Business taxes

Federal Budget Tax | analysis and insights

With the focus firmly on multinationals in this Federal Budget and progressing the Government’s election commitment to remove customs duty and Fringe Benefits Tax for certain zero or low emissions vehicles, there is very little else in the way of tax measures for business in general.

Improving the integrity of off-market share buy backs

The Government has announced that it will amend the tax law to align the tax treatment of off-market share buy-backs undertaken by listed public companies with on-market share buy-backs, with effect from 7:30pm AEDT on 25 October 2022. This measure has not previously been flagged as an area of focus of the new Government.

Under the current tax law, when a company undertakes an off-market share buy back, the payment received by a shareholder usually comprises a dividend (which can be franked) and capital proceeds for disposal of their shares. For an on-market share buy-back, however, the entire payment comprises disposal proceeds only for the disposal of the shares (i.e. no deemed dividend).

The ability to undertake an off-market buy back and the tax consequences of this has been a long standing structural feature of the tax law. The Australian Taxation Office (ATO) has accepted that a company could buy-back its shares at a 14 per cent discount to the prevailing market price (see PSLA 2007/9). Certain Australian resident shareholders would generally be willing to sell their shares at a discount due to the refundability of franking credits attached to the dividend component. 

Removing the ability to attach franking credits to the dividend component of an off-market share buy back (as appears to be intended by this announcement), will likely mean that the buy-back price for off-market share buy-backs will revert to market value. While not stated in the announcement, it is hoped that this means an off-market share buy-back can take place without giving rise to a franking debit in the company’s franking account.

Reversing measure allowing self-assessment of effective lives for intangible assets

The Government has announced that it will not proceed with the measure announced in the 2021-22 Budget, which was proposed to allow taxpayers to self-assess the effective lives of intangible depreciating assets and was to apply to assets acquired on or after 1 July 2023.

As a result, the statutory effective lives of intangible depreciating assets will continue to be used in determining deductions for depreciation in respect of intangible assets from 1 July 2023.

Temporary full expensing measure to end 30 June 2023

Unfortunately, the Government has not announced any extension of the temporary full expensing (TFE) measure which currently permits a deduction for the full cost of certain depreciating assets acquired and used by eligible businesses. The TFE measure will continue to apply in relation to eligible depreciating assets which are installed and ready for use by 30 June 2023. 

Subject to any further announcements, from 1 July 2023, all accelerated depreciation measures will have ended, other than the instant asset write-off under the small business simplified depreciation measures, which will revert to a $1,000 asset cost cap and is limited to taxpayers with aggregated turnover less than $10 million.

Temporary loss carry back offset expires soon

Furthermore, no changes were made to the temporary loss carry back tax offset applicable to eligible companies which will expire soon, with the 2022-23 income year being the last year for which the loss carry back offset can be claimed.

Customs and Trade

As expected, there was no announcement in this Budget to extend or provide further cost of living relief through reductions in the excise and excise-equivalent customs duty rate on fuel. The excise and excise-equivalent customs tax rates have already reverted to their normal levels on 29 September 2022 at the end of the temporary six-month relief period.

The Government has already implemented an election commitment in relation to electric vehicles by removing the previously applicable five per cent import tariff. Specifically, from 1 July 2022, electric vehicles, plug-in hybrid vehicles and hydrogen fuel-cell vehicles with a customs value less than the fuel efficient luxury car tax threshold (for the 2022-23 financial year, AUD 84,916) have a ‘Free’ rate of duty.

Other Budget measures which relate to customs and trade include the following:

  • Increase the Heavy Vehicle Road User Charge rate from 26.4 cents per litre to 27.2 cents per litre of diesel fuel.
  • In continuing its support for the people of Ukraine, the Government has extended by a further 12 months, to 24 October 2023, the imposition of additional tariffs of 35 per cent on goods imported from Russia and Belarus and continuing the free rate of duty on all goods from Ukraine (except for excise-equivalent goods, such as certain alcohol, fuel, tobacco and petroleum products) for a period of 12 months from 4 July 2022. 
  • The Government has committed to bolstering biosecurity capability in response to various biosecurity threats in the region and to support neighbouring countries to address the risk of exotic animal diseases and will provide $134.1 million over four years from 2022–23 (and $3.3 million per year ongoing).
  • Modern Slavery will be tackeld through a new unit within the Attorney-General’s Department to scope options to establish an Anti-Slavery Commissioner to support compliance with Australia’s Modern Slavery Act 2018 and address modern slavery in supply chains. 
  • Mobilisation of Australia Border Force (ABF) Officers in South East Asia to deepen engagement with and security in Southeast Asia including $22.3 million over four years from 2022–23 (and $6.4 million per year ongoing) to establish a network of ABF officers across the Pacific and $4.8 million over four years from 2022–23 (and $1.4 million per year ongoing) to enhance the capacity of the ABF College to provide training to Pacific security forces.
  • The ending of funding for the International Freight Assistance Mechanism (IFAM) which was a targeted, temporary emergency measure established by the prior Government in response to the COVID-19 pandemic to help keep international freight routes and flights operating into and out of Australia particularly in relation to the import of critical medical supplies, equipment and other goods of national importance.

Contact us

Sarah Saville

Sarah Saville

Partner, Tax Reporting and Innovation, PwC Australia

Tel: +61 421 052 504

Ross Malone

Ross Malone

Partner, PwC Australia

Tel: +61 2 8266 5033

Gary Dutton

Gary Dutton

Partner, National Trade Leader, PwC Australia

Tel: +61 434 182 652