2022/23 Federal Budget Special

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The 2022-23 Federal Budget – MKT Analysis

 

The “Cost of Living” Budget

Last night, as expected, Treasurer Frydenberg handed down the Government’s fiscal pitch to Australian voters through a Federal Budget designed to ease cost of living pressures.

From a temporary reduction in fuel excise, a once-off $420 tax rebate and a $250 “cost of living” payment to some targeted business tax measures, the Budget aims to make everyone a winner from this pre-election Budget.

With a major caveat that the Government has to win the upcoming election for these measures to begin the legislative process, let’s dissect the key issues for you and your clients.

 

SMALL BUSINESS MEASURES

A number of measures were announced to support businesses with a turnover of less than $50 million.  These include:

Technology and Investment Boost for Small Businesses

A key focus of the Government in the 2023 Budget has been on small businesses. Importantly, a “small business” for the purposes of these changes is an entity with an aggregated turnover of less than $50 million.

To address skills shortages and investment requirements in digital technology, the Government has announced a temporary deduction equivalent to 120% of expenditure incurred on digital adoption and training employees for small businesses.

Technology Investment

Small businesses will be eligible for an additional 20% deduction for expenditure and purchase costs of depreciable assets on portable payment devices, cyber security systems, adoption of e-invoicing and subscriptions to cloud based services.

There will be an annual cap of $100,000 for expenditure eligible for the additional 20% deduction. The measure will be applicable for costs incurred between 7:30pm (AEDT) on 29 March 2022 until 30 June 2023.

The 20% boost on 2022 expenditure will only be claimable in the 2023 income tax return. For the 2023 year, a deduction equivalent to 120% will be claimable in that year’s return itself.

Skills and Training

An additional 20% deduction will be claimable for small business entities for costs incurred in providing external training courses for employees. Eligible expenditure must be provided to employees in Australia or online and delivered by entities registered in Australia.

There appears to be no cap on this expenditure and it will be applicable for costs incurred between 7:30pm (AEDT) on 29 March 2022 until 30 June 2023. Similar to the technology investment boost measure, expenditure incurred in the 2022 year will only be claimable in the 2023 year.

These are welcome measures aimed at not only supporting SME businesses but also addressing skills shortages and investment requirements in digital technology.

The main deficiency in these measures is the delay in the additional 20% deduction for costs incurred in the 2022 year. Businesses incurring eligible expenditure between now and 30 June 2022 will only be able to claim the 20% boost in the 2023 tax return.

This return could be lodged as late as May 2024. This timing issue has similarities to the loss carry back offset previously announced – an offset for the 2020 year could only be claimed in the 2021 income tax return. This timing issue was criticised by the profession. Unfortunately, the Government has not changed this approach for the 20% boost for the 2022 year.

COVID-19 Test Expenses

Confirming what was announced by the Government in early February, the Budget has announced that the costs of taking either a PCR or RAT test in order to attend work will be tax deductible for individuals from 1 July 2021 and will be exempt from FBT for business that provide these tests to their employees.
This measure clarified concerns for many businesses that required their employees to take regular COVID tests, either at the employee’s own expense or where the employer funded the test and now provides certainty on this issue.

Sharing of Single Touch Payroll information with the States

Most employers are now familiar with the STP reporting obligations for their employee’s wages and superannuation.  The Government proposes to invest in IT infrastructure upgrades to enable STP information to be shared with State and Territory revenue authorities.  This will clearly be to enable States and Territories to reconcile Payroll Tax returns with wage information reported through STP and may therefore see an increase in compliance activities by the various Payroll Tax authorities.

It is hard to estimate the timeline for this given it requires both Federal and State & Territory Governments to undertake IT infrastructure upgrades to enable the data matching to occur.

Temporary COVID Measures coming to an End

The Government previously announced two significant temporary tax measures to assist businesses during the pandemic in the Loss carry back and the Temporary Full Expensing rules.

Both of these measures were recently extended through to 30 June 2023, however the Government has not chosen to extend them further such that they will end from 30 June 2023.

Of particular interest will be what the asset threshold will revert to for the instant asset write off rules from 1 July 2023 given the multiple temporary thresholds introduced in recent years, as distinct from the originally legislated $1,000 asset limit.

Employee Share Scheme changes

Changes were announced to the Corporations Act that allow unlisted companies relief from providing a disclosure document to employees when offering shares or options in employer companies
.
Currently unlisted companies can access this relief when they offer shares or options for interests for no more than $5,000 in value per employee per year.  This announcement increases that threshold from $5,000 to $30,000.

Whilst some may have hoped this was a tax concession, it’s not, but merely an extension of the ASIC relief order on disclosure documents required to be provided to employees.

 

PERSONAL TAX MEASURES

Increased Tax Offset

The low and middle income tax offset will be increased by $420 for the 2022 financial year.  The benefit of this will be paid when Australians lodge their 2022 tax returns, increasing the offset from a maximum of $1,080 to $1,500 for those earning from $48,000 to $90,000 but phasing out up to $126,000.

Individuals earning up to $48,000 will also get an additional $420 tax offset increasing their tax offset to $675.

