Federal Budget 2022-2023 Update
With the release of the 2022-23 Federal Budget by the Morrison Government last night, we have provided a brief but comprehensive summary below of the main changes/updates proposed by the budget which are important to individuals, businesses, and superannuation.
INDIVIDUALS AND FAMILIES
Low and Middle Income Tax Offset (LMITO)
There has been a once-off increase to the LMITO tax offset to $1,500 for the 2021-22 income year. Previously the LMITO was $1,080 as a maximum tax offset for income earners with a taxable income between $45,001 and $90,000 and phased out to $126,000, which for the 2021-22 income year will be $1,500. No changes have been announced to the Low Income Tax Offset (LITO).
Fuel Excise Temporary Reduction
A reduction of 50% is set to be placed on the excise on fuel as of 12:01am 30th of March 2022. Previously the excise was 44.2c/L and after the 2022 Budget is set to drop down to 22.1c/L. The drop in excise is expected to see savings in consumer’s pockets of up to $700 annually (for a family with two cars filling up weekly). The ACCC has been assigned to ensure that the savings are passed down to motorists.
COVID-19 Test Deductibility
In February 2022, it was announced that the COVID-19 tests purchased by employees to enable them to return to work would be able to be claimed as a tax deductions from the 1st of July 2021. This has been confirmed in the 2022 Budget. Also confirmed, is that the tests purchased by employers and supplied to their employees will be exempt from fringe benefits tax.
The $250 Once off Payment
For eligible pensioners, welfare payment recipients, veterans and concession card holders the Budget announced a once-off $250 rise of the cost of living relief package payment to be paid to eligible recipients in April 2022. To be eligible to receive this once-off payment, you must receive certain welfare payments such as age pension, youth allowance, carer payment, jobseeker payment, etc. or be a concession card holder, such as a pension concession card holder, veteran gold card holder, etc.
First Home Guarantee Scheme: Increase in Places
Increased places in the First Home Guarantee Scheme to 50,000 was announced. An increase to 35,000 to first home buyers, 10,000 to regional home buyers and 5,000 to family home buyers each year. The scheme is designed to enable first home buyers to be able to purchase a new or existing home with a deposit as little as 2%.
Increase in Medicare Levy Threshold
An increase in the Medicare Levy Threshold has increased to $23,365 for individuals, couples with no dependent children to $39,402, couples with dependent children their threshold increases by $3,619. Single pensioners and pensioners who are eligible for the SAPTO tax offset, the Medicare threshold increases to $39,925 and for pensioner families the threshold will increase to $51,401 with an additional $3,619 per dependent child.
Changes to Paid Parental Leave
Changes to the Paid Parental Leave have seen the time periods of the 18 week paid parental leave and the 2 week Dad and Other Partner Pay merge into one 20 week period. This period will be able to be split between the two-parent household in the way that best suits them, single parents will be eligible to take the full 20 week paid leave.
2021-2022 Tax Rates
Changes to the personal tax rates will not take effect until the 2024-25 income year (beginning on 1 July 2024), meaning that the rates will remain unchanged until then. Currently the tax rates are as follows:
For an individual taxpayer earning a taxable income of between:
| Taxable Income | Tax payable | Plus: Tax rate |
|---|---|---|
| $0 – $18,200 | Nil | Nil |
| $18,201 – $45,000 | Nil | 19% of excess over $18,200 |
| $45,001 – $120,000 | $5,092 | 32.5% of excess over $45,000 |
| $120,001 – $180,000 | $29,467 | 37% of excess over $120,000 |
| $180,001 + | $51,667 | 45% of excess over $180,000 |
WHAT IS IN IT FOR BUSINESSES AND WHAT IT MEANS FOR CLIENTS?
Big changes are coming up and we will be prepared to help you and your business. The main focus areas are described below:
Additional deduction for 20% for costs of expenses for digital uptake
We live in a rapidly changing world that needs to adapt to new technologies and the Government is reinforcing its cyber focus by making sure businesses are well prepared to what is ahead. As such, last night’s budget presented a package that will help small and medium business enterprises (SMEs) grow their capacities in cloud computing, e-invoicing and accounting systems.
The Technology Investment Boost will apply to any purchases made between 7.30pm 29th of March 2022 and 30th June 2023.
Australian businesses with an aggregated annual turnover of less than $50 million that upgrade their digital skills and equipment will receive a “bonus” deduction on up to $100,000 of expenditure a year. According to the treasurer, a small business that spends $100 on training employees will get a $120 tax deduction to support the digital costs.
However, there is still a lot of work to be done when it comes to giving small business owners the correct support to transition to a more digitalised world and to give the right to more cybersecurity when it is known that 77% of Australian companies encountered ransomware attacks last year and a vast huge majority of those businesses simply didn’t have the time or the specific resources to implement and effectively manage adequate cybersecurity infrastructure.
This is one of the major reasons the Government wants to start strengthening the security attitude of Australian businesses owners by providing easy and affordable access to cyber care for small business. This budget also proposes tax breaks for small business that are willing to provide skilled job creation and open new paths to employment and upskilling of staff.
