Superannuation Large business SME & family business Personal tax Retirement & wealth Business taxation Personal tax & transfer system Tax administration Members-only

What to expect from 1 July 2022

Written by The Tax Institute’s Tax Policy and Advocacy Team

   

As we enter the new financial year, we turn our minds to the new measures that commence in 2022–23 and those measures that have been announced but remain unenacted with a proposed commencement date of 1 July 2022. 

Each year, practitioners are faced with a range of new tax measures that are in varying forms of progression and implementation. The checklists in this guidance have been split into legislated provisions commencing from 1 July 2022 and unenacted measures that are proposed to commence from 1 July 2022.

IMPORTANT

These checklists do not contain a comprehensive or exhaustive list of issues you need to consider for your clients from the commencement of the financial year. There may be other issues you need to think of. These checklists serve as a guide to a range of issues and do not constitute advice. They do not provide a detailed explanation of whether a taxpayer may be eligible for a deduction or a tax concession, or the relevant conditions for a provision or administrative approach to apply or not apply.

ATO guidance applying from 1 July 2022

During 2021—22, the ATO released guidance on several matters which has or will (once finalised) have application from 1 July 2022. This includes the ATO draft guidance materials on section 100A and Division 7A that are currently subject to finalisation.

Section 100A

On 23 February 2022, the Commissioner issued draft guidance on how section 100A of the Income Tax Assessment Act 1936 (ITAA 1936) applies to trust distributions made to a beneficiary who is presently entitled to an amount of trust income, and that entitlement arises from or in connection to a reimbursement agreement. The draft guidance comprises:

  • Draft Taxation Ruling TR 2022/D1 Income tax: section 100A reimbursement agreements (TR 2022/D1)
  • Draft Practical Compliance Guideline PCG 2022/D1 Section 100A reimbursement agreements – ATO compliance approach (PCG 2022/D1).

The ATO also issued Taxpayer Alert TA 2022/1 Parents benefitting from the trust entitlements of their children over 18 years of age (TA 2022/1) on 23 February 2022.

Given section 100A is not subject to a limited amendment period1, the guidance has retrospective application. However, taxpayers with entitlements conferred prior to 1 July 2022 may rely on the administrative treatment in Trust taxation – reimbursement agreement (July 2014 web guidance) where the July 2014 web guidance provides a more favourable outcome to the taxpayer’s circumstances than PCG 2022/D1.

Trust entitlements conferred from 1 July 2022 will be subject to the guidance once finalised.

The ATO has provided simplified web guidance on when section 100A may apply to 2021–22 trust distributions. While the web guidance has been designed to assist registered tax agents and trustees understand when section 100A may apply to distributions conferred in the 2021–22 income year, it is equally relevant to the 2022–23 and later income years.

Further information on the ATO’s guidance materials, including detailed analysis and a flowchart on the operation of section 100A can be found in our blog.

Division 7A

The ATO issued draft Taxation Determination TD 2022/D1 Income tax: Division 7A: when will unpaid present entitlement or amount held on sub-trust become the provision of ‘financial accommodation’? (draft Determination) on 23 February 2022. The draft Determination describes when a private company beneficiary provides financial accommodation — and is therefore taken to have made a loan for the purposes of Division 7A of Part III of the ITAA 1936 — where it is made presently entitled to trust income of a trust and either:

  • the entitlement remains unpaid; or
  • the trustee sets aside and holds it on a sub-trust for the exclusive benefit of the private company beneficiary.

The draft Determination will apply to trust entitlements arising on or after 1 July 2022. The prior guidance, Taxation Ruling TR 2010/3 Income tax: Division 7A loans: trust entitlements and Practice Statement Law Administration PS LA 2010/4 Division 7A: trust entitlements were withdrawn on 30 June 2022 and 1 July 2022 respectively, both with effect from 1 July 2022. However, taxpayers will be able to continue to rely on both TR 2010/3 and PS LA 2010/4 for trust entitlements arising on or before 30 June 2022.

