Elevate Tax + Accounting

The Federal Budget 2022-23

The 2022 Federal Budget was announced this week with a focus on jobs, 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

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.

Temporary reduction in fuel excise

  • Fuel excise reduction by 50% for 6 months to relieve the pressure on consumers due to rising fuel expenses.
  • 44.2 cents per litre rate will reduce excise to 22.1 cents per litre which can be looked forward to in the coming weeks.

Living tax offset increase

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.

Home buying Assistance

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.

  • 35,000 guarantees – to support first homebuyers purchase a new or existing home.
  • 5,000 guarantees – to support eligible single parents with children to buy their first home with a deposit of as little as 2%.
  • Regional Home Guarantee -This guarantee will support to purchase a new home in regional areas with a minimum 5% deposit areas.

Technology Boost

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.

  • $120 tax deduction for every $100 spent on technology, up to a cap of $100,000 per year.
  • The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year.
  • The boost incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred. That is, the additional deduction available under this measure is expected to be claimed in the 2023 tax return.

Lowering tax installments for small business

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:

  • Up to $10 million annual aggregated turnover for GST installments and
  • $50 million annual aggregated turnover for PAYG installments

Access to employee share schemes

An Employee Share Scheme (ESS): 

  • In broad terms,  the shares in a company are issued to an employee or their associate in respect of their employment.
  • In a commercial level, Employees are provided with an opportunity to share in the profitability and growth of the business while it is useful in situations start-up businesses does not have significant cash flow or reserves to attract top quality employees with high salaries. 

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:

  • $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70 per cent of dividends 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 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.

PAYG installments

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.

Digitizing taxable payments reporting system

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.

Sharing of Single Touch Payroll data

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.

ABN integrity measure delayed

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.

Tax status of COVID-19 grants

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:

  • New South Wales Accommodation 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.

This builds on the list of existing grants paid by New South Wales and Victoria that can already qualify for NANE income treatment.

Tax deductibility of COVID-19 test expenses

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.

Skills and Training Boost

  • The boost for eligible expenditure incurred by 30 June 2022 will be claimed in the tax return for the following income year (that is, the 2023 tax return). The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.$120 deduction for every $100 spent on skills and training provided to employees
  • Available to small business with less than $50 million per year turnover.
  • External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.
  • Requires to have connection between the employee’s employment and the training program.

Apprentice wage subsidy support extended

Just prior to the Federal Budget, the Government announced the extension of the:

  • Boosting Apprenticeship Commencements wage subsidy, and
  • Completing Apprenticeship Commencement wage subsidy.

Any employer (or Group Training Organisation) who takes on an apprentice or trainee up until 30 June 2022 can gain access to:

  • 50% of the eligible Australian Apprentice’s wages in the first year, capped at a maximum payment value of $7,000 per quarter per Australian Apprentice,
  • 10% of the eligible Australian Apprentice’s wages in the second year, capped at a maximum payment value of $1,500 per quarter per Australian Apprentice, and
  • 5% of the eligible Australian Apprentice’s wages in the third year, capped at a maximum payment value of $750 per quarter per Australian Apprentice.

Resources: Media release: 2022-23 Budget backs Australian industry, energy security and net zero emissions

Reductions in minimum superannuation extended

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

AgeDefault minimum drawdown rates (%)Reduced rates by 50% for the 2019-20 to 2022-23 income years (%)
Under 6542
95 or more147

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:

  • Community transmission of COVID-19 will continue to occur.
  • A further Omicron wave is assumed to occur over winter 2022, which may again see elevated rates of absenteeism and pressure on supply chains.
  • Beyond winter, it is assumed that Australia will continue to experience intermittent, localised waves of Omicron, or other new COVID-19 variants. However, it is assumed that high vaccination rates and improved medical treatments, together with continued community adaptation to COVID-19, will see the economic impact of future outbreaks continue to moderate. Box 2.4 considers a scenario where a new COVID-19 variant of concern poses greater downside risks to the economic forecasts.
  • It is assumed that public health measures such as physical distancing and density restrictions are phased down, but reimposed in a targeted way in response to future COVID-19 outbreaks. These public health measures are not expected to materially affect the economic forecasts.
  • Australia’s international borders are assumed to be open to migrants and fully vaccinated tourists.

Expenditure: How the 2022-23 Budget will be spent

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.

Considering any of these for your business but don’t know where to start?

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.