2022-23 Budget Update: Australian states tax reforms

Australian states tax reforms-

Significant stamp duty and land tax changes have been proposed in a number of Australian states and territories, with ramifications for property acquisition and development, mergers and acquisitions, foreign investment and trustees.

21 June 2022 brought the last of the budget announcements before the end of the financial year with New South Wales and Queensland closing out the States. The ACT is expected to deliver its budget on 2 August 2022.

The Federal Government handed down its 2022/23 budget on 29 March 2022. This budget was primarily targeted towards planning a strong and sustainable future for Australia. Having achieved the objective of a low unemployment rate, the Government is focusing its efforts on growing the economy to stabilize and reduce debt.

Key tax measures include:

  • Reduced compliance of Employee Share Schemes
  • Expansion of proposed ‘patent box regime
  • Improvement of the PAYG instalment system
  • Digitalization of reporting for trust returns
  • Additional deductions in connection with technology and external training courses provided to employees

Below is a brief summary of the key tax measures announced in the Budget.

1. Employee Share Schemes

The Government intends to improve the Employee Share Scheme (ESS) rules by reducing disclosure requirements and red tape to broaden access for all employees and foster direct participation in the growth of their employer, irrespective of the positions of employees.

The proposed changes will enable unlisted companies to make large offers of ESS interests where participants can invest up to:

  1. $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70 per cent of dividends and cash bonuses; or
  2. any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests in the company at a profit.

The Government further announced the removal of regulatory requirements for offers to independent contractors, where they do not have to pay for interests in shares in the company.

2. Patent Box Regime

The Patent Box Regime was first announced in last year’s budget, for the purpose of protecting and promoting Australian established innovation, by encouraging medical and biotechnology companies to create their patents in Australia. The effect of this was that eligible patents in the medical and biotechnology space would be entitled to obtain a reduced corporate income tax rate of 17%, commencing 1 July 2022.

The Government will be expanding the Patent Box Regime by including the agricultural sector and low emissions technology sector. Accordingly, eligible patents linked to the agricultural sector and low emissions technology innovations will receive concessional treatment from 1 July 2023. It is hoped that the expansion of the Patent Box Regime will support the Government’s goal of achieving net zero emissions by 2050.

3. Improvement of PAYG instalment system

It was announced that the PAYG instalment system would be updated in the following ways:

  1. Business taxpayers can elect to have the Australian Taxation Office (ATO) calculate their quarterly PAYG instalment amount based on current financial performance, which is to be extracted from accounting software, taking into consideration some tax adjustments.
  2. This improvement is subject to advice from software providers and their capacity and ability to deliver this regime to be in place by 31 December 2023. The measure will then commence on 1 January 2024.
  3. The Gross Domestic Product (GDP) uplift factor will be set at a flat rate of 2 per cent for the 2022/23 financial year. The purpose of this measure is to provide cash flow support to small businesses. This will apply to:

(a) businesses with an annual aggregated turnover of up to $10 million in respect of GST instalments; and
(b) businesses with an annual aggregated turnover of up to $50 million in respect of PAYG instalments.

4. Digitalization of trust income reporting

The Government announced that it will digitalize trust and beneficiary income reporting and processing, to ensure all trusts have the option to lodge returns electronically from 1 July 2024. This will allow for beneficiaries to pre-fill their tax returns and result in a faster processing time.

5. Additional deductions for technology and external training courses

It was announced that two support measures will be offered to small businesses (entities which meet the small business eligibility criteria), specifically targeted at technology investment and skills and training.

a. Technology investment

The Government is supporting digital adoption by small business, where small businesses will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption.

The deduction will be subject to an annual cap which will apply in each financial year to ensure that annual expenditure of up to $100,000 will be eligible for the deduction.

This measure will apply to eligible expenditure (ie meeting the appropriate criteria) from 7.30pm (AEDT) 29 March 2022, until 30 June 2023.

b. Skills and training – external training courses

Small businesses will be able to deduct an additional 20 per cent of expenditure incurred in providing external training courses to their employees, provided the training sessions are provided to employees in Australia, or online, and delivered by entities registered in Australia. It is important to note that some exclusions will apply, such as in-house or on-the-job training and expenditure on external training courses for persons who are not employees.

This measure will apply to eligible expenditure from 7.30pm (AEDT) 29 March 2022, until 30 June 2023.

c. COVID-19 measures will not be extended beyond 30 June 2023

The Government has elected to not extend a range of COVID-19 support measures which were previously geared towards incentivizing investment in Australian businesses and assisting in the recovery of the COVID-19 pandemic.