While an improvement in Australia’s fiscal position for the current year is predicted, it is clear from the Federal Budget handed down by the Labor Government that for companies and corporate entities, bumpy times ahead are expected.
In an attempt to smooth out the bumps, the Budget includes a number of measures to relieve cost of living pressures and modernise our economy. Increases to the Child Care Subsidy, paid parental leave and education spending measures will hopefully go some way to improving staff shortages at least in some sectors.
From a tax perspective, the Budget contains no new taxes – there is some tinkering at the edges, but no significant tax reform measures.
There are, however, a number of revenue raising measures, most of which were announced in Labor’s Plan for a Better Future election commitment, that will have implications for corporates.
Extension of ATO compliance programs
- ATO Tax Avoidance Taskforce boost of $200 million per year over four years from 1 July 2022, and extension of the Taskforce for a further year from 1 July 2025, estimated to increase receipts by $2.8 billion over the four years from 2022–23.
The Taskforce will support the ATO to pursue new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.
- ATO Shadow Economy Program extension for a further three years from 1 July 2023, with the investment of $685.2 million to raise an estimated $2.1 billion over the four years from 2022–23, including an additional $442.3 million in GST payments to the States and Territories.
This program will enable the ATO to continue a strong and coordinated response to target shadow economy activity, protect revenue and level the playing field for those businesses that are following the rules.
Reversal of previously announced measures
- Tax depreciation on intangible assets – scrapping the proposed self-assessment of effective lives of intangible depreciating assets, with the result that effective lives of intangible depreciating assets will continue to be set by statute. Judging by the estimate that this measure will increase receipts by $550.0 million over the four years from 2022–23, this is bad news for corporates holding intangible depreciating assets.
- Debt/equity proposed amendments to section 974-80.
- Taxation of Financial Arrangements (TOFA) hedging rules proposed amendments.
Off market share buy backs
Off market share buy backs undertaken by listed public companies will be aligned with the treatment of on market share buy backs, to apply with effect from 7:30pm AEDT, 25 October 2022.
As this measure is estimated to increase receipts by $550.0 million over four years, it will have an impact on capital reduction strategies for listed companies.
COVID19 payments
Specified COVID19 payments from State and Territory business grants to be made nonassessable, non exempt (NANE) for income tax purposes. This is good news for the recipients of the specified payments prior to 30 June 2022.
Electric vehicles
As announced prior to the Budget, battery, hydrogen fuel cell and plugin hybrid electric cars will be exempt from fringe benefits tax (FBT) and import tariffs if they have a first retail price below the luxury car tax threshold for new fuel efficient cars from 1 July 2022. While there will be FBT savings for employers, as the exempt electric car fringe benefits will need to be included in an employee’s reportable fringe benefits amount, some employees will suffer a claw back of part or all of the benefit of the new exemption.
Multinational Tax Integrity Package
Further to Labor’s
Plan for a Better Future election commitment, the Budget contains the following announcements:
- Thin capitalisation (Australia’s interest limitation) rules to be amended to replace the safe harbour and worldwide gearing tests with earnings based tests to limit debt deductions in line with an entity’s activities (profits).
- Denying deductions for payments relating to intangibles held in low or no tax jurisdictions by significant global entities (entities with global revenue of at least $1 billion) to related parties.
- Improved tax transparency with the introduction of reporting requirements for relevant companies to enhance the tax information they disclose to the public, for income years commencing from 1 July 2023. Impacted entities will be significant global entities, Australian public companies (listed and unlisted) and tenderers for Australian Government contracts worth more than $200,000.
Final thoughts
With an obvious focus on revenue raising measures, companies and corporate entities need to be adequately prepared for a knock on the door from the ATO. Ensuring there are good corporate governance policies, processes and procedures in place to identify and manage tax risks, with up-to-date documentation of those policies, processes and procedures, will be a good first step in being prepared. An ATO review should then be less stressful, and hopefully completed more quickly, than otherwise.
If you would like to discuss preparing for an ATO review or any of the Budget measures, please
get in touch with our
Tax Advisory team.