With a Federal election expected in mid-May, Treasurer Josh Frydenberg has delivered what could be his last Federal Budget under the Morrison Government. This budget has been delivered in one of the most uncertain and volatile environments in decades, with international tensions, the ongoing pandemic, rising inflation, and low unemployment all influencing budget decisions.
With many prominent economists predicting we will face 15 years of deficits, crafting this budget was never going to be easy.
There are important announcements in the budget, but a lack of announcements to better support businesses to build their resilience to manage future uncertainty and shocks.
With the election looming, the focus has very much been on short-term cost of living relief – longer term measures did not feature strongly.
There have been no significant changes to superannuation beyond those previously announced.
Let’s see how this budget impacts you.
Individuals
Personal Tax
The Medicare levy low income threshold for singles, families, seniors and pensioners for FY22 will increase as follows:
Singles – increased from $23,226 to $23,365
Family – increased from $39,167 to $39,402
Single seniors and pensioners – increased from $36,705 to $36,925
Family seniors and pensioners – increased from $51,094 to $51,401
For each dependent child or student, the threshold increases by a further $3,619 (up from $3,597 in FY21)
The cost of taking a Covid-19 test to attend your workplace will be tax deductible from 1 July 2021. Let’s hope you all kept those RAT receipts!
The low and middle income tax offset (LMITO, or “Lamington”), has been increased by $420 for FY22, to assist individual tax payers with the increased cost of living. Individuals earning between $48,000 and $90,000 will receive the maximum offset of $1,500, which then reduces and cuts out once your income reaches $126,000. The LMITO is received when you lodge your tax return for FY22. There are currently no plans to extend the LMITO beyond FY22.
Access to Employee Share Schemes (ESS) will be expanded, and compliance for employers reduced, to allow employees greater opportunity to participate in these schemes in unlisted companies. Participants will be able to invest up to $30,000 (up from $5,000) per year (accruable for options) and a percentage of dividends and cash bonuses.
Cost of Living Support
A one-off $250 cost of living payment will be made in April 2022 – the payment will be delivered to eligible concession card holders and to recipients of certain government support payments (including the Age Pension, Jobseeker Payment, and Youth Allowance).
A temporary (6 month) reduction in fuel excise will take effect from midnight on 30 March 2022. The 50% reduction in the excise (from 44.2 cents per litre to 22.1 cents per litre) is subject to the passage of enabling legislation, so don’t expect to see a change in fuel prices straight away. The ACCC will be monitoring prices to ensure that the full benefit is passed on to consumers.
Business Taxation
Temporary Full Expensing Measures Remain In Place
The instant asset write-off concession will continue to be available to businesses with an aggregated annual turnover of <$5B, enabling them to deduct the full cost of new eligible depreciating assets acquired from 7.30 pm on 6 October 2020 and first used or installed ready for use by 30 June 2023.
Small and medium sized businesses (turnover <$50M) can also continue to deduct the full cost of second hand assets up to 30 June 2023
Note that the maximum deduction for motor vehicles for FY22 is $60,733.
From 1 July 2023, “normal” depreciation rules will return – essentially, depreciating assets over their effective life for tax purposes.
Company Loss Carry-Back Measures Remain In Place
The loss carry-back provisions allow companies with aggregated turnover of <$5B who have paid tax in the past, but who are now in a tax loss position, to carry their tax loss back to the past years to obtain a tax refund.
Losses in FY20, FY21, FY22 & FY23 income years can be carried back to offset against taxable incomes from FY19 and subsequent years
Companies can elect to claim the tax refund when they lodge their FY21, FY22 & FY23 tax returns
The loss carried back must not be more than their earlier taxed profits
The tax refund created by the carry-back cannot generate a franking account deficit. This means if the company has paid franked dividends that have used up the franking account balance the loss carry-back provisions cannot be utilised.
Note that companies do not have to adopt these carry back loss provisions and can still carry forward losses as usual.
Small Business Technology Investment “Boost” & Skills & Training “Boost”
Small businesses will be able to deduct an additional 20% of the cost incurred on business expenses and assets that support digital adoption (for example portable payment devices, cyber security systems, or subscriptions to cloud based services), or on providing external training to their teams.
Further detail is to come on both “boosts” – each providing a $120 deduction for every $100 of eligible expenditure.
Reduction in the GDP Uplift Rate on PAYG Income Tax and GST Instalments – FY23
The uplift factor applied to income tax and GST instalments for small to medium businesses will be reduced from 10% to 2% in FY23. While this may provide some temporary cash flow relief, this is really only a potential deferral of your business’ income tax and GST liabilities - monitor your profitability, and budget for expected balances payable for FY23.
Changes to the Apprentice Incentive Scheme
Employers will be encouraged to engage and retain new apprentices through:
Increasing Apprenticeship In-Training Support by adding 2,500 places for 15-20 years olds in FY23.
Extending current commencement and completion subsidies by 3 months to 30 June 2022.
Introduction of a new Apprenticeships Incentive Scheme commencing 1 July 2022, providing support in priority occupations. Further detail on the scheme is yet to be released.
Reminder – The Corporate Tax Rate for Small Business “Base Rate” Entities Has Reduced to 25% for FY22.
Superannuation
The current $450/month minimum income threshold under which employers do not have to pay Superannuation Guarantee contributions for employees will be removed effective 1 July 2022, meaning casuals and low income earners will now start to receive super
The temporary reduction in minimum pension draw-down rates has been extended until 30 June 2023.
General
Other measures provided for in the budget include:
An extension of the Home Guarantee Scheme which guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit without the need to pay for lender’s mortgage insurance.
Additional funding to the ATO’s tax avoidance task force to extend its operations to 30 June 2025 and start to shift its focus down from the "big end of town” to the “mid-market” – this is a broad concept, and can go all the way down to Mum & Dad businesses. Areas of concern include tax losses and deductions, loans to shareholders, tax treatment of property disposals, and trust distributions.
Expansion of digital reporting for Trusts, and the sharing of STP data between the ATO and State Revenue Offices to facilitate payroll tax reporting and compliance.
Increased infrastructure spending – the budget allows for $17.9 billion of funding for various new & existing infrastructure projects, including investments in transport, IT, and gas projects. Major upgrades to roads and rail in NSW include $1 billion earmarked for a fast rail link between Sydney & Newcastle.
Conclusion
This is a budget that offers little in the way of change - any measures designed to assist business or to ease the cost of living are only temporary, and the Government seems keen to return to “normal” after the pandemic driven drama of the last two years.
For more information on how this budget affects you and your business, please contact Jeni, Terry or your Sullivan Dewing client manager.
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