Practical Compliance Guideline PCG 2017/13 Division 7A – PS LA 2010/4 sub-trust arrangements maturing in or after the 2016–17 income year (PCG 2017/13) has recently been updated to extend the application of this guideline to sub-trust arrangements maturing in the 2021–22 and later income years. If all or part of the principal of a loan entered into Investment Option 1 or 2 of PS LA 2012/4 is unpaid on the maturity of the loan arrangement, the Commissioner will accept that a 7-year loan on complying Division 7A terms may be put in place between the private company and sub-trust prior to the company’s lodgment day. This means that PCG 2017/13 applies to Option 1 or Option 2 sub-trust arrangements created in respect of trust entitlements arising between the 2009–10 to 2021–22 income years (inclusive).

Allocation of professional firm profits

Practical Compliance Guideline PCG 2021/4 Allocation of professional firm profits – ATO compliance approach (PCG 2021/4) sets out the ATO’s compliance approach to the allocation of profits or income generated by professional firms in the assessable income of the individual professional practitioner (IPP). PCG 2021/4 addresses arrangements where an IPP may be redirecting their income to associated entities, resulting in a reduced tax liability.

IMPORTANT

A PCG is not a taxation ruling. It does not set out the ATO’s interpretation or understanding of the law. It does not replace, alter or affect the operation of the law in any way. It does not set out whether Part IVA applies, or does not apply, to a particular type of arrangement. It is not legally binding on the Commissioner.

A PCG does, however, provide protection from interest on any tax shortfall and from penalties for making a false or misleading statement where a taxpayer has relied on it in good faith when determining their tax liabilities.

The compliance approach comprises two gateways, both of which must be satisfied for the IPP to apply the self-assessment risk framework.

PCG 2021/4 applies where all the below factors are met:2

  • the IPP has an indirect or direct legal or beneficial interest in the firm and provides professional services to clients of the firm or involved in management of the firm;
  • the firm income is not personal services income;
  • the firm operates through a legal structure;
  • the IPP has an indirect or direct equity ownership; and
  • gateway 1 and gateway 2 are satisfied.

Two gateways must be satisfied for the IPP to self-assess using the risk framework:

  • Gateway 1 — There should be a sound commercial rationale for entering into and operating the arrangement or structure, including an absence of the following indicators:
    • The arrangement seems more complex than is necessary to achieve the relevant commercial objective
    • The arrangement includes steps that appear only to provide a tax advantage with no other apparent purpose
    • The tax result of the arrangement appears at odds with its commercial or economic result
    • The arrangement results in little or no risk in circumstances where significant risks would normally be expected
    • The parties to the arrangement are operating on non-commercial terms or in a non-arm’s length manner
    • There is a gap between the substance of the arrangement and its legal form.
  • Gateway 2 — The arrangement should not exhibit certain ‘high-risk features’, including:
    • The arrangement is described in an existing Taxpayer Alert
    • Financing arrangements are related to non-arm’s length transactions
    • Differences between accounting standards and tax law are exploited
    • Partnership interests are assigned in a manner that does not follow the principles laid out in FCT v Everett [1980] HCA 6 and FCT v Galland [1986] HCA 83 (about the assignment of partnership interests)
    • Multiple classes of shares and units are held by non-equity holders
    • Multiple assignments or disposals of an equity interest occur
    • Misuse of the superannuation system occurs, including assignments or disposals of an interest to associated self-managed superannuation funds (SMSFs)
    • Distributions of income are made to entities, other than the IPP, with losses.

If you cannot satisfy both gateways, your arrangement is considered high-risk and you cannot apply the self-assessment risk framework.

If gateways 1 and 2 are satisfied, the PCG prescribes a risk scoring table for taxpayers to use during their self-assessment. The table lists three factors and ascribes a score for each factor depending on the outcome. The aggregate score of the factors determines the relevant risk assessment.

An aggregated risk score in the:

  • green zone means your arrangement is considered low-risk and the ATO will apply compliance resources to review your allocation of profit only in exceptional circumstances
  • amber zone means your arrangement is considered to be moderate risk and the ATO is likely to conduct further analysis on the facts and circumstances of your arrangement
  • red zone is considered high-risk and the ATO will conduct further analysis on the facts and circumstances of your arrangement as a matter of priority. If further analysis confirms the arrangement remain high-risk, the compliance activities may proceed to audit.