Unfortunately it is still unclear whether the additional 20% ‘boost’ will be calculated on the basis of the full cost of the asset or only the portion of the asset’s cost which would be deductible in the relevant income year under the current capital allowance regime.
We will continue to monitor new developments and advise clients in due course.
Additional deduction for 20% for cost of external training courses.
Continuing with the upskilling of staff, the Government says more skilled employees will increase productivity for small businesses, and at the same time attract and retain staff in a labour tight market, and support future growth.
This measure will apply for training expenditure between 29th March 2022 and 30th June 2024.
The Government also announced that even though there is no limit on how much spending on training courses can be deducted by a small business at the bonus rate of 120%, certain rules will apply. For instance the course must be run by an external education provider, which needs to be registered in Australia and the courses can be provided in person (only in Australia) or online.
In-house and on-the-job training will not be eligible, and money spent training people who are not employees of the business is also not deductible.
In conclusion, the boost for eligible expenditure (i.e. portable payment devices, cybersecurity systems and subscriptions to cloud-based services) incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred after 30 June 2022 will be included in the income year in which the expenditure is incurred.
Substantial Changes to PAYGI and other reporting systems
The proposal from the budget last night uplifts the GDP rate that currently applies to pay-as-you-go (PAYG) instalments and GST instalments to two per cent for the 2022-23 income year. This rate is significantly lower than the 10 per cent rate that would have applied under the statutory formula.
The changes include allowing companies to calculate PAYG instalments based on a real time financial performance. This means that if the financial performance of a business declines, then the business may be able to get refunds, provided that the business with PAYG instalment obligations reports a substantially lowered profit than anticipated or a loss.
The new measures will apply to the 2022-23 income year, in respect of instalments that fall due after the legislation receives Royal Assent.
This measure is estimated to benefit over 500,000 businesses.
Pre-filled payroll tax returns
With the implementation of single touch payroll data (STP) it is anticipated that the Government will develop a program to allow the ATO to share this information with State and Territory governments on an ongoing basis and will be facilitated to cater for pre-filling payroll tax returns.
The implementation of this system is due for completion by late 2023 and is estimated to benefit about 170,000 businesses.
Reporting of taxable payments (TPAR)
A similar technology is set to be used to pre-fill annual taxable payments reports via software and doing it at the same time as activity statements (BAS). Businesses that opt into automatic reporting will no longer need to fill out a yearly Taxable Payments Annual Report as the data will be sent each quarter.
These systems are expected to be in place by 31st December 2023, for implementation by 1st January 2024 and will benefit about 190,000 businesses.
Trust income reporting — electronic lodgment
The Government is committed to developing income reporting and processing structures to ensure all trusts will have the option to lodge income tax returns electronically. The systems are expected to be in place by 1st July 2024.
This measure is planned to facilitate electronic lodgment for up to 30,000 trusts that currently lodge by paper.
TAX COMPLIANCE AND INTEGRITY
Digital Trust Reporting
In extension to the budget digital adoption measures, the government reiterated their plans to digitalise tax reporting system.
The initiative will provide the option for trust’s and beneficiary income reporting to lodge tax returns electronically and increase the prefill information and improve ATO data and processes. It is expected that the measure will commence 1 July 2024.
Similar initiatives are already in place such as Single Touch Payroll (STP), e-invoicing, ATO App, and data matching such as share, property sales, and cryptocurrencies.
Taxable payments reporting
The government confirmed that from 1 January 2024 they will provide an option for businesses to report taxable payments (which include certain payments to contractors) using the same cycle as their activity statements. The data will be provided electronically via the business accounting software.
Single Touch Payroll (STP)
The government announced their intentions to share STP data with State and Territory Offices. This will allow states and territories to access prefill payroll data and be integrated with their systems. Perhaps the data can be used for state payroll tax assessments.
SUPERANNUATION
Extending the reduction in minimum drawdowns:
An extension of the 50% reduction in the minimum pension drawdown rates for account-based income streams and market-linked income streams to the 2023 financial year.
The following table reflects the minimum percentage figures that are used for calculating the minimum annual pension amounts:
| Age | Standard % | Minimum % reduced by half |
|---|---|---|
| Under 65 | 4% | 2% |
| 65 – 74 | 5% | 2.5% |
| 75 – 79 | 6% | 3 |
| 80 – 84 | 7% | 3.5% |
| 85 – 89 | 9% | 4.5% |
| 90 – 94 | 11% | 5.5% |
| 95 + | 14 | 7% |
Please note: For ABPs and TRISs that commence or cease part-way through the 2023 financial year, a pro-rated minimum pension payment applies unless the pension commenced on or after 1 June 2023, in which case, no minimum pension payment is required.
First Home Super Saver Scheme (FHSSS):
An increase in the amount that could be released under the First Home Super Saver Scheme from $30,000 to $50,000 which had been announced in the Budget in May 2021.
Superannuation Guarantee (SG):
The percentage rate for superannuation guarantee payments by your employer is currently 10.0%. The SG rate increased from 9.5% to 10% from 1 July 2021 and is set to rise again to 10.5% from 1 July 2022 for the 2022–23 financial year.
