2022/23 Federal Budget - Stewart and Smith Advisory

The 2022-23 Federal Budget is a safe, ballot box friendly Budget as expected with a focus on cost of living, home ownership, and health.

Key initiatives include:

A 6 month, 50% reduction in fuel excise with effect from midnight Budget night
A $420 cost of living tax offset for low and middle income earners from 1 July 2022
A one-off $250 economic support payment to some social security payment recipients
For small business, a $120 tax deduction for every $100 spent on training employees and digital adoption

But, it is also a Budget that drives digitisation. Not just to support innovation but to streamline compliance, create transparency and more readily identify anomalies. Single touch payroll was the first step, the PAYG instalment system, trust compliance, and payments to contractors are next.

We’ll keep you up to date as the detail of these measures comes to hand.

1. Personal Income Tax Changes

1.1 Increase to low and middle income tax offset (‘LMITO’)

The Government has announced a once-off $420 ‘cost of living tax offset’ for the 2022 income year, which will be provided in the form of an increase to the existing LMITO. This will increase the maximum LMITO benefit to $1,500 for individuals and $3,000 for couples, and will be paid from 1 July 2022 when Australians submit their tax returns for the 2022 income year.

Other than those who do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. All other features of the LMITO remain unchanged.

To the extent an individual is entitled to an amount of LMITO for the 2022 income year under the current law, their entitlement is proposed to be increased by $420, as follows:

1.2 Increasing the Medicare levy low-income thresholds

The Government will increase the Medicare levy low-income thresholds for seniors and pensioners, families, and singles from 1 July 2021 as follows:

The threshold for singles will be increased from $23,226 to $23,365.
The family threshold will be increased from $39,167 to $39,402.
For single seniors and pensioners, the threshold will be increased from $36,705 to $36,925.
The family threshold for seniors and pensioners will be increased from $51,094 to $51,401.

For each dependent child or student, the family income thresholds will increase by a further $3,619 instead of the previous amount of $3,597.

1.3 Tax deductibility of COVID-19 test expenses

The Government will ensure that 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, the Government will also ensure FBT will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose.

2. Chamges Affecting Business Taxpayers

2.1 Skills and training boost

The Government will introduce a skills and training boost to support small and medium-sized businesses to train and upskill their employees. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (i.e., Budget night) until 30 June 2024.

Small and medium-sized businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of expenditure incurred on external training courses provided to their employees. The external training courses will need to 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 and expenditure on external training courses for persons other than employees.

For eligible expenditure incurred by 30 June 2022, the boost will be claimed in tax returns for the following income year. For eligible expenditure incurred between 1 July 2022 and 30 June 2024, the boost will be claimed in the income year in which the expenditure is incurred.

2.2 Technology investment boost

The Government will introduce a technology investment boost to support digital adoption by small and medium-sized businesses. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (i.e., Budget night) until 30 June 2023.

Small and medium-sized businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of expenditure incurred on business expenses and depreciating assets that support their 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 expenditure up to $100,000 will be eligible for the boost. This equates to a maximum additional deduction of $20,000 per eligible year.

For eligible expenditure incurred by 30 June 2022, the boost will be claimed in tax returns for the following income year. For eligible expenditure incurred between 1 July 2022 and 30 June 2023, the boost will be claimed in the income year in which the expenditure is incurred.

2.3 Modernising the PAYG instalment system

The Government will enable companies to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. This will support business cash flow by ensuring instalments reflect current performance.

Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.

2.4 Reporting of Taxable Payments Reporting System data

The Government will provide businesses with the option to report Taxable Payments Reporting System data (via accounting software) on the same lodgement cycle as their activity statements.

2.5 Making COVID-19 business grants non-assessable non-exempt

The Government has extended the measures that enable payments from certain state and territory COVID-19 business support programs to be made non-assessable non-exempt income (‘NANE’) for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.

The Government has made the following state and territory grant programs eligible for this treatment since the 2021-22 Mid-Year Economic and Fiscal Outlook:

New South Wales Accommodation and Support Grant.
New South Wales Commercial Landlord Hardship Grant.
New South Wales Performing Arts Relaunch Package.
New South Wales Festival Relaunch Package.
New South Wales 2022 Small Business Support Program.
Queensland 2021 COVID-19 Business Support Grant.
South Australia COVID-19 Tourism and Hospitality Support Grant.
South Australia COVID-19 Business Hardship Grant.

2.6 Digitising Trust Income reporting

Trust and beneficiary income reporting and processing will be digitalised with all trusts being provided with the option of lodging income tax returns electronically.

While this measure will reduce compliance costs, it will also increase transparency and provide the ATO with a greater insight into where anomalies are occurring.

2.7 Lowering Tax Instalments for Small Business

Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government is setting this uplift factor at 2% instead of the 10% that would have applied.

The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year and are due after the amending legislation comes into effect.

3. Other Budget Announcements

3.1 Extending the reduction in minimum drawdowns

The Government will extend the 50% reduction of superannuation minimum drawdown requirements for account-based pensions (‘ABPs’) and similar products for a further year to 30 June 2023 (i.e., for the 2023 income year).

Based on this change, the (effective) reduced minimum percentage factors for ABPs (including TRISs), which are used to calculate the minimum annual pension amount under Schedule 7 to the SIS Regulations, are set out in the following table for the 2023 income year.

Note that, for ABPs and TRISs that commence or cease part-way through the 2023 income 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).

3.2 Expanding access to employee share schemes

The Government will expand access to employee share schemes and further reduce red tape so that employees of all levels can directly share in the business growth they help to generate.

Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to the following amounts (thereby allowing employers to access simplified disclosure requirements and exemptions from licensing):

$30,000 per participant per year (which is an increase from $5,000), accruable for unexercised options for up to five years, plus 70% of dividend 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.

The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for their interests.

3.5 Cost of living payment

The Government will provide a one-off $250 cost of living payment to help eligible recipients with higher cost of living pressures. The payment will be made in April 2022 to 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 holders.
Commonwealth Seniors Health Card holders.
Eligible Veterans’ Affairs payment recipients and Veteran Gold cardholders.

The payments are exempt from tax and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under two or more categories outlined above.

The payment will only be available to Australian residents.

3.6 Temporary reduction in fuel excise

The Government will help reduce the burden of higher fuel prices by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel, and all other fuel and petroleum-based products except aviation fuels, for six months. This measure will commence from 12.01am on 30 March 2022 and will remain in place for six months.

Conclusion

Please feel free to contact us if there’s any part of the Budget we can assist you with. There is more information to come on items such as Employee Share Schemes so we will update as more news is released.
Email : info@stewartsmithadvisory.com or Phone : (02) 7226 1226.