Any arrangements that commence from 1 July 2022 and satisfy all the criteria in paragraph 28 of the PCG are subject to PCG 2021/4.

Transitional arrangements

The compliance approach outlined in the PCG will be applied by the ATO from 1 July 2022.

The ATO has advised the following transitional arrangements apply:

  • If your arrangement complies with the suspended guidelines, is commercially driven and does not exhibit any of the high-risk features listed above under gateway 2, you can continue to rely on the suspended guidelines for the years ending 30 June 2018 to 30 June 2022.
  • If your arrangement was considered low-risk under the suspended guidelines and has a higher risk rating under the PCG, you can continue to rely on the suspended guidelines until 30 June 2024.

Further information can be found in our blog here.

List of Checklists

  • Enacted measures commencing from 1 July 2022
    • Superannuation - This checklist contains enacted superannuation measures impacting trustees, employees and employers that commence on 1 July 2022.
    • Businesses - This checklist contains enacted business measures that commence on 1 July 2022. 
  • Measures that will end by 1 July 2022 or shortly after
  • Unenacted measures proposed to commence on 1 July 2022 - The measures in this table are unenacted and were proposed to commence on 1 July 2022. These measures were announced by the former government. It is unclear whether the new Government will proceed with these measures and, if so, whether the proposed start date of 1 July 2022 will be retained.

The full content of this article, including the detailed checklists, is available to download or via the PDF viewer on the right.

Further information

Labor’s election policy – Electric Car Discount

One of Labor’s election policies, the Electric Car Discount, is proposed to be implemented from 1 July 2022. The policy will exempt many electric cars from:

  • Import tariffs — electric cars imported for less than the luxury car threshold for fuel efficient vehicles ($84,916 for 2022–23) will be excluded from the 5% import tariff.
  • Fringe benefits tax — electric cars supplied by an employer and costing less than the luxury car threshold for fuel efficient vehicles will be exempt from FBT.

Labor proposes to review the measure after three years of its implementation.

More information on the announcement can be found here.

Tax Rates Tables

These tables prepared by The Tax Institute provides helpful tax and superannuation rates and thresholds. The Tax Rates Tables can be found here.

The Tax Rates Tables will be updated regularly, so you will have access to the most recent information throughout the year.

Tax Practitioner Board (TPB) new CPE policy

From 1 July 2022, the TPB’s new continuing professional education (CPE) policy commences. This requires the completion of 120 CPE hours for tax agents and 90 CPE hours for BAS agents over a three-year period. The new policy aligns the TPB’s CPE period with other professional associations. The criteria for education considered as CPE continues to vary between the TPB and the other professional associations.

For education to count towards the CPE hours, the education must be relevant to the services the agents is providing. As of 1 July 2022, a 10% cap will permanently allow health and well-being education to be classified as CPE for agents. The TPB recognises the importance of mental health and well-being for agents to provide service for their clients.

More information on eligible CPE can be found here.

Preview of changes from 1 July 2023

Measures that will commence on 1 July 2023

The former government announced a number of measures that are proposed to commence on 1 July 2023. These measures remain unenacted and it is unclear whether the new Government will proceed with these measures and, if so, whether the proposed start date of 1 July 2023 will be retained.

These include:

  • Streamlining of transfer balance account reporting
  • The expansion of the patent box regime to include the agricultural sector and low emissions technology innovations
  • The requirement for ABN holders to annually re-confirm their details on the ABR
  • Changes to related party disclosures for charities for matters other than key management personnel
  • The ability for taxpayers to choose whether to self-assess the effective lives of eligible depreciable intangible assets (such as patents, registered designs, copyrights and in-house software) or to continue to use the tax effective life currently specified in the law.

Measures that conclude on 30 June 2023

The list below sets out the tax measures that are either currently legislated, or are expected, to expire on 30 June 2023.

