2022/23 Federal Budget Analysis
On Tuesday 29 March 2022, Treasurer Josh Frydenberg handed down the 2022 Federal Budget, which was eagerly awaited given the impact it could have on the forthcoming election outcome.
The Treasurer detailed the current state of the economy, a plan to help Australia move past a difficult two-year period following the COVID-19 pandemic and a number or measures to improve cost of living pressures.
Some of the key numbers announced include:
• A deficit of $79.8 billion for 2021-22.
• Net debt of $631.5 billion for 2021-22, which is expected to peak at $864.7 billion in 2025-26.
• Wages growth of 2.75% for 2021-22, expected to reach 3.5% in 2024-25.
• Inflation of 4.25% for 2021-22, expected to fall to 2.75% in 2023-24.
• The unemployment rate is expected to fall to 3.75% in 2022-23.
From a tax and general cost of living perspective, we provide the following outline of general measures to provide more disposable income into the hands of individual and small business taxpayers:
Superannuation
The Government has extended the 50% reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023.
The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions. Given ongoing volatility, this change will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.
|
Recipient's Age |
Minimum Percentage Factor |
Reduced Minimum Percentage Factor |
|---|---|---|
| Under 65 | 4% | 2% |
| 65 to 74 | 5% | 2.5% |
| 75 to 79 | 6% | 3% |
| 80 to 84 | 7% | 3.5% |
| 85 to 89 | 9% | 4.5% |
| 90 to 94 | 11% | 5.5% |
| 95 and above | 14% | 7% |
Easing cost of living pressures
From 1 July this year, over 10 million individuals will receive a one-off $420 cost of living tax offset. When combined with the low and middle income tax offset (LMITO), eligible low and middle-income earners will receive up to $1,500 for a single income household, or up to $3,000 for a dual income household. LMITO will however end in the 2022 financial year. The LMITO was a one-off tax offset worth up to $1,080 available to those earning from $48,000 to $126,000 a year.
| 2022 LMITO (Current) | Plus cost of living tax offset | |
|---|---|---|
| $0 - $37,000 | $255 | $420 |
| $37,001 - $48,000 | $255 + 7.5% of excess over $37,000 | $420 |
| $48,001 - $90,000 | $1,080 | $420 |
| $90,001 - $125,999 | $1,080 - 3% of excess over $90,000 | $420 |
| $126,000 + | Nil | Nil |
To help some Australians meet cost of living pressures, the government is providing a one off, income tax-exempt payment of $250.This payment will help 6 million people, more than half of which are pensioners, at a cost of $1.5 billion.
Increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for seniors and pensioners, families and singles from 1 July 2021 as follows:
• The threshold for singles will be increased from $23,226 to $23,365.
• The family threshold will be increased from $39,167 to $39,402.
• For single seniors and pensioners, the threshold will be increased from $36,705 to $36,925.
• The family threshold for seniors and pensioners will be increased from $51,094 to $51,401
• For each dependent child or student, the family income thresholds will increase by a further $3,619 instead of the previous amount of $3,597.
Temporary fuel excise relief
With recent fuel prices rising to record levels, adding to cost of living pressures faced by families and the cost of doing business for small businesses, the fuel excise is being cut by 50% for the next six months. This will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents per litre with an average price reduction of around $15 per tank expected to flow through to the majority of service stations and Australian consumers within a few weeks.
Affordable home ownership
The government will increase the number of guarantees under the Home Guarantee Scheme to 50,000 per year for three years from 2022-23 and then 35,000 a year ongoing to support homebuyers to purchase a home with a lower deposit.
Skills & Training Boost
Small and medium-sized businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia. Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.
Technology Investment Boost
Small and medium-sized businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of expenditure incurred on business expenses and depreciating assets that support their digital adoption (such as portable payment devices, cyber security systems or subscriptions to cloud-based services). An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost. This equates to a maximum additional deduction of $20,000 per eligible year.
For both the Skills & Training Boost and Technology Investment Boost, eligible expenditure incurred by 30 June 2022, the boost will be claimed in tax returns for the following income year. For eligible expenditure incurred between 1 July 2022 and 30 June 2023, the boost will be claimed in the income year in which the expenditure is incurred.
Expanding access to employee share schemes
The Government will expand access to employee share schemes and further reduce red tape so that employees of all levels can directly share in the business growth they help to generate. Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to the following amounts (thereby allowing employers to access simplified disclosure requirements and exemptions from licensing):
• $30,000 per participant per year (which is an increase from $5,000), accruable for unexercised options for up to five years, plus 70% of dividend 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.
As always, if you have any questions regarding the Federal Budget and its impacts on you, or any other matter, please don’t hesitate to contact your King & Whittle adviser for more information.