Last night the new Labor Government handed down its October 2022/23 Federal Budget.
The Government referred to this Budget as solid, sensible and suitable for the times, with a focus on trying to address the cost of living pressures. The announcements were limited from a tax and wealth perspective and had largely all been communicated prior to the Budget speech. Including the following:
· Decreasing the eligibility age for downsizer contributions from age 60 to 55;
· Amending residency tests for SMSFs;
· Increasing access to the Commonwealth Seniors Health Card by raising the cut-off income limits; and
· Making child care cheaper for more Australians.
Taxation
Taxation reform
In line with expectations set in the lead-up to the Federal Budget, the Government did not make any significant announcements from a taxation perspective. There were measures announced to help strengthen the integrity of the tax system in Australia, particularly for multinational companies, and effective increases to the level of penalties that could be imposed. However, there were no announcements from a personal taxation perspective. In particular:
· There was no announcement of any changes to the personal income tax changes due to take effect from 1 July 2024,
· There was no announcement of an additional extension of the low and middle income tax offset that ceased from 30 June 2022,
· There was no extension of the previous cuts made to fuel excise tariffs that ceased to apply on 29 September 2022.
Fringe benefits tax (FBT) exemption on electric cars
As part of a broader push for reducing reliance on fossil fuels and improving climate change outcomes, the Government has announced that it will make electric vehicles cheaper. Under this measure, no fringe benefits tax or import tariffs will be payable where an employee chooses to salary package a car with their employer, and the motor vehicle is a battery, hydrogen fuel cell or plug-in hybrid electric car.
To qualify, the car must not have been held or used before 1 July 2022 and must have a first retail price below the luxury car tax threshold for fuel-efficient cars (set at $84,916 for 2022/23).
Increasing the rate of penalty units
Many of the taxation announcements by the Government were focused on the integrity of the taxation system, with penalties for breaches often calculated by reference to penalty units. The Government has announced an increase in the value of a penalty unit from $222 to $275 from 1 January 2023.
Superannuation
Downsizing contribution changes to the eligibility age
The Government has reconfirmed their previously stated commitment to allow more people to make downsizer contributions to their superannuation, by reducing the minimum eligibility age from age 60 to age 55.
The downsizer contribution will continue to allow eligible individuals to make a one-off after-tax contribution to their superannuation of up to $300,000 (non-indexed) per person from the proceeds following the sale of their home.
The measure provides greater flexibility for older Australians to contribute to their superannuation, while encouraging them to downsize their home sooner for a place better suited to their needs, increasing the availability of suitable housing stock for Australian families.
Relaxing the residency rules for SMSFs
The Government has reviewed and will now delay the previous Government’s measure to relax residency requirements for SMSFs and small APRA-regulated funds (SAFs).
The former announcement from the 2021-22 Federal Budget will relax residency requirements by:
· extending the central management and control temporary absence period for members of SMSFs from the current two years up to five years, and
· removing the active member test.
SMSF and SAF members would have the opportunity to continue to make contributions to their preferred fund while temporarily overseas. This measure will allow comparable contribution treatment to members of SMSFs and SAFs to that of APRA regulated funds while overseas.
Not proceeding with 3-year audit cycle for SMSFs
The Government has reviewed and will not proceed with the previous Government’s measure to change the annual audit requirements to a three-yearly requirement for SMSFs with a history of good record keeping and compliance.
The former announcement from the 2018-19 Federal Budget would have allowed SMSF trustees that have three consecutive years of clear audits and a history of having lodged annual returns in a timely manner to move to a three-yearly requirement cycle for audits.
Social Security
Commonwealth Seniors Health Card (CSHC) income threshold increase
The CSHC income test eligibility limits will increase to $90,000 a year for singles and $144,000 for couples (combined) who are not separated by illness, respite care or prison.
The CSHC provides access to Government health concessions, including:
· Concessional co-payments for Pharmaceutical Benefits Scheme medicines;
· Concessional thresholds for the Pharmaceutical Benefits Scheme Safety Net and the Extended Medicare Safety Net; and
· Bulk-billed visits to a general practitioner (at the doctor’s discretion).
Freezing deeming rates
The Government has committed to freezing deeming rates at their current levels for two years until 30 June 2024. Retaining the rate at 0.25% for the lower asset limit ($56,400 for singles and $93,600 for couples) and 2.25% for any amounts above the lower asset limit.
Incentivise pensioners to downsize
The Government expanded the exemption of home sale proceeds from pension asset testing from 12 to 24 months to allow pensioners more time to purchase, build or renovate before their pension is affected.
Increase in the Child Care Subsidy
The Government will increase the childcare subsidies available to families from 1 July 2023. This will be facilitated by increasing the potential subsidy percentage to a maximum of 90% for families earning up to $80,000 and applying a single taper rate of 1% for every $5,000 of income over $80,000. Families must earn less than $530,000 to receive the subsidy.
Enhanced Paid parental leave
The Government will introduce reforms from 1 July 2023 to make the Paid Parental Leave Scheme flexible for families so that either parent is able to claim the payment and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.
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
We trust this information is a useful resource for you and your business. If you have any questions about the Budget, please email info@vatcpa.com.au or call on (03) 9584 2277.
It is important to note that some of the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement.
Any advice in this Federal Budget Analysis has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs.