With the election looming, this year’s Federal Budget introduces significant personal tax measures in response to the increasing cost of living alongside rising inflation. The government also announced actions to streamline reporting and digitise systems to reduce the compliance burden on taxpayers. Meanwhile, a skills and training boost as well as the technology investment boost will give small and medium businesses an additional 20% tax deduction for eligible expenditure.
Here are the key takeaways from the Federal Budget 2022/23.
Personal income tax changes
Increase in low and middle income tax offset (LMITO)
To alleviate the cost of living pressures–primarily caused by COVID-19 and the war in Ukraine–the Government announced an increase to the LMITO only for the 2022 income year. A once-off $420 ‘cost of tax living offset’ will be given, resulting in a maximum LMITO benefit of $1,500 for individuals and $3,000 for couples.
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. However, all other features of the LMITO remain unchanged and taxpayers with a taxable income of $126,000 and above are not eligible for the increase.
Cost of living payment
The Government will provide a one-off $250 cost of living payment for eligible recipients to help cope with the increasing cost of living pressures. This is exempt from tax and will not count as income support. This will only be available to Australian residents and they may only receive one economic support payment even if they are eligible under two or more categories as listed below.
The payment will be released in April 2022 to the following eligible recipients:
- Age Pension
- Disability Support Pension
- Parenting Payment
- Carer Payment
- Carer Allowance
- Jobseeker payment
- Youth Allowance
- Austudy and Abstudy Living Allowance
- Double Orphan Pension
- Farm Household Allowance
- Pensioner Concession Card holders
- Commonwealth Seniors Health Card holders
- Eligible Veterans’ Affairs payment recipients and Veteran Gold cardholders
Medicare levy increase for low-income thresholds
Medicare levy for low-income thresholds, including seniors and pensioners, families, and singles, will increase from 1 July 2021, as follows:
- The Single threshold will be increased from $23,226 to $23,365
- Family threshold will be increased from $39,167 to $39,402
- Single seniors and pensioners thresholds will be increased from $36,705 to $36,925
- Family threshold for seniors and pensioners will be increased from $51,094 to $51,401
The family income thresholds will have an additional increase of $3,619 for each dependent child or student.
COVID-19 Measures
COVID-19 business grants
Throughout the COVID-19 pandemic, states and territories have provided various business support grants to small and medium businesses. Those with an annual aggregated turnover of less than $50 million will be able to file COVID-19 grants received in the income years of 2021 and 2022 as non-assessable non-exempt (NANE) income.
The Government has extended the measures in the 2022/23 Federal Budget and expanded the types of grants to be treated as NANE, including:
- 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
COVID Test Expenses
Costs of taking a COVID-19 test to attend the workplace will be tax deductible for individuals from 1 July 2021. The Government also ensures FBT will not be incurred by businesses whose employees are provided with COVID-19 tests.
Changes involving business taxpayers
Skills and training boost
The skills and training boost aism to support small and medium-sized businesses in training and upskilling their employees. This will apply to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 to 30 June 2024.
The introduction of this boost will allow small and medium-sized businesses (with an aggregated annual turnover of less than $50 million) to deduct an additional 20% of eligible expenditure incurred on external training courses provided to their employees.
Technology investment boost
The technology investment boost encourages digital adoption for small and medium sized businesses. They will also be able to deduct an additional 20% of the cost incurred on business expenses that support digital adoption measures, including portable payment devices, cybersecurity systems, or subscriptions to cloud-based services.
The boost applies to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 to 30 June 2024. It will be subject to a $100,000 annual expenditure cap.
Digitisation of the Australian Tax System
Modernising the PAYG instalment system
The Government will now enable companies to opt to have their pay as you go (PAYG) instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. This measure aims to align PAYG instalment liabilities of companies with their profitability and ensure instalments accurately reflect current performance.
Enhanced sharing of Single Touch Payroll (STP) data
The Government has committed to developing IT infrastructure to allow the ATO to share Single Touch Payroll (STP) data with the State and Territory Revenue Offices on an ongoing basis. This data-matching measure will help Revenue Offices verify and determine employers’ State and Territory payroll tax liabilities. It is also expected that the States and Territories will invest in their own systems and administrative processes to pre-fill payroll tax returns with STP data.
Digitising trust income reporting and processing
The Government aims to digitise trust and beneficiary income reporting and processing by granting trust return filers the option to enter income tax returns electronically. This increases the pre-filing and automating of ATO assurance processes. This measure aims to reduce processing times while enhancing ATO processes.
Other key announcements
Temporary reduction of fuel tax excise
The Government aims to help reduce the burden of high 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, excluding aviation fuels, for six months. The fuel tax excise of 44.2 cents per litre will be reduced to 22.1 cents per litre. For fuels that are subject to rates other than 44.2 cents per litre, the reduction will be at 50% of the existing rate.
Expanding access to employee share schemes
The Government expressed its intention to ‘further reduce red tape’ by expanding access to employee share schemes (ESS) so that employees of all levels can directly share in business growth.
Where employers make larger offers in connection with ESS in unlisted companies, participants can invest up to the following amounts:
- $30,000 per participant per year, accruable for unexercised options for up to five years, plus 70% of divided 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
Regulatory requirements for offers to independent contractors, where they do not have to pay for their interests, will also be removed.
Should you have any questions about the Federal Budget, we recommend you contact one of our experts at DKM accounting here.