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Budget 2022-23: Special Report

Treasurer Josh Frydenberg unveiled his fourth budget highlighting that ‘a strong economy means a stronger budget’. The 2022-23 Budget builds on 4 pillars including cost of living relief, jobs creation, essential services investment, higher defence and national security spend.

Key point summary:

  • no changes were made to personal tax rates, however a one-off $420 cost of living tax offset for low and middle income earners;
  • reduce the fuel excise by 50% for six months, starting from Budget night.
  • extend the 50% reduction in minimum pension payment amounts for superannuation pension and annuities for a further year to the 2022-23 financial year.
  • a one-off payment of $250 to pensioners and other welfare recipients

Key measures announced include a one-off $420 cost of living tax offset for low and middle income earners, and a $250 payment for pensioners and welfare recipients. The fuel excise will also be reduced by 50% for 6 months, starting from midnight on Budget night. For retirees, the temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities will be extended by a further year to the 2022-23 income year.

For small businesses, a Skills and Training Boost will provide a new 20% bonus deduction for eligible external training courses for upskilling employees from Budget night. In addition, businesses will receive a similar 20% bonus deduction for expenditure on digital technologies e.g. cloud computing, eInvoicing, cyber security and web design for investments of up to $100,000 per year.

Notwithstanding the COVID-19 pandemic, recent floods and the Russian invasion of Ukraine, the budget expects the economy to remain strong despite ongoing challenges, with output and jobs already having returned to pre-pandemic levels, according to the Government Australia is faster than in any other advanced economy.

It is important to note the Budget announcements are still only proposed at this stage and to be legislated. Changes can also be made prior to these proposals becoming law.

Superannuation

Minimum pension drawdown relief extended to 2022-23

Originally introduced in 2020-21 in response to the COVID-19 crisis, the Federal Government granted a temporary 50% reduction in the minimum pension drawdown. This pension drawdown relief was extended to 2021-22 and will be extended for another year to 2022-23.

Comment

The Budget paper did not contain any changes to the legislated Super Guaranteed rate rise from 10% to 10.5% for 2022-23.

Temporary reduction in fuel excise

The Government will reduce the burden of higher fuel prices by halving the excise and excise-equivalent custom duty rate that applies to petrol and diesel for 6 months. This measure is estimated to cost the Government $5.6 billion.

The measure will commence from Budget night and ending on 28 September 2022.

Under the measure, existing policy settings for fuel excise and excise-equivalent customs duty, including indexation in August, will continue but on the basis of the halved rates. The rate of excise and excise equivalent customs duty currently applying to petrol and diesel is 44.2 cents per litre.

This measure will halve the rate on petrol and diesel to 22.1 cents per litre from 30 March 2022, with the price faced by consumers expected to be reduced by a larger magnitude given GST will be levied on the lower excise rate. Fuel subject to a lower excise rate is expected to flow through to the majority of service stations and Australian consumers within a few weeks as stations replenish their stocks.

Tax

Cost of Living Tax Offset

Taxpayers lodging their 2021-22 tax returns after 1 July 2022 will pocket an extra $420 under a Cost of Living Tax Offset available to Australian’s earning up to $126,000 a year. This will be paid on top of the Low and Middle Income Tax Offset, ceasing 31 June 2022.

Singles and each member of a couple eligible for the full amount of LMITO and the Cost of Living Tax Offset will receive a total $1500 offset at tax time.

Comment

Despite much speculation, the Low and Middle Income Tax Offset (LMITO) has not been extended. Until 30 June 2022, the LMITO gives taxpayers earning between $37,001 and $126,000 a tax offset of up to $1,080.

The low income tax offset (LITO) will also continue to apply for the 2022-23 income years and remains unchanged. The maximum amount of the LITO is $700. It will reduce at a rate of 5 cents per dollar between taxable income of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable income of $45,000 and $66,667.

No change to stage 3 tax cuts

The ‘stage 3’ tax cuts will see everyone earning between $45,000 and $200,000 paying 30 per cent tax from 2024-25. The changes scrap the 37 per cent tax bracket for those earning above $120,000, making those earners the biggest winners from the cuts.

