In the Tax Institute’s weekly TaxVine email (No 23, 1.7.22) its Tax Policy and Advocacy team surveyed what will change in this new financial year (from 1 July 2022) what’s new, what ends, what’s stranded and what the new Government might do themselves.
This year, we face the additional challenge of pending tax policies from the Federal Budget 2022–23 (and previous budgets) and the recent Federal election campaign, increasing debt and lodgment correspondence from the ATO and the overflow of work from previous years due to COVID–19.
To support our members through this challenging period, The Tax Institute’s Tax Policy and Advocacy (TPA) team have prepared a suite of products and resources to assist you with understanding what has changed for 2022–23. These products include:
- End of Financial Year planning checklist that contains key considerations for end of financial year planning and compliance. This checklist will be updated for developments throughout the year.
- Tax Rates Tables containing a comprehensive summary of federal and state tax rates for recent years (due to be released next week).
- State of Tax Policy Report: May 2022: issued on a regular basis, contains the status of tax legislation, bills and announcements with helpful hyperlinks to source materials.
- What to expect from 1 July 2022 blog provides a detailed summary of the measures commencing 1 July 2022. This checklist will be updated for changes throughout the year.
- Incoming Government Brief: June 2022: provided to the Treasurer, the Hon Dr Jim Chalmers MP and more than 20 other recipients on 20 June 2022, provides a summary of the key tax and superannuation priorities for the new Government.
What can we expect from 1 July 2022?
Section 100A – ATO guidance
The ATO’s guidance on professional firm profits (PCG 2021/4) will apply for arrangements commencing 1 July 2022. Taxpayers with pre-existing arrangements that comply with Assessing the risk: allocation of profits within professional firms (suspended guidelines), suspended on 14 December 2017, will be able to rely on the suspended guidelines until 30 June 2024.
The ATO’s draft guidance materials on section 100A, draft Taxation Ruling TR 2022/D1 and draft Practical Compliance Guideline PCG 2022/D1, will generally apply to present entitlements conferred from 1 July 2022. Taxpayers can rely on the administrative treatment published by the ATO in their July 2014 web guidance for pre-1 July 2022 arrangements, where the older web guidance provides a more favourable outcome than the draft PCG when applying section 100A.
The ATO has also provided simplified web guidance for registered tax agents and trustees dealing with trust distributions for 2021–22 when section 100A may apply. While this is designed for distributions for the 2021–22 income year, it is equally relevant to the 2022–23 and later income years.
Division 7A – UPE’s – ATO guidance
The ATO’s draft Taxation Determination TD 2022/D1 (Determination) issued on 23 February 2022 sets out when an unpaid present entitlement or an amount held on sub‑trust will be considered to be the provision of financial accommodation and subject to Division 7A. The Determination is proposed to replace Taxation Ruling TR 2010/3 and Practice Statement Law Administration PS LA 2010/4 which will be withdrawn with effect from 1 July 2022. The Commissioner will not dedicate compliance resources where taxpayers have relied on TR 2010/3 and PS LA 2010/4 for trust entitlements arising before 1 July 2022.
Superannuation
From 1 July 2022, several changes will apply to superannuation, many of which will be welcomed by superannuants. These consist of:
- An increase in the superannuation guarantee (SG) charge percentage from 10% to 10.5%. This applies to payments made from 1 July 2022 irrespective of when the work was done.
- The removal of the work test for individuals aged 67–75 for non-concessional contributions and salary sacrifice contributions. The work test continues to apply to personal deductible contributions for those aged 67–75.
- The removal of the $450 monthly income threshold for mandatory SG contributions.
- The reduction in the eligibility age for downsizer contributions from 65 years or over to 60 years or over, providing the individual meets the other eligibility requirements.
- The increase in the eligibility age for the non-concessional contribution bring-forward rule from 67 years or less to 75 years or less, subject to other eligibility rules.
Continuing measures
Measures that continue to apply for 2022–23 include:
- Temporary full expensing of eligible depreciating assets for business entities with an aggregated turnover of less than $5 billion (or that satisfy the alternative income test).
- Company loss carry back tax offset whereby eligible entities can choose to carry back the tax equivalent amount of tax losses against tax paid on taxable income in 2018–19, 2019–20, 2020–21 or 2021–22 by claiming a refundable offset in the company’s 2021, 2022 or 2023 tax return.
- The halving of the minimum pension draw down rates.
Other measures
Other measures that will apply from 1 July 2022 include:
- The removal of the cessation of employment as a taxing point for deferred taxation of employee share scheme interests.
- Taxing corporate collective investment vehicles (CCIVs) on a flow-through basis to ensure their tax treatment aligns with that applying to attributed managed investment trusts (AMITs).
Unenacted measures proposed to commence from 1 July 2022
The timing of the Federal election has resulted in the lapsing of bills that contained measures proposed to commence from 1 July 2022. Other measures also proposed to start on 1 July 2022 have not progressed beyond an announcement, a discussion paper or exposure draft legislation and remain unenacted. These include:
- The small business skills and training boost
- The small business technology investment boost
- The patent box tax concessions for medical and biotechnological patents, and the expansion to cover the agricultural sector and low emissions technology innovations
- Digital games tax offset
- Removal of the $250 self-education expenses threshold
- Reporting of certain transactions under the sharing economy reporting regime
- ABN system reforms that require ABN holders with an income tax return obligation to lodge their income tax return.
During the recent Federal election campaign, Labor announced an Electric Car Discount. This measure proposes to exempt from FBT and the 5% import tariff, electric vehicles supplied or imported from 1 July 2022 that are subject to the luxury car tax threshold for fuel efficient vehicles ($84,916 for 2022–23).
The above measures all need to be legislated, and in some cases such as the patent box measure, further consultation is needed. Our blog, What to expect from 1 July 2022, provides further information on the above measures and will be regularly updated for developments.
What measures have ended?
It is also important to understand what measures are no longer available for taxpayers.
- From 1 July 2022, the Low and Middle Income tax offset (LMITO) ends, however the LMITO will continue to automatically form part of an eligible taxpayer’s assessment once they lodge their 2021–22 income tax return.
- The working from home (WFH) 80 cents per hour shortcut method also ceases to be available from 1 July 2022, although of course, it can still be claimed in the 2021–22 income tax return. The ATO is currently reviewing the 52 cents per hour fixed rate method for claiming WFH expenses from 1 July 2022.
- The temporary 50% reduction in the fuel excise will expire on 30 September 2022.
Closing comments
The updated Federal Budget 2022–23, expected to be released on or around 25 October 2022, presents an opportunity for the Government to address concerns raised from Board of Taxation reviews, including corporate and individual residency, and implement policies to reduce the cost of living for Australians as we face the unfamiliar peril of rising inflation.
The boosting of the childcare subsidy, although not a tax measure, also provides an opportunity for the Government to incentivise workforce participation and assist with Australia’s COVID-19 economic recovery.
Tax Policy and Advocacy Team
[Tax Month – June 2022 – Previous Month, 1.7.22]