Budget October 2022: Sign Of The Times
ASF TAKEAWAYS: The first Labour budget in ten years was all about resetting the new government's policy agenda, with a focus on the delivery of election promises and targeting efficiency dividends in its operations. Treasurer Jim Chalmers outlined his five point plan to ease the cost of living – cheaper childcare, paid parental leave, cheaper medicine, housing affordability and wage growth. Amongst the big picture announcements, the Government outlined a cheaper childcare scheme aimed at getting more parents back into the workforce, with paid parental leave expansions supporting this further.
Reductions to the Pharmaceutical Benefits Scheme’s maximum general co-payment from 1 January 2023 will result in cheaper medicine for millions of Australians and entering the housing market will be made more affordable through the National Housing Accord between governments, investors and industry. The truth will be in the detail when legislation is actually introduced.
KEY CHANGES FOR BUSINESSES
Establishment of the National Reconstruction Fund
Aiming at partnering with the private sector to support investments capable of growing the economy and increasing employment. This $15 billion fund will focus on regional development in a form of loans, guarantees and equity.
Key sectors that will benefit from the NRF include:
Resources
Agriculture, forestry, and fisheries
Transport
Medical science
Renewables and low-emission technologies
Defence
Enabling capabilities.
ASF Comment: this is certainly a different approach to the former Liberal governments, with the delivery of the NRF funds via loans, guarantees, and equity. The main concern with this scheme is that the funds may only start flowing after the NRF is established over the next two years.
Depreciation of Intangible Depreciable Assets
The Morrison Govt. had earmarked the ability of taxpayers to self-assess the effective life of intangible depreciable assets as a key cog in its Digital Economy Strategy. The Labour Govt. has decided to reverse this measure and maintain the status quo, that is, the effective life would be determined by legislation.
The superseded measures (which were due to commence with assets acquired from 1 July 2023) would have allowed business operators to self-assess the effective life of intangible depreciating assets in calculating their annual depreciation. This would have applied to patents, registered designs, copyrights, and in-house software.
ASF Comment: the current Govt. was concerned about the imprecision and ambiguity surrounding the previous announcement, but it needs to ensure that Australia is well-positioned as a leading digital economy.
Fringe Benefit Exemption for Electric Vehicles
As previously announced, the Govt. will provide an exemption from FBT for electronic vehicles commencing from 1 July 2022. The FBT exemption will apply to battery, hydrogen fuel cell and plug-in hybrid electric cars that are below the luxury car tax threshold for fuel-efficient cars (being $84,916 for the 2022-23 financial year) and first held and used from 1 July 2022.
ASF Comment: this is a welcome measure as it focuses on the climate impact, but there are several disadvantages to consider:
The vehicle price is capped to the luxury car tax threshold.
The exempt electric vehicle will still be subject to reportable fringe benefits. This means it may impact on the individual employee’s entitlement to certain tax concessions or obligation to certain tax liabilities, depending on the individual employee’s circumstances.
There is additional administration required for employers. Employers will still need to calculate the fringe benefit for reportable fringe benefit purposes, even though the benefit is exempt from FBT.
Only employees can benefit from this exemption. Therefore, private individuals and sole traders are not eligible for any exemption.
It will be reviewed in three years’ time, which may provide uncertainty to employers setting up these arrangements if they only provide a short-term benefit.
SMALL BUSINESS OWNERS SUPPORT
Over the next two calendar years, extended support for the Small Business Debt Helpline and the NewAccess for Small Business program.
The Small Business Debt Helpline is a free service offered to small business owners in financial difficulty, allowing them to speak confidentially to qualified financial counsellors.
The NewAccess for Small Business Owners program is a free and confidential, guided self-help mental health coaching program. The program is developed by Beyond Blue and offers small business owners the opportunity to: X Talk through their challenges X Develop a problem statement X Create a plan based on their needs.
ASF Comment: programs supporting the mental health of business owners, and all Australians are welcomed.
HOUSING ACCORD AND AFFORDABLE HOUSING
The Government has announced a Housing Accord with a target to build one million homes in five years commencing from 2024-25. It has outlined three key measures it believes will assist to provide more affordable housing.
For five years from 2024-2025, the Govt. will commit $350m building an additional 10,000 affordable homes. This will be matched by the State and Territory Govt.'s also committing to building 10,000 homes collectively.
