In the Tax Institute’s Members Newsletter: TaxVine No. 18, their General Manager of Tax Policy and Advocacy (TPA), Scott Treatt, CTA, reflects on the outcome of the Federal election and the implications from a tax policy perspective.
How is our Parliament shaping up?
We now know that, not only is Anthony Albanese as Australia’s 31st Prime Minister, but that the Australian Labor Party, has an absolute majority in the House of Representatives, and will not be a minority Government. He also, now, has a full Ministry sworn in, in time the resumption of the 47th Parliament, immediately, on the return of writs. At the time of writing (2 weeks after the election), the Senate is not finally resolved, with two seats still in doubt. The position is complex (see related TT article) but the wash up seems to be that Labor and the Greens have 38 seats (1/2) – enough to block but not enough to pass legislation – needing at least one other cross-bencher (or even a coalition senator) to pass its legislation. The opposite is the case for the Coalition – with all other independents, they could block (but not pass legislation).
Irrespective of how quickly Parliament resumes, passing legislation may potentially be another story. On prorogation of the 46th Parliament on 11 April 2022, all bills before the House of Representatives lapsed; those before the Senate will lapse on 1 July 2022. Any lapsed bills would need to be reintroduced into Parliament if they are to proceed. Labor does not have a majority in the Senate, and to pass legislation, will have to negotiate with the ‘Cross Bench’.
The new Treasurer, the Hon Jim Chalmers MP, has undertaken to release an updated Budget position for 2022–23 in October 2022. This will present an opportunity for clarification of announced and unenacted policies and for further tax measures to be announced.
What measures have been passed?
We have already shared with you our most recent State of Tax Policy Report: May 2022 that sets out the status of measures when the election was called. A number of key measures benefitting primarily employees and individual taxpayers were passed and enacted prior to the prorogation of the 46th Parliament. These include the following:
- Cost of living tax offset — This temporary increase in the Low and Middle Income tax offset (LMITO) provides an additional $420 to eligible taxpayers for the 2021–22 income year.
- Tax deductibility of COVID-19 tests — Section 25-125 has been inserted into the Income Tax Assessment Act 1997 (ITAA 1997), enabling individuals to claim a deduction for the costs of COVID-19 tests where there is a work-related purpose and the purpose of the test is to determine whether the individual can attend or remain at a place of work to gain or produce assessable income.
- PAYG and GST instalments — The GDP uplift rate for the 2022–23 income year has been reduced from 10% to 2% for eligible taxpayers on their PAYG and GST instalments.
- Medicare levy income thresholds — Annual minor increases for indexation were made to the Medicare Levy low income thresholds for the 2021–22 income year.
These measures are contained in the Treasury Laws Amendment (Cost of Living Support and Other Measures) Act 2022.
What measures are outstanding?
Business taxpayers have less certainty, with the details of several Federal Budget 2022–23 (Budget) measures now unlikely to be confirmed until the Spring 2022 sitting, or later, in the expected October Budget. Some of the key lapsed measures include:
- Skills and training boost for small business — The Budget proposed to increase the deduction for eligible expenditure on external training courses by 20% for businesses with an aggregated turnover of less than $50 million. This measure is proposed to commence from 7:30pm AEDT on 29 March 2022 and end on 30 June 2024.
- Technology investment boost for small businesses — The Budget proposed to increase the deduction for eligible expenditure on digital technology by 20% for businesses with an aggregated turnover of less than $50 million. Expenditure will be capped at $100,000 per annum. This measure is proposed to commence from 7:30pm AEDT on 29 March 2022 and end on 30 June 2023.
- COVID-19 government grants — The Budget proposed to extend the non-assessable non-exempt income tax treatment of payments from certain State and Territory government programs until 30 June 2022.
- Patent box expansion — The proposed expansion of the patent box regime to include the agricultural sector and low emissions technology innovations (announced in the Federal Budget 2022–23) is yet to be legislated, and the lapsed bill containing the proposed patent box regime for the medical and biotechnology sectors (announced in the Federal Budget 2021–22) will need to be reintroduced.
We will update our members on these measures as soon as more information is known. In the meantime, further information on the status of all the key tax and superannuation measures can be found in our State of Tax Policy Report: May 2022 here.
Labor election policies
Targeting multinationals
Labor’s pre-election campaign focused on targeting tax avoidance of multinationals, specifically global digital firms. Labor has proposed the following measures:
- Supporting the OECD’s global 15% minimum tax rate and payment of tax in the jurisdiction of the sale.
- Introduction of a thin capitalisation cap of 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA).
- Denying tax deductions for intellectual property payments made to jurisdictions with a favourable tax system.
- Introducing the disclosure of tax paid per jurisdiction, beneficial ownership and dealings with tax havens. For Australian Government tenders greater than $200,000, firms will be required to disclose their country of domicile.
The modelling supporting these measures has been limited, but reports note the potential for tax collections to be only a very small fraction of the overall tax take. To be effective, the tax received from these multinationals must outweigh the potential loss of foreign investment and qualitative benefits these multinationals provide the economy. We await further detail on these measures.
Electric Car Discount
From 1 July 2022, Labor has proposed to allow import tariff and fringe benefits tax exemptions for electric cars costing less than the luxury car tax threshold for fuel efficient vehicles ($79,659 for 2021–22).
What does this mean for the tax system and where does this leave tax reform?
Neither party was interested in considering tax reform as a key election issue. The Tax Institute is committed to furthering the case for tax reform and consider that overlooking tax reform is a missed opportunity for our community. It is very pleasing to see two independents clearly state the need for tax reform.
A simple, efficient and equitable tax system is fundamental for increasing productivity and funding essential services. A strong tax system has the power to discourage negative behaviours and stimulate growth across sectors, and is essential in supporting the community. We will continue to advocate for a fair and strong tax system and provide integral guidance to the Government in all matters of tax. Our role is to ensure the Government is aware of, and properly understands, those tax issues that are a priority for the Australian community.
The Tax Institute is preparing an Incoming Government Brief (Brief) to assist the Government to understand the progress and priority of outstanding tax measures and our priorities. This Brief will be delivered directly to the relevant Labor Ministers, including Jim Chalmers, the new Federal Treasurer, and his advisers, and other independents and minor parties.
We encourage our members to read our Brief when published.
The Case for Change report has demonstrated why our current tax system is no longer sustainable and future fit for the growth of the Australian economy. The debt, at both state and federal level, is substantial. An effective tax system is crucial to ensuring this does not become an impediment for our future generations.
We will continue our open dialogue with the Government. The Brief is a starting point for educating the Government of the importance of effective tax policies for good governance. The Tax Institute, being the only independent professional association focusing solely on tax, will continue to be a key consultation body for education, debate and discussion on tax policy.
Tax reform must be a priority in the next election and we call on our members to support us in progressing this priority.
[Tax Month – May 2022 – Previous Month, 5.6.22]