Digital currency – clarifying that digital currencies are not taxed as foreign currency
The Government will introduce legislation to clarify that digital currencies (such as Bitcoin) are not treated as a foreign currency for Australian income tax purposes. The law will be backdated to income years that include 1 July 2021. This is further to the Government's release of exposure draft legislation to address this measure, Treasury Laws Amendment (Measures for Consultation) Bill 2022: Taxation treatment of digital currency and associated draft explanatory material on 6 September 2022, which was open for public consultation that has now closed.
This measure is intended to remove uncertainty following the decisions of the Government of El Salvador and the Central African Republic to adopt Bitcoin as legal tender (and thus making Bitcoin 'a foreign currency'). The law change does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be treated as foreign currency for Australian income tax purposes.
The Board of Taxation is also currently undertaking a review of the tax treatment of digital assets and transactions in Australia. The Board released a Consultation Guide and sought submissions on various issues, including in relation to the current tax treatment of crypto assets (and the capital gains tax treatment where crypto assets are held as an 'investment'). The Board is required to submit its final report to the Government by the end of the year.
Changes to depreciation of intangible asset effective lives
The Government has decided not to proceed with a tax reform measure allowing the self-assessment of effective lives of intangible depreciating assets. This measure was originally announced by the previous Government in the 2021-22 Budget and was intended to apply to intangible assets acquired from 1 July 2023.
Effective lives of intangible depreciating assets will therefore continue to be set under the Income Tax Assessment Act 1997 (Cth) (ITAA97).
The Government has highlighted potential integrity concerns with the previously announced measure, which presumably relate to significantly reducing, by self-assessment, the effective lives of intangible assets (and thus bringing forward depreciation). Reversing the measure will contribute to budget repair and is estimated to increase tax receipts by approximately $550 million over 4 years from 2022-23.
COVID-19 business grants
States and Territories have provided a range of business support grants to assist small and medium businesses through the COVID-19 pandemic. Many of these grants have previously been made non-assessable non-exempt (NANE) income for eligible businesses. As has been the case in a number of previous Federal Budgets, this Budget has announced further classes of COVID-19-related grants which will be eligible for NANE treatment, so that eligible businesses are not subject to tax on those grants.
Powering Australia – electric car discount
Electric cars currently make up only a small proportion of the motor vehicles purchased in Australia, especially when compared with other countries. In line with the Government’s election commitments in its Plan for a Better Future, this measure aims to make electric vehicles affordable for more Australians and will apply to a range of electric vehicles from 1 July 2022. The Government has introduced exposure draft legislation in July which has already been the subject of Senate Economics Committee Report.
Broadly, electric vehicles first held or used after 1 July 2022 will be exempt from fringe benefits tax (FBT) and import tariffs where their first retail price is below the luxury car tax threshold for fuel-efficient cars (currently $84,916). Employers that provide an electric car to employees will be required to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount, so the FBT taxable value will still need to be calculated notwithstanding FBT is not payable.
While certain States have already introduced stamp duty exemptions and other rebates, the Budget announcement jump starts the Federal Government’s commitment to investing in cheaper and cleaner transport. In addition to the concessions announced for electric vehicles, the Budget announcement has solidified Australia’s investment in the sector through the Driving the Nation Fund which will co-invest in projects to reduce emissions from Australian roads, create hydrogen refuelling stations on Australia’s busiest freight routes as part of the Hydrogen Highways initiative, and establish a National Electric Vehicle Charging Network to deliver 117 fast charging stations on highways across Australia.
Off-market share buy-backs – integrity measures
In a surprise announcement, the Government has signalled its intention to introduce integrity measures which will align the tax treatment of off-market share buy-backs undertaken by listed public companies, with the treatment of on-market share buy-backs.
From a company’s perspective, the buy-back and cancellation of its shares (whether on-market or off-market) has no income tax or capital gains tax (CGT) consequences for the company.
However, the tax implications of on-market and off-market buy-backs can differ substantially for shareholders, and result in distortions to shareholder preferences between on-market and off-market buy-backs.
Where a shareholder in a listed company sells their shares back to the company on-market, the full proceeds of the sale are assessable to the shareholder as if the shares were sold to any other third party purchaser. For example, for shareholders holding their shares on capital account, the sale price is treated as capital proceeds and subject to CGT.
In contrast, in the case of an off-market share buy-back, the buy-back consideration can consist of both a ‘dividend component’ and a ‘capital component’, depending on how the consideration is treated by the company in its accounts. To the extent the buy-back consideration has a ‘dividend component’, this component is effectively treated as a dividend for tax purposes, and can be franked by the company.
This has resulted in listed companies increasingly utilising off-market buy-backs (often at a discount to market price) and attracting shareholders with buy-back consideration that will largely be treated as a dividend for tax purposes and franked by the company. Such offers are especially appealing to concessionally taxed shareholders, including superannuation funds, who can receive a refund of the franking credits.
The Government’s announcement in the Budget did not provide any detail on how the integrity measures will be given effect. However, the announcement referred to aligning the tax treatment of buy-backs undertaken by listed public companies specifically. This may suggest that the integrity measures will be limited in their application to off-market share buy-backs by listed companies only, and may not impact off-market buy-backs by unlisted companies.
Once finalised, the measures are intended to apply from the time of the announcement (7.30pm AEDT, 25 October 2022) and the Government has estimated that the measure will generate approximately $550 million over four years.