Australian Federal Budget 2022-2023

The 2022/23 Federal Budget (Budget) was delivered by the Australian Treasurer, the Hon. Josh Frydenberg, on 29 March, 2022 and, while viewed as a ‘pre-election Budget’, it delivered several important business tax and related initiatives.

These initiatives include:

• Expanding the ‘patent box tax regime’ to support practical, technology-focused innovations in the Australian agricultural sector, as well as low emissions technology (with a concessional effective income tax rate of 17% from 1 July, 2023);
• Expanding access to concessional employee share schemes;    
• Increasing concessional tax treatment (e.g. tax averaging) for carbon abatement and biodiversity stewardship income from 1 July, 2022;
• Certain COVID-19 and small business related concessions and incentives; 
• Significant additional spending and resources to extend the operation of the ATO’s Tax Avoidance Taskforce through to 2024-25; and
• Streamlining the requirement for certain foreign investors to notify the Government of intending acquisition interests. 

Expanding Australia’s patent box regime (17% concessional effective tax rate)

Expansion to low emissions technology and agricultural sectors

As foreshadowed in last year’s Federal Budget and in a bill currently before Parliament, the Patent box regime will be expanded to the low emissions technology sector, and also now the agricultural sector.  These measures substantially increase the incentives for companies to register and exploit new Australian patents.

The regime provides a concessional effective tax rate of 17% for eligible income – this compares favourably to the headline corporate income tax rate, of up to 30%.

The concessional effective tax rate of 17% will be expanded to cover corporate taxpayers who commercialise eligible patents (Australian owned and developed) which:

• relate to low emissions technology and is considered to reduce emissions, as set out in the 140 technology areas listed in the Government’s 2020 Technology and Investment Roadmap Discussion Paper or included as priority technologies in the Government’s 2021 and future annual Low Emissions Technology Statements; or
• are linked to agricultural and veterinary (agvet) chemical products listed on the Australian Pesticides and Veterinary Medicines Authority (APVMA), Public Chemicals Registration Information System) register (PubCRIS), or eligible Plant Breeder’s Rights (PBRs). 

The Government will consult with industry, before finalising the details of the patent box expansion to low emissions technologies and agriculture.

The expanded patent box regime will apply to patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023.

Application to medical and biotechnology sectors

The Federal Budget also restates the Government’s commitment to introduce the patent box regime for the medical and biotechnology sector.

Legislation and Explanatory Memorandum were released on 10 February 2022, to introduce the Patent Box regime for medical and biotechnology patents to also cover:

• patents granted or issued after 11 May 2021; and
• standard patents granted by IP Australia, utility patents issued by the United States Patent and Trademark Office (USPTO), and European patents granted under the European Patent Convention (EPC).

The 17% concessional tax rate will still only apply to the extent that the taxpayer’s research and development that occurred in Australia.  

Expanding access to employee share schemes

The Government will expand access to employee share schemes (ESS) by amending the investment thresholds for unlisted companies, so as to increase the global competitiveness of Australia’s start up sector.  Where employers make larger offers in connection with ESS in unlisted companies, the regulatory monetary caps (currently $5,000 unless an exemption applies) will be substantially increased, and participants can invest up to:

• $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70% of dividends and cash bonuses; or 
• 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 at a profit.

Regulatory requirements for offers to independent contractors will also be removed, where they do not have to pay for interests.

Boosts for expenditures on digital adoption and employee training 

The Government has announced tax incentives for small businesses, with aggregated annual turnover of less than $50 million, in relation to spending on digital adoption as well as spending on training and upskilling staff.  These incentives will not only be a boost for small businesses, but also for the suppliers of digital technologies and employee training in Australia.

Both the Technology Investment Boost and Skills and Training Boost will allow small businesses to deduct an additional 20% of the costs on eligible expenditure.  For taxpayers currently subject to a 25% tax rate, this would effectively increase the tax deduction for such expenditure to 30%.
The Technology Investment Boost will:

• apply to costs incurred on expenditure and depreciating assets that support digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services; 
• only apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2023; and
• be capped at $100,000 of eligible expenditure per year.

The Skills and Training Boost will:

• apply to costs incurred on external training courses provided to their employees in Australia or online, by service providers registered in Australia;
• be subject to certain exclusions, including for in-house or on-the-job training and expenditure on external training courses for non-employees; and
• only apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2024.

