We have compiled a short, easy to read summary of the important things in the 2022 Federal Budget. A tax cut, petrol price relief, payments to pensioners and aged care workers, payments for apprentices, and small business tax reductions are the headline acts.
All of these are proposed measures, and only take effect after they have been legislated through Parliament. With an election coming soon, a change in Government may mean that many of the below will be rejected – so we recommend you don’t count your chickens before they hatch and wait to see what the opposition have to say before relying on anything.
Unexpectedly, the budget bottom line post-COVID is doing better than predicted. Exactly why is anyone’s guess, but a combination of Australia having low COVID numbers (due to closed international borders and State lockdowns) and the Federal Government willing to go hard with a big stimulus package at the start of the pandemic are the most likely reasons.
The result is record low unemployment and a sunnier outlook than expected, because ultimately less people on welfare means a healthier economy.
It still worries many that the country will have debt of $1 trillion (plus debts the States have accumulated), but interestingly, compared to the other G7 nations (US, UK, Japan, Italy, France, Canada, & Germany), Australia’s debt levels are lower than all others. Total economic growth needs to exceed the interest on that debt for the country to be moving forwards – something the Morrison Government feels it can accomplish.
Below is a summary of the key tax and business related announcements. Click on the below headings to expand each one and read more detail.
The maximum amount of the Low and Middle Income Tax Offset (LMITO) will not only be extended, but increase by $420 to combat the additional cost of living we are experiencing at the moment. The LMITO is available to most taxpayers earning up to $126,000 per year, but only those on incomes between $48,000 and $90,000 are eligible for the full amount of what is proposed to be $1,500.
We note that this offset can only reduce the amount of tax you pay, and is therefore effectively only available to people earning over around $23,000. As they say, it’s hard to give a tax break to someone who doesn’t pay tax.
You won’t need to do anything other than lodge your tax return to get this offset (if you are eligible).
The fuel excise will be cut by 22.1c per litre for the next 6 months, saving around $10 – $15 per week for most people. While the cut is effective as of midnight, it may take a week or so to flow through to end pricing.
A one-off “cost of living” payment of $250 will be provided to the following social security recipients in April 2022:
- 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 Aubstudy Living Allowance
- Double Orphan Pension
- Special Benefit
- Farm Household Allowance
- Pensions Concession Card holders
- Commonwealth Seniors Health Card holders
- Some Veterans’ Affairs Payment recipients and Veteran Gold Card holders
This payment will be tax-free, and available only to Australian residents. It should be automatically applied and paid to eligible people through the social security system.
Workers in the aged care sector will receive cash bonuses of up to $800 each. We are waiting on full details, but we believe the timing will be half now and half in a few months.
New streamlined Australian Apprenticeship Incentive System, and additional incentives to both apprentices and their employers will be available. Reportedly this will be an extra:
- $5,000 to new apprentices
- $15,000 for employers
There is little detail at the moment on exactly how these will work however, and usually these types of payments are handled by apprenticeship providers – so they will most likely be the best people to speak to (but please give them some time to work it out before you call them).
Small businesses (those with a turnover under $50m) that invest in skills and technology will get a bonus 20% tax deduction – so $100 spent = $120 tax deduction. It appears that expenditure between now and 30 June will be eligible for the bonus deduction on the 2023 tax return however, and not on your 2022 tax return. We note that only the extra 20% will be deferred to 2023 and you will get the “normal” tax deduction for the actual expenditure on your 2022 tax return.
An annual cap of $100k worth of expenditure (i.e. $20k bonus tax deduction) will apply to technology spending, and we believe no cap will apply to spending on training.
We await details on exactly what type of training and digital technology will be eligible, but early signs are that it will be reasonably generous.
Currently, “primary” parents are eligible for 18 weeks of paid parental leave (maternity leave), with the “secondary” parent eligible for 2 (dad and partner pay). This will be restructured to be 20 weeks of paid leave that families can:
- Take over 2 years at their own discretion; and
- Share between the parents however they like
The individual income thresholds that applied to both the primary and secondary parent will also be replaced by a single family threshold of $350,000.
It is expected that these changes will begin in March 2023.
The home guarantee scheme will be expanded to 50k places per year, which supports first home buyers and single parents by reducing the deposit required to purchase a home.
For businesses using accounting software, companies will be able to choose to pay PAYG Instalments based on actual YTD figures, and not an ATO estimate based on the previous year. This will require improvements in both Government systems and accounting software developers first, and as such this isn’t expected to be implemented until 2024.
We do note that the option is currently there to vary instalments manually to match current performance (which you can read about on our Insights article on this topic), and we have a calculator to help you do exactly that on our website.
In addition, when the ATO guess your instalment amounts, they will use a growth figure of 2% instead of the current 10%, resulting in lower instalments.
When you start drawing a pension from your superannuation fund, there is a minimum you must withdraw in order to get the tax benefits associated wtih this.
During COVID, this minimum amount was halved in order to provide pensioners greater flexibility during uncertain times. This was scheduled to end on 30 June, but the Government has announced the reduced amounts will continue for another year. The applicable minimum rates are:
- Age under 65: 2% of your pension balance (i.e. the amount of your superannuation supporting the pension and eligible for tax concessions);
- 65 to 74: 2.5%
- 75 to 79: 3%
- 80 to 84: 3.5%
- 85 to 89: 4.5%
- 90 to 94: 5.5%
- 95 and older: 7%
Businesses looking to offer shares to employees will have greater opportunity to, with increased eligible amounts.
The Government will continue reducing red tape for businesses and individuals in the tax and business systems, with programs such as:
- Streamlining our business registers, removing unnecessary fees, and removing fees to search the register;
- Reducing the reporting frequency associated with some taxes (like fuel and alcohol taxes) for small businesses;
- Making it easier for business to report payments to contractors (known as the TPAR report);
- Allowing (which may mean forcing) trusts that lodge their own tax return to do so digitally; and
- Enhanced sharing of Single Touch Payroll (STP) date with other Government agencies and State Governments (so things like payroll tax can be done automatically).
There have also been the following items announced over the past few months that while not budget items as such, are relevant:
- COVID tests for the purpose of going to work will be tax deductible, effective from 1 July 2021;
- Many COVID related Government grants will be tax free; and
- Businesses developing digital games in Australia will be eligible for a tax offset (similar to the research and development tax offset).