These include:

  • Company loss carry back tax offset
  • Temporary full expensing
  • NALI transitional approach set out in PCG 2020/5
  • Expansion of the sharing economy reporting regime to other transactions (beyond the supply of taxi travel and short-term accommodation)
  • The temporary 50% reduction in the superannuation pension minimum draw down rates
  • Small business technology investment boost (still to be legislated).

These measures were all enacted by the former government (other than the small business technology investment boost). If the Government chooses, and if legislated, the expiration date of these measures could extend beyond 30 June 2023.

Final thoughts

The above checklists are not an exhaustive list of all the tax provisions practitioners should consider for 2022–23. The convening of the 47th Parliament on 26 July 2022 and the Federal Budget 2022–23, expected to be released on or around 25 October 2022, will provide practitioners with more certainty as to whether the unenacted measures discussed above will be legislated.

The Tax Institute’s Tax Policy and Advocacy (TPA) team have prepared a suite of products and resources to assist practitioners with understanding what has changed for 2022–23.

These products include:

  • End of Financial Year planning checklist that contains key considerations for end of financial year planning and compliance. This checklist will be updated for developments throughout the year.
  • Tax Rates Tables containing a comprehensive summary of federal and state tax rates for recent years.
  • State of Tax Policy Report: May 2022, issued on a regular basis, contains the status of tax legislation, bills and announcements with helpful hyperlinks to source materials.
  • Incoming Government Brief: June 2022, provided to the Treasurer, the Hon Dr Jim Chalmers MP and more than 20 other recipients on 20 June 2022, provides a summary of the key tax and superannuation priorities for the new Government.

The Tax Institute’s TPA team are committed to providing relevant and practical resources to support our members. Our website is regularly updated with new resources which we encourage you to view here.

Abbreviations and acronyms

Legislative abbreviations

Income Tax Assessment Act 1936

ITAA 1936

Income Tax Assessment Act 1997

ITAA 1997

Income Tax (Transitional Provisions) Act 1997

IT(TP)A

Superannuation Industry (Supervision) Act 1993

SISA

Superannuation Guarantee (Administration) Act 1992

SGAA

Superannuation Industry (Supervision) Regulations 1994

SISR

Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Act 2022

Super and Business Measures Act 2022

Taxation Administration Act 1953

TAA

 

Acronyms and other abbreviations

ABN

Australian Business Number

ABR

Australian Business Register

AEDT

Australian Eastern Daylight Time

AMIT

Attribution managed investment trust

APRA

Australian Prudential Regulation Authority

ATO

Australian Taxation Office

BAS

Business activity statement

Board

Board of Taxation

CCIV

Corporate collective investment vehicle

CGT

Capital gains tax

Commissioner

Commissioner of Taxation

CPE

Continuing professional education

DGTO

Digital games tax offset

ESS

Employee share scheme

FBT

Fringe benefits tax

GDP

Gross domestic product

GST

Goods and Services Tax

IPP

Individual professional practitioner

LITO

Low Income tax offset

LMITO

Low and Middle Income tax offset

NALI

Non-arm’s length income

PAYG

Pay as you go

RSE

Retirement superannuation entity

SG          

Superannuation Guarantee

SMSF

Self-managed superannuation fund

TFE

Temporary full expensing

TPB

Tax Practitioners Board

WFH

Working from home

 

Footnotes

1 Item 17 of the table in section 170(10) of the ITAA 1936 allows the Commissioner to amend an assessment at any time for the purpose of giving effect to section 100A. It is widely understood that this means that the trustee of a trust can be assessed under section 99A at any time to give effect to section 100A, but section 170(10) also allows the Commissioner to amend the assessment of any other taxpayer to give effect to section 100A. This includes beneficiaries who may have been previously assessed under section 97 of the ITAA 1936 so that there is no double taxation.

2 PCG 2021/4 at [28].

 

DISCLAIMER: The material and opinions in this article should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

Updated and correct as of: 11 July 2022

  • Superannuation
  • Large business
  • SME & family business
  • Personal tax
  • Retirement & wealth
  • Business taxation
  • Personal tax & transfer system
  • Tax administration
  • Members-only

  

  

  

Access this resource as a PDF