October Federal Budget 2022-23

The Budget deserves a “conceded pass” for corporates – the changes do not cause any major discomfort, but they represent a disappointing but arguably understandable concession in view of the need for budget repair. Therefore, blue ribbon.

KEY POINTS:

The effective life of intangible depreciating assets will continue to be set by statute.
The distinction between on-market and off-market share buybacks is no longer there for tax purposes.
As previously announced, the Heavy Vehicle Road User Charge rate will increase 0.8 cents, from 26.4 cents per litre to 27.2 cents per litre of diesel fuel.
‘Support for Ukraine’ measures include:

-Extended import duties on goods from Belarus and Russia; and

-Waiving import duty on goods from Ukraine.

Reversal of self-assessment for intangibles

The previous Government’s Budget announcement to allow taxpayers to self-assess the effective life of intangible depreciating assets (which was subsequently supported by draft legislation introduced earlier in 2022) has been reversed.

As a result, the depreciation regime for intangible depreciating assets (particularly copyright, patents and registered designs) will continue to be set by statute, regardless of the industry those assets are deployed in. The momentum to modernise Australia’s tax legislation to better reflect Australia’s growing technology-centric economy appears to have stalled; more so because of the need for budget repair than the potential integrity concern.

Given that the previously announced measure was to apply from 1 July 2023 and was never enacted, no action is required by taxpayers.

On/Off Market buy back integrity measure

The tax treatment of off-market share buy-backs undertaken by listed public companies is to be aligned with the tax treatment of on-market share buy-backs. The measure is proposed to take effect from Budget night.

Broadly speaking, for off-market share buy-backs, the buy-back price is treated as capital proceeds for Capital Gains Tax (CGT) purposes to the extent it is debited against the company’s share capital account. To the extent the buy-back price exceeds the amount debited to the company’s share capital account, that excess is deemed to be a dividend and is able to be franked. For on-market buy-backs, the entirety of the buy-back price is treated as capital proceeds for CGT purposes. That is, no part of the buy-back price is treated as a dividend.

This announcement is also hot on the heels of Treasury’s recent release of draft legislation which proposes to prevent certain distributions that are funded by capital raisings from being frankable.

This announcement will adversely impact resident investors of listed companies (particularly superannuation funds) who now no longer have the optionality of accessing franking credits as part of a share buy-back. The Government forecasts this measure will gross an additional $550m over the next four years.

Certain COVID-19 government grants; non-assessable and non-exempt (NANE) income

The Government has made the state and territory COVID-19 grant programs eligible for NANE treatment, which will exempt eligible businesses from paying tax on these grants:

Victoria Business Costs Assistance Program Four – Construction
Victoria Licenced Hospitality Venue Fund 2021 – July Extension
Victoria License, Hospitality Venue Fund 2021 – Top Up Payments
Victoria Business Costs Assistance Program Round Two – Top Up
Victoria Business Costs Assistance Program Round Three
Victoria Business Costs Assistance Program Round Four
Victoria Business Costs Assistance Program Round Five
Victoria Impacted Public Events Support Program Round Two
Victoria Live Performance Support Program (Presenters) Round Two
Victoria Live Performance Support Program (Suppliers) Round Two
Victoria Commercial Landlord Hardship Fund 3
Australian Capital Territory HOMEFRONT 3
Australian Capital Territory Small Business Hardship Scheme.

FBT exemption on electric vehicles

The Government has reiterated its commitment to creating greater pathways for Australians to drive zero or low emissions vehicles through the proposed introduction of an exemption from fringe benefits tax for the use of electric vehicles (as outlined in the Treasury Laws Amendment (Electric Car Discount) Bill 2022). There was no commentary indicating a change to the application of this Bill.

Indirect tax - Limited indirect tax measures announced, although welcome relief for certain Bhutanese.

The Government will increase the Heavy Vehicle Road User Charge rate from 26.4 cents per litre to 27.2 cents per litre, which will reduce the entitlement for taxpayers claiming Fuel Tax Credits for on-road use of fuel by $215.7m over four years from 2022-23. This implements a decision by the Infrastructure and Transport Ministers in April 2022.

Additionally, the Government has announced two ‘support for Ukraine’ measures. One of which extends the temporary imposition of additional tariffs on goods imported from Russia and Belarus, whereas the other will exempt Ukrainian goods, except excise-equivalent goods such as certain alcohol, fuel, tobacco, and petroleum, from import duties for a period of 12 months from 4 July 2022. The net cash receipts of these measures will be $7m over the relevant four year period, suggesting they are more about messaging than anything else.

Finally, and rather obscurely, the Government has expanded access to refunds of indirect tax (including GST, fuel, and alcohol taxes) under the Indirect Tax Concession Scheme to the diplomatic and consular representatives of Bhutan. This extends to construction and renovation relating to current and future diplomatic missions and consular posts.