Please see below the table that shows the increment in super guarantee percentage for future financial years.
| Financial Year | Super Guarantee % |
|---|---|
| 1 July 2020 – 30 June 2021 | 9.5% |
| 1 July 2021 – 30 June 2022 | 10% |
| 1 July 2022 – 30 June 2023 | 10% |
| 1 July 2023 – 30 June 2024 | 11% |
| 1 July 2024 – 30 June 2025 | 11% |
| 1 July 2025 – 30 June 2026 | 12% |
| 1 July 2026 – 30 June 2027 | 12% |
| 1 July 2027 – 30 June 2028 and onwards | 12% |
Superannuation Guarantee (SG) Opt-out:
From 1 January 2020, eligible individuals with multiple employers can apply to opt out of receiving super guarantee from some of their employers. This will help you avoid unintentionally going over the concessional contributions cap which is $27,500 for 2022 and 2023 financial years.
High income earners may be eligible to opt out if you have more than one employer and expect your employer’s mandatory concessional super contributions to exceed your concessional contributions cap for a respective financial year.
The increase in the SG rate to 10.5% also means that the SG opt-out income threshold will decrease to $261,904 from 1 July 2022 which has been decreased from $275,000.
FLOOD RELIEF
In response to the recent floods in parts of Queensland and New South Wales, the Government is providing support to households, businesses, primary producers, not‑for‑profit organisations and councils. This support is helping affected communities to get back on their feet.
Disaster relief for floods in New South Wales and Queensland is expected to exceed $6 billion. This includes new measures as well as reimbursing the states for a share of their costs such as the reconstruction of essential public assets (like roads and schools).
The following flood relief grants and measures are already available:
Disaster Recovery Allowance – The allowance provides up to 13 weeks of income support payments to employees, primary producers and sole traders who can demonstrate they have experienced a loss of income as a direct result of the floods.
Queensland Disaster Recovery Funding Arrangements:
- Personal hardship and distress assistance – To alleviate personal hardship and distress, including support for immediate essential needs (food, clothing, medical supplies or temporary accommodation), essential services, essential household contents replacement and repair, and structural repairs or replacement.
- Essential Services Safety and Reconnection assistance- To assist residents with the inspection and reconnection of essential services (i.e. electricity, gas, water and sewerage) damaged as a result of the disaster.
- Counter Disaster Operations – Supports local governments and state agencies to undertake activities that alleviate personal hardship and distress, address the immediate needs of individuals and protect the general public.
- Restoration of essential public assets – Assists local governments and state agencies to undertake urgent activities necessary to temporarily restore eligible essential public assets.
- Local Government Recovery Grants – Grants of $1 million that will assist local governments in undertaking immediate recovery activities, address emerging needs and help build community resilience.
- Sport and Recreation Recovery Grants – Grants up to $20,000 for eligible sporting and community clubs and associations to support clean-up, repair and replacement of equipment or assets damaged and destroyed.
- Concessional interest rate loans – Available to assist eligible primary producers, small businesses and not-for-profit organisations impacted by the severe weather and floods.
- Small Business, Not-for-Profit Organisations and Primary Producer Recovery Grants – Recovery grants of up to $50,000 for eligible small businesses and not-for-profit organisations, and up to $75,000 for eligible primary producers to help with recovery and reinstatement activities.
- Freight subsidies for primary producers – To assist primary producers impacted by an eligible disaster with the transport of livestock, fodder or water for livestock, building, fencing equipment or machinery to the primary producer’s home property.
New South Wales Disaster Recovery Funding Arrangements:
- Assistance for Individuals – This includes support for immediate essential needs (food, clothing, medical supplies or temporary accommodation), essential services, essential household contents replacement and repair, and structural repairs or replacement.
- Storm and Flood Clean-up Package – To assist households, businesses, primary producers and local councils with the clean-up and restoration of flood damaged, priority environmental assets.
- Temporary Housing Support Package – Assistance to affected individuals and families to provide temporary accommodation, financial support and establish temporary dwellings.
- Small Business, Not-for-Profit Organisations and Primary Producer Recovery Grants – Recovery grants of up to $50,000 for eligible small businesses and not-for-profit organisations, and up to $75,000 for eligible primary producers, to help with recovery and reinstatement activities.
- Concessional Interest Rate Loans – Available to assist eligible primary producers, small businesses and not-for-profit organisations impacted by the severe weather and floods.
- Sport and Recreation Recovery Grants – Grants for eligible sporting and community clubs and associations to support restoration of essential club facilities.
- Freight Subsidies for Primary Producers – To assist primary producers impacted with the transport of livestock and fodder.
- Counter Disaster Operations – Supports local governments and state agencies to undertake activities that alleviate personal hardship and distress, address the immediate needs of individuals and protect the general public.
- Restoration of Essential Public Assets – Assists local governments and state agencies to undertake urgent activities necessary to temporarily restore eligible essential public assets.
- Local Government Recovery Grants – Grants of $1 million that will assist local governments in undertaking immediate recovery activities, address emerging needs and help build community resilience.
- Community Recovery Officers – Funding to engage designated flood Community Recovery Officers to deliver community-based recovery initiatives and assist people to navigate and access recovery support.