Primary producers- Increasing concessional tax treatment for carbon abatement and biodiversity stewardship income

Under these concessions, the sale proceeds from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates in relation to on-farm activities will be treated as primary production income for the purposes of the Farm Management Deposits (FMD) scheme and the tax averaging provisions. This will take affect from 1 July 2022. 

Further concessions will result in the change in taxing point of ACCUs for eligible primary producers to the year of sale. Similar concessional treatment will apply to biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market scheme. These concessions will also take affect from 1 July 2022. Broadly, eligible primary producers are those who are currently eligible for the FMD scheme and tax averaging. 

These concessions are meant to encourage further carbon abatement and biodiversity stewardship activities undertaken by primary producers. Currently, sale proceeds from ACCUs are not eligible for concessional tax treatment under the FMD scheme or tax averaging, and are generally treated as non-primary production income. ACCU holders are generally taxed based on changes in the value of their ACCUs each year, which may result in tax liabilities prior to sale. 

Digitalising trust income reporting and processing

In order to streamline and improve trust income reporting and processing process, the Government will digitalise these processes by allowing trust tax return filers the option to lodge income tax returns electronically. 

This measure will bring trust income reporting and assessment calculation processes more in line with individual or company tax returns (which have been automated to a larger extent). This measure will reduce compliance burdens on taxpayers and will enhance and streamline the ATO processes. 

Varying the GDP uplift factor for tax instalments

Broadly, Pay-as-you-go (PAYG) and GST instalment amounts are adjusted each year using a formula known as the GDP uplift factor. In the 2022-23 Budget, the Government has decided to set the GDP uplift factor at a lower rate of 2% for the 2022-23 income year, instead of the usual rate of 10% that would ordinarily apply under the statutory formula. 

This reduced 2% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10mil annual aggregated turnover for GST instalments and $50 mil annual aggregated turnover for PAYG instalments), applicable to instalments that relate to the 2022-23 income year and that fall due after the enabling legislation receives Royal Assent. 

The lowering of this GDP uplift factor will essentially result in lower PAYG and GST instalment amounts and improved cash flow for small businesses, sole traders and other individuals with investment income.

Covid related measures

The Budget has announced two COVID-19 related measures. Firstly, as originally announced on 13 September 2020, the Government will continue allowing certain COVID-19 business support payments to be non-assessable non-exempt (NANE) income for tax purposes if they are received under an eligible grant or support program and the eligibility criteria are met.  

There are currently two types of government grants and support payments that are eligible to be treated as NANE income including: 

• State and territory grants relating to the recovery from COVID-19; and
• Australian Government support payments established under the COVID-19 Business Assistance Program. 

Government grants that do not fall within the above two categories, continue to be taxable. 

Secondly, costs in relation to taking COVID-19 tests to attend a place of work will be tax deductible for individuals beginning from 1 July 2021 and fringe benefits tax (FBT) rules will not apply where COVID-19 tests are provided by a business to its employees for this purpose. 

Tax Avoidance Tax Force extended

The Government has announced a further extension in the life of the Tax Avoidance Task Force to 30 June 2025.  In the 2019-20 Budget the Federal Government announced a further $1bn to extend the operation of the Tax Avoidance Taskforce to 2022-23.  In its 2019 report, the Australian National Audit Office concluded that there is some lack of clear linkage between the allocation of funds to the “Taskforce” and actual revenues raised. The 2022 Budget Paper No 2, in Part 1, sets out the Government’s expectation that the Taskfore activities would lead to an increase in revenue of $2.1bn over the three years 2023-26, against increased payments of $652.6m.  During the forward estimates period the ATO staffing levels are only predicted to grow by 20 to 18,369 full time equivalents.

This measure will also fall under the review of the independent review of the ATO compliance resourcing announced in the 2021-22 MYEFO.

Foreign investments – regulatory (non-tax)

The Federal Budget also restates the Government’s commitment to amend Australia’s foreign investment framework, to reduce regulatory burden faced by investors and support Australia’s economic recovery from the COVID 19 pandemic.

Exposure Draft regulations and Explanatory Statement were released in February 2022.  

Applicable to actions taken or proposed to be taken on or after 1 April 2022, the amendments are intended to streamline the requirement for some investors to notify the Government before acquiring an interest, while still maintaining the Government’s ability to address national interest concerns as they arise.