Comment

Tax relief for wealthy Australians is locked in regardless of who wins the next election with Labor officially vowing to support the final stage of tax cuts.

Increase the Medicare Levy low-income thresholds

Effective 1 July 2021
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2021-22 financial year.
The following table compares the level of taxable income below which no Medicare levy becomes payable.

COVID-19 Test expenses to be deductible

The Budget confirmed that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals from 1 July 2021. In making these costs tax deductible, the Government will also ensure Fringe Benefit Tax (FBT) will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose.

Business

Tax deduction for small businesses to train and upskill their employees

Small businesses with aggregated annual turnover of less than $50 million will be able to deduct an additional 20 percent 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.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. 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. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.

 

Tax deduction to support digital adoption by small businesses

The Government is introducing a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditure incurred from Budget night until 30 June 2023.

Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-basedservices. An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.

 

COVID-19 Business Support Payments and access to Pandemic Leave Disaster payment extended

The Government will provide further relief to businesses by extending COVID-19 Business Support Payments to assist businesses in coping with the effects of extended lockdowns and border closures as a result of COVID-19. Business Support Payments have been administered by all state and territory governments with the Australian Government generally contributing 50 per cent of the costs

 

Small Business Support Package

Spanning three years from 2021-22, additional initiatives will be delivered to support small businesses:

  • Enhancement and redesign of the Payment Times Reporting Portal and Register
  • Extra funding for the Australian Small Business and Family Enterprise Ombudsman to work with service providers to enhance small busines financial capability
  • Delivered by Beyond Blue, the New Access for Small Business Owners program continues to provide free, accessible, and tailored mental health support to small business owners
  • Operated by Financial Counselling Australia, extension of the Small Business Debt Helpline program continues to provide financial counselling to small business facing financial issues.

 

Boosting participation and building Australia’s workforce

Spanning five years from 2021-22, additional funding aims to:

  • Deliver the new ReBoot initiative and support up to 5,000 disadvantaged young Australians to develop employability skills, providing a pathway to employment services and training opportunities
  • Add 15,000 low and fee-free training places in aged care courses under the JobTrainer Fund
  • Continue support for business who employer mature-aged Disability Employment Services program participants through the Restart Wage Subsidy
  • Extend the Time to Work Employment Services program for 12 months to provide continued in-person pre-employment services for Aboriginal and Torres Strait Islander prisoners
  • Extend the trial of career coaching for job seekers of all ages participating in Digital Services under Workforce Australia.
  • Extend the pension suspension period and Pension Concessional Card access period to 2 years for pensioners who receive a nil payment due to their partner’s employment income or workings hours, where this has also resulted in a suspension of their partner’s pension for up to 2 years (see detail below).
Comment

Income support recipients who go onto an employment income nil rate period, lose their social security pension or benefit due to employment income may be able to retain their Pensioner Concessional Card (PCC) for an extended two year period following the cessation of their payment.

The employment nil rate period applies where a person’s social security pension/benefit is not payable because of ordinary income, made up entirely or partly of employment income. During this period, the recipient is treated as if they are receiving a social security pension or benefit only for the purposes of the following:

  • child care subsidy
  • for the purposes of rent assistance payments to their partner, have their partner treated as if both members of the couple are receiving a social security pension or benefit
  • for the purposes of applying the allowance income test to their partner, have their partner treated as if both members of the couple are receiving a social security pension or benefit
  • these supplementary benefits
    • language literacy numeracy supplement
    • approved program of work supplement
    • pensioner education supplement
    • telephone allowance, or
    • retain their HCC or PCC.

If during an employment income nil rate period the recipient’s income falls and their social security pension or benefit becomes payable again, the recipient’s payment will recommence.

Generally, the PCC can be continued while the cardholder is in Australia, for 12 weeks if they cease receiving payment due to the person’s, or the person’s partner’s, employment income during an employment income nil rate period

Social security

One-off $250 Cost of Living Payment

Pensioners and low-income families relying on income support will receive a one-off cash bonus of $250 in April 2022 to help with the cost of living pressures.

The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under 2 or more of the categories outlined below and will only be available to Australian residents.

