have seen three consecutive rate rises by the RBA, the most numerous since 2010. Similar monetary policy tightening has been seen in other jurisdictions, notably the US where the last inflation figure was 8.6%. Central banks are walking a tightrope as they try to manage inflation while at the same time trying to avoid a material economic slowdown.
One of the challenges is that many of the inflationary pressures we have observed have been driven by supply side issues caused by the pandemic. This has been coupled with the war in Ukraine which together have driven up the price of everything from building materials to food and energy costs.
There are some initial signs, however, that the heat may be coming off some of the areas that have been driving inflation. Globally, there is evidence of weaker demand in weaker Purchasing Managers’ Index (PMI) figures, opening up some spare capacity and allowing supply conditions to improve.
Other signs of the heat coming out of the economy are emerging. The most visible and arguably high-profile, given many of us have exposure, is the housing sector. The Australian housing market is showing signs of softening with auction clearance rates at two-year lows according to CoreLogic data. Sydney has recorded the sharpest fall in house prices, falling by 1.6% in June. We have also seen a string of construction companies go into liquidation, the most recent being Langford Jones Homes in Victoria.
Market Developments During July 2022 included:
The Australian share market finished July with the S&P/ASX 200 rebounding sharply by 5.75% and ten out of eleven sectors finishing higher. The Information Technology (+15.23%) and Property (+11.93%) sectors led the rebound for the month. Meanwhile, the only negative finisher for the month was the Materials (-0.67%) sector.
Throughout the month, market participants continued to evaluate worldwide central bank monetary policy and the release of economic data as the broader market enjoyed a ‘relief rally’. The Information Technology and Property sector rallied as investors rotated into previously out of favour sectors with large year-to-date losses. The Materials sector was a noteworthy underperformer as worldwide recessionary fears continued to intensify given the continuing geopolitical and macroeconomic uncertainty.
Worldwide risk assets saw a positive return for the first time since December last year over the month of July, albeit with recession fears becoming a reality in the US. Developed markets steeply increased by 6.4%, with Global small caps outperforming their large cap counterparts producing an 8.0% return by month end. Emerging and Asian markets did not fare as well as their Developed market peers, returning -1.7% and -0.6% respectively. As economic data continues to indicate a slowing global economy and inflation rises persist, July's respite was primarily driven by markets pricing in potential interest rate cuts by central banks in 2023.
Building inflation concerns, recession fears and interest rate hikes have dominated and influenced global fixed income markets throughout July. The 10-year global bond yields declined sharply in July due to softening economic data. A broad relief rally in global bonds reversed some of the YTD underperformance. Australian 2 Year Bonds remained relatively stable, rising by only 7bps, while Australian 10 Year Bonds steadily dropped by 60bps throughout the month. With the decline in bond yields and narrowing of credit spreads, the Bloomberg Ausbond Composite Index gained 3.36% in July.
Globally, the story is much the same as markets increase expectations for future Federal Reserve rate hikes. Inflation in the US has now accelerated to 9.1%, the highest since 1981. Following the 26-27 July meeting, the Federal Reserve increased interest rates by 75bps, bringing the annual rate to 2.25%. Over the course of July, US 90 Day T- Bills rose by 69bps while US 10 Year Bonds dropped 37bps. July provided some relief to global bonds, with the Bloomberg Barclays Global Aggregate Index (AUD hedged) returning 2.49% during the month.
Persistent inflation pressures, supply chain problems and tightening monetary policy will continue
affecting local and global fixed income markets for some time.
REITs Listed Property Securities
July experienced a considerable turnaround in performance for both the local A-REIT market and the broader Global real estate equities market with the S&P/ASX 200 A-REIT Index (AUD) and the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged) advancing 11.9% and 7.7% month on month, respectively.
Globally REITs have been bolstered by a strong second-quarter earnings season and investors having largely priced in the effects of the Fed’s monetary policy. The Australian residential property market experienced a –1.4% change month on month represented by Core Logic’s five capital city aggregate. Sydney (-2.2%), Melbourne (-1.5%) and Brisbane (-0.9%) were the worst performers. Adelaide continues to show strength (+0.4%) moving to +24% YoY with Perth (+0.2%) staying relatively neutral.