The 2022 Federal Budget was announced this week with a focus on jobs, cost of living, home ownership, and health.
Key initiatives include:
This 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.
Beyond compliance, there is an opportunity capitalise on the benefits of the Government’s push towards innovation and investment in new technology. Not just the $120 tax deduction for every $100 spent on training employees and digital adoption, but also the expansion of the patent box tax concessions. There are opportunities for those pushing boundaries.
The low and middle income tax offset (LMITO) will be increased and can have a tax offset up-to 1,500 for individuals with a taxable income of up to $126,000 which is triggerd when taxpaer lodges their 2021-22 tax return.
The Home Guarantee Scheme have increased spots to 50,000 which guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance.
The technology boost will be available to small businesses from March 29, 2022 until June 30, 2023 with an annual turnover of less than $50 million.
For the 2022-23 income year, the Government is uplifting GDP adjustments that factors at 2% instead of the 10% which will apply to small to medium enterprises that allows them to use relevant installment methods for the 2022-23 incoming year:
An Employee Share Scheme (ESS):
The Government has expand access to schemes so that employees at all levels can directly share in the growth of the business. Participants can invest up to:
The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.
It is important to consider the tax implications that can arise for when they receiving shares at a discount to their market value. There are a number of different ways that employees can be taxed and the treatment will often depend on how the ESS arrangement has been structured by the company.
From January 2024, Companies will be able to choose pay as you go (PAYG) installments using current financial performance, from business accounting software, with tax adjustments.
It is to ensure that installment liabilities are aligned to the businesses cashflow. In addition, the digitization will improve transparency and provide accurate data on performance.
From January 1, 2024, as announced prior to the Budget, businesses will be able to report Taxable Payments Reporting System data via their accounting software on the same lodgment cycle as their activity statements.
The measure is expected to reduce the costs of complying with the system and increase transparency.
Prior to budget, the Government commits $6.6 million for the development of IT infrastructure that allows the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis.
The funding will provide further considerations of which states and territories are able and willing to make investments in their own systems and administrative processes to pre-fill payroll tax returns with STP data in order to reduce compliance costs for businesses.
Back in the 2019-20 Budget, the Government announced that Australian Business Number (ABN) holders would be stripped of their ABNs if they failed to lodge their income tax return. In addition, ABN holders would be required to annually confirm the accuracy of their details on the Australian Business Register.
This measure has been deferred for 12 months, which means that the tax return lodgement obligation is due to commence from 1 July 2022 with the annual confirmation of ABN details to commence from 1 July 2023.
Measures that allow payments from certain state and territory COVID-19 business support programs to be treated as non-assessable non-exempt (NANE) income has already been extended until 30 June 2022.
The Government has announced that the following state and territory grant programs have been made eligible for this treatment since the 2021-22 MYEFO, although it is not clear whether the relevant legislative instruments have been issued as yet:
This builds on the list of existing grants paid by New South Wales and Victoria that can already qualify for NANE income treatment.
Changes also include ensuring that FBT will not be payable by employers if they provide fringe benefits relating to COVID-19 testing to their employees for work-related purposes. As previously announced, work-related COVID-19 test expenses incurred by individuals will be made tax deductible.
Effective from 1 July 2021, the changes for deductions will be with the FBT changes to apply from 1 April 2021.
At this stage it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home. The initial media release indicates that the measure will cover situations where the individual has the option of working remotely, while the Budget only refers to costs of taking a COVID-19 test to attend a place of work but doesn’t specifically refer to employees who can work from home.
Just prior to the Federal Budget, the Government announced the extension of the:
Any employer (or Group Training Organisation) who takes on an apprentice or trainee up until 30 June 2022 can gain access to:
Resources: Media release: 2022-23 Budget backs Australian industry, energy security and net zero emissions
The temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023.
Minimum superannuation drawdown rates 2019-2023
|Default minimum drawdown rates (%)
|Reduced rates by 50% for the 2019-20 to 2022-23 income years (%)
|95 or more
Australia’s unemployment rate is at 4%: the lowest rate in 48 years.
Amid the ongoing COVID 19 pandemic and natural disasters, the Australian economy has outperformed all major advanced economies, experiencing a stronger recovery in output and employment from pre pandemic levels. The recovery is expected to continue with the unemployment rate forecast to reach 3.75% in the September quarter of 2022, nearly 3% below the forecast 2 years ago.
The Wage Price Index (WPI) is forecast to increase from 2.75% through the year to the June quarter of 2022 to 3.25% through the year to the June quarter of 2023. But, there is “significant uncertainty around the pace at which wages growth will accelerate.”
Real GDP is forecast to grow by 4.25% in 2021-22. And, by 3.5% in 2022-23 and 2.5% per cent in 2023-24.
The deficit for 2022-23 is expected to be $78 billion or 3.4% of GDP.
Since the Mid Year Economic and Fiscal Outlook (MYEFO), the underlying cash balance has improved by $103.6 billion over the 5 years to 2025-26. The Budget shows the deficit more than halving to 1.6% of GDP by 2025-26 before falling to 0.7% of GDP by the end of the medium term. Gross debt as a share of the economy is expected to peak at 44.9% of GDP at 30 June 2025, 5.4% lower and 4 years earlier than projected at MYEFO. Gross debt is projected to fall to 40.3% of GDP by the end of the medium term, 9.6% or $236 billion lower than at the end of the medium term in MYEFO.
The Budget projects a halving in the deficit to 1.6% of GDP by 2025-26 before falling to 0.7% of GDP by the end of the medium term.
Commodity prices are near record high levels, in part due to the Russian invasion of Ukraine. Metallurgical and thermal coal spot prices have recently reached highs that are 62% and 53% above previous peaks.
Inflation is expected to rise to 4.25% through the year to the June quarter of 2022. This reflects higher global oil prices and ongoing supply chain pressures as well as price pressures in the housing construction sector. Then moderate to 3% in 2022-23 and 2.75% in 2023-24.
The recent floods in Queensland and New South Wales have had a devastating impact on many communities. The Government expects to spend over $6 billion in total on disaster relief and recovery (in addition to the $3.6 billion already allocated to households, businesses and communities).
On COVID-19, the Budget assumes:
As the Government’s response to the COVID-19 pandemic reduces, expenses decrease from $640 billion in 2021-22 to $628 billion in 2022-23 – an impact that is primarily reflected in the health, social security and welfare, and other economic affairs functions. Expenses are expected to reach $687 billion in 2025-26. While, low unemployment and increased economic growth has reduced expenditure on income support programs, higher inflation and wages growth forecasts have impacted indexation rates and led to increased expenditure estimates on government payments to individuals.
We’ll help you make sense of it all and tell you exactly how it applies to you and what you need to do and you can let us take care of the tricky stuff.