A summary of the key items released in last night’s Federal Budget
Josh Frydenberg’s 2022-23 Federal Budget announced a forecast budget deficit for the 2022 year of $79.8 billion and then continued deficits over the following four years – $78 billion in 2022-23; $56.5 billion in 2023-24; $47.1 billion in 2024-25; and $43.1 billion in 2025-26. The economy’s real GDP (inflation adjusted) is now forecast to grow by 4.25% in the current year; 3.5% in 2022-23; 2.5% in 2023-24; 2024-25; and 2025-26.
The unemployment rate is expected to be 4% by 30 June 2022; 3.75% in the 2023, 2024 and 2025 financial years; and 4% in the 2026 financial year. Inflation is expected at 4.25% for 2021-22; 3% for 2022-23; 2.75% for 2023-24 and 2024-25; and falling to 2.5% by 2025-26.
Net federal government debt is forecast for the 2021-22 year at $631.5 billion (27.6% of GDP) and will increase over the following four years – $714.9 billion (31.1% of GDP) in 2022-23; $772.1 billion (32.6% of GDP) in 2023-24; $823.3 billion (33.1% of GDP) in 2024-25 and $864.7 billion (33.1% of GDP) in 2025-26.
The key revenue measures comprise:
- cost of living tax offset
- cost of living one off payments
- small business technology investment boost
- small business skills and training boost
- expansion of patent box concessions
- cut to fuel excise
It is important to remember that what follows is a series of proposals that must be passed by Federal Parliament before they become law.
Personal Income Tax Rates
There have been no changes to the income tax rates for resident individuals announced. The income tax rates for resident individuals will continue as follows for both the current 2021-22 financial year and the 2022-23 year
| Taxable Incomes (T.I.)|| Rate || Tax Payable|
| Up to $18,200|| 0%|| $Nil|
| $18,201 to $45,000|| 19%|| $Nil + 19% over $18,200|
| $45,001 to $120,000 || 32.5%|| $5,092 + 32.5% over $45,000|
| $120,001 to $180,000 || 37%|| $29,467 + 37% over $120,000|
| $180,001 and above|| 45%|| $51,667 + 45% over $180,000|
There was also no announcement in respect of the previously legislated (Stage 3) resident individual income tax rates to apply from 1 July 2024, so they remain as follows:
| Taxable Incomes (T.I.)|| Rate || Tax Payable|
| Up to $18,200|| 0%|| $Nil|
| $18,201 to $45,000|| 19%|| $Nil + 19% over $18,200|
| $45,001 to $200,000 || 30%|| $5,092 + 30% over $45,000|
| $200,001 and above|| 45%|| $51,592 + 45% over $200,000|
Cost of Living Tax Offset and Low and Middle Income Tax Offset
The cost of living tax offset will increase the existing low and middle income tax offset by $420 for the 2021-22 financial year, increasing the maximum non-refundable annual tax offset from $1,080 to $1,500. All other features remain the same with the 2021-22 year being the last year for this tax offset. All low and middle income earners (other than those who do not require the full tax offset to reduce their tax liability) will benefit from the full $420 tax offset, plus the existing tax offset up to $1,080 calculated below:
| Taxable Incomes (T.I.)||Cost of Living|
| Low and Middle Income Tax Offset|
| Up to $37,000|| $420|| $255|
| $37,001 to $48,000|| $420|| $255 + 7.5% over $37,000 to a|
maximum benefit of $1,080
| $48,001 to $90,000 || $420|| $1,080 (maximum)|
| $90,000 to $126,000 || $420|| $1,080 less 3% over $90,000|
| $126,001 and above|| Nil|| Nil|
The offset will not be incorporated into the Pay As You Go Withholding tables, instead it will be claimed on lodgement of 2022 income tax returns.
Medicare Levy to Remain at 2%
The Medicare Levy will remain at 2% and there will be the usual indexation of the Medicare Levy low income thresholds as follows:
| Low Income Threshold|| Threshold from |
1 July 2021
|Threshold as at |
30 June 2020
| Singles|| $23,365|| $23,226|
| Families|| $39,402|| $39,167|
| Single seniors and pensioners|| $36,925|| $36,705|
| Family – Seniors and pensioners|| $51,401|| $51,094|
| Threshold increment for each|
additional dependent child/student
| $3,619|| $3,597|
Cost of Living Payment
A one-off tax-exempt payment of $250 will be provided to eligible pensioners, welfare recipients, veterans and concession card holders. This cash payment aims to help households meet their cost of living pressures. The payment will be made in April 2022 to eligible recipients of the following payments and to concession card holders:
- 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.
