On Tuesday, 29 March 2022, Treasurer Josh Frydenberg handed down the 2022-23 Federal Budget, the last before the forthcoming election. Leaders of large organisations in Australia should note in particular two items that may affect their business. These are the broadened scope of the concessional tax treatment of what is termed patent box income and the extended operation of the ATO’s Tax Avoidance Taskforce.
These are dealt with below, after a summary of the other key measures in the Budget.
Executive summary
The Treasurer announced a range of cost of living measures, including a one-off $420 cost of living tax offset for low and middle income earners, and a $250 payment for pensioners and welfare recipients. The fuel excise will also be reduced by 50% for six months, starting from midnight on Budget night.
For small businesses, a Skills and Training Boost will provide a new 20% bonus deduction for eligible external training courses for upskilling employees from Budget night. In addition, businesses will receive a similar 20% bonus deduction for expenditure on digital technologies (eg cloud computing, eInvoicing, cyber security and web design) for investments of up to $100,000 per year.
The Treasurer announced that economic growth forecasts have been revised upwards, driven by stronger-than-expected momentum in the labour market and consumer spending. The unemployment rate has also fallen to 4%, and is expected to reach 3.75% in the September 2022 quarter.
Since the Mid-Year Economic and Fiscal Outlook (MYEFO) in December 2021, the underlying cash balance has improved by $103.6bn over the 5 years to 2025-26. Nevertheless, the Government is expected to record a deficit of $79.8bn for 2021-22 and $78.0bn for 2022-23 (down from $134.2bn in 2020-21). Net debt of $714.9bn for 2022-23 is forecast to rise to $864.7bn in 2025-26.
Scope of concessional tax treatment of patent box income extended
The Government announced the introduction of concessional tax treatment for eligible corporate income associated with new patents in the medical and biotechnology sectors (referred to “patent box” income).
Under legislation currently before Parliament (Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022), such income will be taxed at a concessional rate of 17%, with effect for income years starting on or after 1 July 2022. Eligible income will be taxed at the concessional tax rate to the extent that the R&D of the innovation took place in Australia.
The Government will now extend the patent box income measures to provide concessional tax treatment for corporate taxpayers who:
- commercialise their eligible patents linked to agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority’s Public Chemicals Registration Information System register, or eligible Plant Breeder’s Rights; or
- commercialise their patented technologies which have the potential to lower emissions. Patents relating to low emissions technology, 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 will be within scope, provided the patented technology is considered to reduce emissions.
In both cases, patent box income will be taxed at an effective income tax rate of 17% in relation to rights and patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023.
The Government will consult with industry before settling the detailed design of the patent box extension.
Source: Budget Paper No 2 [p 22-23]
ATO’s Tax Avoidance Taskforce: extended operation, more funding
The Government will provide $325.0 million in 2023-24 and $327.6 million in 2024-25 to the ATO to extend the operation of the Tax Avoidance Taskforce by 2 years to 30 June 2025.
The Taskforce was established in 2016 to undertake compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. It also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.
This measure is estimated to increase receipts by $2.1 billion, and increase payments by $652.6 million over the forward estimates period.
Source: Budget Paper No 2 [p 29]
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