Cost of living payment

The Government will provide a once off $250 payment to eligible recipients in April.  Eligible recipients include those who receive:

  • the age pension
  • Disability support payments
  • Parenting payments
  • Jobseeker payments
  • Youth allowance payments
  • Commonwealth Seniors Health Care Card holders
  • Recipients of other government supports.

Importantly these payments are exempt from tax and do not count as income for the purposes of any other income support payment.

Temporary reduction in Fuel Excise

This budget will temporarily reduce the excise that applies to petrol and diesel for 6 months by 50%. This measure will apply from 30 March 2022 and remain in place until 28 September 2022. This reduction will drop the excise amount from the current rate of 44.2 cents to 22.1 cents.

This measure will be heavily welcomed by motorists, especially those who spend a lot of time on the road however will place a lot of pressure on this government, or other future governments to allow for the measure to lapse. The government will be hoping that fuel prices drop between now and 29 September or they will face pressure to extend the measure.

Personal Tax Changes

Although not specifically referred to in the Budget, importantly the Stage 3 tax rate and threshold changes previously legislated to apply from 1 July 2024 have not been wound back, as was speculated.

As a reminder these changes are as follows:

Tax rates and income thresholds
Rate 2021-22 2022-23 to 2023-24 From 1.7.2024 (unchanged)
Nil $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $45,000 $18,201 – $45,000 $18,201 – $45,000
30% N/A N/A $45,001 – $200,000
32.5% $45,001 – $120,000 $45,001 – $120,000 N/A
37% $120,001 – $180,000 $120,001 – $180,000 N/A
45% $180,001 + $180,001 + $200,001 +
Low and middle income tax offset (LMITO) Up to $1,500 (proposed) N/A N/A
Low income tax offset (LITO) Up to $700 Up to $700 Up to $700

 

SUPERANNUATION RELATED MEASURES

The Government does not appear to have any appetite to tinker with Superannuation so close to an election. There were however a couple of items of note.

Reduction in minimum pension drawdowns extended to 2022-23

In 2020 at the start of the COVID 19 Pandemic the Government introduced a measure to reduce the minimum required drawdown rate for Account Based Pension, Allocated Pensions and market-linked pensions by 50%. This measure was initially due to expire at the end of the 2021 financial year. In last year’s Budget this measure was extended for a further 12 months. The Government has in this Budget extended this by a further 12 months and it is now due to expire 30 June 2023.

Regular drawdown rates and reduced drawdown rates are as follows:

Age of pensioner Regular Drawdown rates Reduced Drawdown rate to 30 June 2023
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 or more 14% 7%

 

This measure will be welcomed by older members who may not require the larger required drawdowns to fund their living and lifestyle expenses and will allow their superannuation balances to remain higher than they otherwise would be.

Whilst this will provide for tax savings each year by the earnings on the assets remaining in the concessionally taxed environment, members need to keep in mind that this may impact any lump sum tax should their entitlements be paid to non-tax dependents.

Superannuation Guarantee Increase left unchanged

The Superannuation Guarantee rate is legislated to increase to 12% from 1 July 2025 with stepped annual increases of 0.5% on the current rate until the 12% rate is reached. The current rate of 10% is therefore legislated to increase to 10.5% from 1 July 2022. There was speculation that the Government may freeze these increases in the hopes of increasing current day worker earnings. This Budget however, does not change this and the Superannuation Guarantee Rate will continue to increase over the coming years as per the below table.

Year commencing Superannuation Guarantee Rate
1 July 2021 (current rate) 10%
1 July 2022 10.5%
1 July 2023 11%
1 July 2024 11.5%
1 July 2025 12%

 

TAXATION COMPLIANCE & INTEGRITY MEASURES 

Extension of the ATO Tax Avoidance Taskforce

The Budget announced several tax compliance and integrity measures.  Perhaps indicative of the potential cost/benefit modelling Treasury have conducted, the Government will provide $325 million in the 2024 and another $327.6 million in 2025 to the ATO to extend the operations of the ATO’s Tax Avoidance Taskforce until 30 June 2025.  This extension is estimated to increase tax receipts by $2.1 billion, and increase payments by $652.6 million over the forward estimates period.

Originally established in 2016, the Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. It also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.  The primary aims of the Taskforce are to protect revenue and the integrity of the tax system by detecting tax avoidance and to improve the ATO’s data analytics, risk and intelligence capabilities in order for the ATO to decide on and manage tax avoidance risk.

Given the increased compliance activities, risk and assurance reviews and expected tax receipts increase, we can expect the Taskforce to have an increased coverage and impact on us all.

Modernisation of PAYG instalment systems

The Government confirmed the Treasurer’s earlier announcement that companies will be allowed to choose to have their pay as you go (PAYG) instalments calculated based on current financial performance, extracted from their business accounting software, (subject to some tax adjustments).  It is expected that systems will be in place by 31 December 2023 (subject to advice from software providers about their capacity to deliver), with the measure anticipated to commence on 1 January 2024.

Digitalising trust income reporting

Confirming the Treasurer’s earlier announcement, the Government will digitalise trust and beneficiary income reporting and processing, by allowing all trust tax returns to be lodged electronically. The intention of this measure is to allow increased pre-filling and automating of the ATO assurance processes.  The measure is expected to commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.

If you have any questions on these Budget measures, please contact SeanGaurav, Mimi, or Chris from MKT Taxation Advisors.

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