The Treasurer, Mr Josh Frydenberg, handed down the Federal Budget for 2022-23 on 29th March 2022. In an election year, the focus of the Budget was inevitably on pleasing the electorate, with large amounts spent on lower and middle-income earners, pensioners and welfare recipients and a 50% reduction in fuel duty all geared towards capturing the votes of “Middle Australia”.
For individuals, the centrepiece was the increase in the low and middle-income tax offset, which is welcome. People earning up to $126,000 will get a rebate of $420 in excess of what they would have got anyway through the existing tax offset. All you have to do to get it is lodge a tax return for 2021-22 – so funds should start to flow to taxpayers from 1 July 2022.
Unfortunately, this is just a short term measure. Next year, the low and middle-income tax offset disappears completely – meaning that people earning up to $126,000 will see a tax rise of up to $1,080. It’s hard to see how that will do anything to help the cost of living pressures over the medium and long term. Worse, just as most Australians will experience this tax rise, the wealthiest Australians will be anticipating a tax cut of up to $9,075 in 2024/25.
For a small business, there are two key measures in this budget but no word as to whether the “Temporary Full Expensing” tax break – which benefits almost all businesses with the instant write off of capital purchases – will be extended beyond 30 June 2023.
The main headline grabber is the Technology Investment Boost, which gives businesses with an annual turnover of less than $50 million the ability to deduct an extra 20% of the cost of expenses that support their digital uptake. Businesses will be able to claim the additional deduction on up to $100,000 of expenditure a year.
The tax break will apply to any purchases made between 7.30 pm tonight, March 29, 2022, and June 30, 2023.
In addition, there will be a similar tax break for small businesses that fund digital training and upskilling for staff. The Skills and Training Boost gives a small business that spends $100 on training employees a $120 tax deduction. This also comes into effect at 7.30 pm but will extend until June 30, 2024.
Low and Middle Income Tax Offset increased for 2021-22 but not extended to 2022-23
The low and middle-income tax offset (LMITO) will be increased by $420 for the 2021-22 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021-22 (up from the current maximum of $1,080).
This one-off $420 cost of living tax offset will only apply to the 2021-22 income year.
The Government did not announce an extension of the LMITO to 2022-23 so it remains legislated to only apply until the end of the 2021-22 income year (albeit up to $1,500 instead of $1,080).
The LMITO for 2021-22 will be paid from 1 July 2022 to more than 10 million individuals when they submit their tax returns for the 2021-22 income year.
Eligible taxpayers with income up to $126,000 will receive the additional one-off $420 cost of living tax offset for 2021-22 on top of their existing LMITO benefit. Taxpayers with incomes of $126,000 or more will not receive the additional $420.
Details of the currently legislated LMITO and the new proposal are set out below:
|Taxable Income||LMITO (2021-22) – current||LMITO (2021-22) – proposed|
|$0 – $37,000||$255||$675|
|$37,001 – $48,000||$255 + ([TI – 37,000] x 7.5%)||$675 + ([TI – 37,000] x 7.5%)|
|$48,001 – $90,000||$1,080||$1,500|
|$90,001 – $126,000||$1,080 – ([TI – 90,000] x 3%)||$1,500 – ([TI -90,000] x 3%)|
One-off $250 cost of living payment
The Government will make a $250 one-off cost of living payment in April 2022 to 6 million eligible pensioners, welfare recipients, veterans and eligible concession cardholders.
The $250 payment will be tax-exempt and not count as income support for the purposes of any Government income support. A person can only receive one economic support payment, even if they are eligible under 2 or more of the categories outlined below.
The payment will only be available to Australian residents who are eligible recipients of the following payments and to concession cardholders:
- Age Pension
- Disability Support Pension
- Parenting Payment
- Carer Payment
- Carer Allowance (if not in receipt of a primary income support payment)
- Jobseeker Payment
- Youth Allowance
- Austudy and Abstudy Living Allowance
- Double Orphan Pension
- Special Benefit
- Farm Household Allowance
- Pensioner Concession Card (PCC) holders
- Commonwealth Seniors Health Cardholders
- Eligible Veterans’ Affairs payment recipients and Veteran Gold cardholders
Personal Tax Rates
The Government did not announce any personal tax rate changes in the Budget.
Further tax cuts are due to be implemented from 1 July 2024 when the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be 3 personal income tax rates – 19%, 30% and 45%.
For the 2021-22 income year, the Medicare levy low-income threshold for singles will be increased to $23,365 (up from $23,226 for 2020-21). For couples with no children, the family income threshold will be increased to $39,402 (up from $39,167 for 2020-21). The additional amount of threshold for each dependent child or student will be increased to $3,619 (up from $3,597).
For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $36,925 (up from $36,705 for 2020-21). The family threshold for seniors and pensioners will be increased to $51,401 (up from $51,094), plus $3,619 for each dependent child or student.
COVID-19 test expenses to be deductible
The costs of taking a COVID-19 test to attend a place of work are tax-deductible for individuals from 1 July 2021. In making these costs tax-deductible, FBT will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose.
The changes take effect retrospectively from 1 July 2022.
Deductions for small business: skills and training and digital adoption
The Government announced two support measures for small businesses (aggregated annual turnover less than $50 million) in the form of a 20% uplift of the amount deductible for expenditure incurred on external training courses and digital technology.
External training courses
An eligible business will be able to deduct an additional 20% of the expenditure incurred on external training courses provided to its employees. The training course must be provided to employees in Australia or online and delivered by entities registered in Australia. Some exclusions will apply, such as for in-house or on-the-job training.
The boost will apply to eligible expenditures incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2024.
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.
An eligible business will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets that support its digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.
An annual cap will apply in each qualifying income year so that expenditures up to $100,000 will be eligible for the boost.
The boost will apply to eligible expenditures incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2023.
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.
Employee share schemes for unlisted companies: thresholds amended
The Government intends to change the investment thresholds for unlisted companies in relation to employee share schemes.
Where employers make larger offers in connection with employee share schemes in unlisted companies, participants will be able to invest up to:
- $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70% of dividends and cash bonuses; or
- any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit
Superannuation pension drawdowns – 50% reduction extended to 2022-23
The temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities will be extended by a further year to 30 June 2023.
The 50% reduction in the minimum pension drawdowns, which has applied for the 2019-20, 2020-21 and 2021-22 income years, was due to end on 30 June 2022. However, the Government announced that the SIS Regulations will be amended to extend this temporary 50% reduction for minimum annual pension payments to the 2022-23 income year.
Temporary reduction in fuel excise
The Government will reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel for 6 months by 50%. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50% for 6 months.
The Treasurer said this measure will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents.
The measure will commence from 12.01 am on 30 March 2022 and will remain in place for 6 months, ending at 11.59 pm on 28 September 2022.
First Home Guarantee Scheme: additional places announced
The Government has announced that it will expand the Home Guarantee Scheme in the 2022-23 Budget to make available up to 50,000 places each year, including 10,000 places for a new Regional Home Guarantee open to non-first home buyers.
Under the expanded Scheme, the Government said it will make available:
- 35,000 guarantees each year (up from the current 10,000), from 1 July 2022 under the First Home Guarantee, to support eligible first home buyers to purchase a new or existing home with a deposit as low as 5%;
- 10,000 guarantees each year (from 1 October 2022 to 30 June 2025), under a new Regional Home Guarantee, to support eligible homebuyers (including non-first home buyers and permanent residents, to purchase or construct a new home in regional areas), subject to the passage of enabling legislation; and
- 5,000 guarantees each year (from 1 July 2022 to 30 June 2025) to expand the Family Home Guarantee to help eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as 2%.