Establish the Help to Buy Scheme, which will assist low to moderate-income earners to purchase new or existing homes with an equity contribution from the Govt. It intends to take a proportionate ownership stake in the home, recoverable at the time of the sale of the property. The Govt. estimates costs of $324.6m for this measure.
The Government will invest $10 billion in the Housing Australia Future Fund, which will generate returns that will fund 30,000 social and affordable homes over five years.
ASF Comment: Whilst an ambitious target, whether it is achievable in the current market with its material supply constraints remains to be seen.
PREVIOUSLY ANNOUNCED BUT NOT LEGISLATED TAX MEASURES
There are several Morrison Govt. announced initiatives that have been scraped altogether or deferred. The more pertinent ones are the;
Cancelled Measures
Changes to a three-yearly audit requirement for SMSFs with a history of good record keeping and compliance to reduce red tape and compliance costs.
Recommendation by the Black Economy Taskforce to introduce a limit of $10,000 for cash payments to tackle tax evasion and money laundering.
Deferred Measures
Relaxing residency requirements for SMSFs to provide flexibility while temporarily overseas by extending the central control and management test safe harbour and removing the active member test. This will be enforced from the date this legislation receives Royal Assent.
ASF Comment: not surprising the Labour Govt. has tried to sweep some of the announced but not legislated measures out - some had been announced in the 2013-14 FY so their impact would be significantly different in today's climate.
KEY CHANGES FOR INDIVIDUALS
TAXATION OF DIGITAL CURRENCIES
The Govt. has affirmed its commitment to treat digital currencies as capital assets rather than as a foreign currency. Currently, there is an argument that digital currencies could possibly be treated the same as foreign currencies, where the gain or loss on their use is assessable or deductible.
This puts digital currencies on the same footing as shares etc. Taxpayers will be entitled to the 50% Capital Gains Tax (CGT) discount on any profits realised but will no longer be entitled to claim a deduction for any losses against ordinary income, unless they can show they hold the cryptocurrency on revenue account.
DOWNSIZER SUPERANNUATION CONTRIBUTION ELIGIBILITY
The Government has confirmed its earlier announcement that the eligibility age to make downsizer contributions of up to $300,000 per person in a couple, will be reduced from 60 to 55 years of age. Other eligibility criteria remain unchanged.
The Government has offered further incentives to older Australians to downsize their home. Extending the exemption for the asset test from 12 to 24 months and applying only the lower deeming rate of 0.25% to the proceeds for the first 24 months after the sale of the principal place of residence, is designed to reduce the financial impact on older Australians who choose to downsize.
PLAN FOR CHEAPER CHILDCARE
$4.7 billion will be provided over four years from 2022-23 to deliver cheaper childcare.
As part of the proposed amendments:
The maximum Child Care Subsidy (CCS) rate has increased to 90% from 85% in prior years.
An increase to the CCS rate for all families earning less than $530,000 in household income.
Whilst the current higher CCS rate for families with multiple children aged five or under has remained unchanged, the higher rate will cease 26 weeks after the oldest child’s last session.
A comprehensive 12-month inquiry into the cost of childcare will be undertaken by the Australian Competition and Consumer Commission, and a review of the childcare sector by the Productivity Commission.
Large providers will be required to publicly report their CCS-related profits, in order to improve the transparency of the childcare sector.
A further $33.7 million over four years from 2022–23 will be provided to introduce a base entitlement to 36 hours per fortnight of subsidised early childhood education and care for families with First Nations children, regardless of activity hours or income level.
UPLIFT FOR PAID PARENTAL LEAVE
The Federal Govt. continues to make improvements to this scheme, committing another $531.6m over four years to this program.
The scheme will now allow either parent to claim the payment concurrently on a ‘use it or lose it’ basis (specifics have not yet been announced).
These announcements also expand both the definition and quantum of parental leave, allowing both eligible birth parents and non-birth parents to receive the payment. The scheme starts with 20 weeks of leave in the 2023 financial year, and this will be extended by two weeks per financial year, until the target of 26 weeks is achieved from 1 July 2026.
ASF Comment: none of the announcements pertaining to individuals is a surprise, as they had been part of the Labour Parties' election promises. It is good to see that the Govt. is intent on delivering, and schemes such as the paid parental leave and cheaper child care will allow for more women to return to the workforce and contribute to a brighter future for Australia.
The Team at ASF will be happy to discuss these changes in more detail.