Eligible recipients include:

  • Age Pension
  • Disability Support Pension
  • Parenting Payment
  • Carer Payment
  • Carer Allowance (if not in receipt of a primary income support payment)
  • Jobseeker Payment
  • Youth Allowance
  • Austudy and Abstudy Living Allowance
  • Double Orphan Pension
  • Special Benefit
  • Farm Household Allowance
  • Pensioner Concession Card (PCC) holders
  • Commonwealth Seniors Health Card holders
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

Other

Aged care sector

Over 5 years from 2021-22, the government implements measures to further respond to the Royal Commission into Aged Care Quality and Safety including:

Over 5 years from 2021-22, additional funding will be allocated to manage the impacts of COVID-19 on the aged care sector including:

  • Bonuses of up to $800 to aged care workers in residential aged care and home care
  • Support to aged care providers in managing and preventing outbreaks of COVID-19
  • Improving the capability and capacity of the residential aged care workforce to deliver vaccination services to residents and staff
  • Establish grants for Infection Prevention and Control training for qualified nurses in residential aged care facilities
  • Extension of in-reach screening for COVID-19 in residential aged care facilities
  • Extension and expansion of the commissioned home visits initiative for COVID-19 positive patients in residential aged care facilities for a further three months until September 2022

 

Additional 50,000 scheme places for first home buyers

An additional 50,000 scheme places will be available under new measures encompassing the First Home Guarantee (previously known as the First Home Loan Deposit Scheme), New Home Guarantee, Family Home Guarantee and a new funding initiative, the Regional Home Guarantee, open to non-first home buyers.

Changes include:

  • 35,000 guarantees each year, up from the current 10,000, from 1 July 2022 under the First Home Guarantee, supporting first homebuyers to purchase a new or existing home with a deposit of as little as five per cent
  • 10,000 guarantees each year from 1 October 2022 to 30 June 2025 under a new Regional Home Guarantee, supporting homebuyers, including non-first home buyers and permanent residents, to purchase or construct a new home in regional areas, subject to the passage of enabling legislation.
  • 5,000 guarantees each year from 1 July 2022 to 30 June 2025 to expand the Family Home Guarantee scheme, supporting single-parent homes with children in purchasing their first home or to re-entering the housing market with a deposit of as little as two per cent.
What is the First Home Guarantee?

The national scheme aims to assist first home buyers purchase their first home with as little as 5% deposit without needing to pay for lenders mortgage insurance. The Government provides a guarantee to the difference between the first home buyer’s deposit and 20 per cent of the value of the property. As a result, the lender will then waive the requirement for the first home buyer to pay for lenders mortgage insurance. It’s important to note that the scheme has a number of upfront and ongoing eligibility requirements such as a maximum purchase price cap which varies depending on the state or territory the property is located. There is also an income test as well as requirement to move in and live in the property within six months of the date of settlement or the date an occupancy certificate is issued.

Enhancement to Paid Parental Leave Scheme

From 2021-22 spanning five years, Dad and Partner Pay will be rolled into Parental Leave Pay, creating a single scheme of up to 20 weeks. This leave is fully flexible and shareable for eligible working parents as they see fit.

Paid Parental Leave can be taken anytime between 2 years of the birth or adoption of a child. The income test will also broaden to have an additional household income eligibility test.

The Government is also making adjustments to the income test to further support women’s workforce participation. Currently, mothers who earn up to $151, 350 can access Parental Leave Pay even if their partner earns a higher income, but a family in which the mother earns more than $151,350 – even where the partner has no income or the partner income is much lower – is not entitled to Parental Leave Pay. To remedy this, the Government is broadening the income test to include a household income threshold of $350,000 per year. This change will particularly support women who are the primary earner and do not currently have access to employer-funded parental leave


Disclaimer: The information provided is current as at 29 March 2022 and is subject to change. This article is not personal financial, taxation or legal advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain specialist financial, taxation or legal advice relevant to your circumstances before making investment decisions. Whilst every care has been taken in the preparation of this information, Australian Unity Personal Financial Services Ltd (‘AUPFS’) does not guarantee the accuracy or completeness of it. Where an article is provided by a third party any views in that article are the views of the author and not of AUPFS. AUPFS does not guarantee any particular outcome or future performance. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL No. 234459. This document produced in March 2022

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