Superannuation Minimum Pension Drawdown Rates
The current 50% temporary reduction in the minimum annual pension drawdown rate will be extended for a further year to 30 June 2023. The minimum drawdown is determined by age and the value of the account based pension as at the start of each financial year.
|Age||Drawdown Rate for|
2021-22 and 2022-23
|95 or more||7||14|
BUSINESS AND CORPORATE TAX MEASURES
Small Business Technology Investment Boost
The Small Business Technology Investment Boost is to support digital adoption by small businesses. Small businesses with aggregated annual turnover of less than $50m will be eligible for this measure and they will be able to deduct an additional 20% of expenditure incurred (up to $100,000 p.a.) 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. For example, for every $100 eligible expenditure, small businesses can claim $120 in tax deductions.
This boost will apply to eligible expenditure incurred from 7:30pm on 29 March 2022 to 30 June 2023. For expenditure incurred by 30 June 2022, the boost will be claimed in the following income year tax return (i.e. 2022-23 income year). For expenditure incurred between 1 July 2022 and 30 June 2023, the boost will be claimed in the same income year.
Small Business Skills & Training Boost
The Small Business Skills & Training Boost is to support small businesses to train and upskill their employees. Small businesses with aggregated annual turnover of less than $50 million will be eligible for this measure and they will be able to deduct 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 on-line by entities registered in Australia. In-house training expenditure and on the job training will not be eligible for this boost.
This boost will apply to eligible expenditure incurred from 7:30pm on 29 March 2022 to 30 June 2024. For expenditure incurred by 30 June 2022, the boost will be claimed in the following income year tax return (i.e. 2022-23 income year). For expenditure incurred between 1 July 2022 and 30 June 2024, the boost will be claimed in the same income year.
Instant Asset Write Off
There was no announcement in relation to extending the temporary full expensing or instant asset write off. As such, the temporary full expensing will end on 30 June 2023. Normal depreciation arrangements will apply from 1 July 2023.
Currently, under the temporary full expensing, all businesses with an annual aggregated turnover of less than $5 billion will be able to deduct the full cost of eligible depreciable assets acquired from 7.30pm AEDT on 6 October 2020 and first used or installed by 30 June 2023.
The full tax deduction of the cost in the first year of use will apply to new depreciable assets and to the cost of improvements to existing eligible assets. For business with an aggregated annual turnover of less than $50 million, eligible assets will also include purchased second-hand assets.
Expanded Concessional Taxation of Corporate Income Derived from Certain Patents
The “patent box” concession will be expanded to support agricultural sector innovations and low emission technology innovations. Eligible corporate income derived from eligible patents will be taxed at a concessional effective tax rate of 17% for patents granted after 29 March 2022 and for income years starting on or after 1 July 2023.
The “patent box” concession was first announced in the 2021-22 Budget which applies to corporate income derived from Australian medical and biotechnology patents. These patents were originally eligible where they were applied for after the 2021-22 Budget announcement on 11 May 2021, but concessional treatment will now be extended to medical and biotechnology patents granted or issued after 11 May 2021.
COVID-19 Business Grants Tax Free
There will be an extension to the measure that enables some payments received from certain State and Territory COVID-19 business support programs to be made non-assessable non-exempt income until 30 June 2022.
Primary Producers Generating Revenue from Carbon Credit Units
Concessional tax treatment will apply from 1 July 2022 to primary producers generating revenue from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates. Under this measure, primary producers will treat revenue from the sale of ACCUs and biodiversity certificates as primary production income thereby allowing access to the tax averaging arrangements and Farm Management Deposit Scheme. Also, the revenue from them will only be taxable income in the year they are sold. Currently, ACCU holders are taxed based on the change in value of their ACCUs each year which can result in tax liabilities prior to their sale.
TAX ADMINISTRATION MEASURES
GDP Uplift Factor for PAYG and GST Instalments
For the 2022-23 financial year, the GDP uplift factor applied by the ATO to PAYG and GST instalments will be set at 2% for small to medium enterprises which are eligible to use that instalment method, namely enterprises that have an annual aggregated turnover of:
- Up to $10m for GST purposes; and
- Up to $50m for PAYG purposes.
Modernisation of PAYG Instalment Systems
Companies will be able to choose to calculate their PAYG instalments based on their current financial performance with some tax adjustments, rather than based on an instalment rate derived from the last tax return lodged. This new system aims to align the PAYG instalment liabilities with profitability thereby helping companies improve their cashflow.
This new system is expected to be in place by 31 December 2023, subject to advice from software providers.
Reporting Taxable Payments
Currently business in some industries are required to report payments to contractors in a Taxable Payments Annual Report (TPAR) by 28 August each year. Businesses will now have the option to report these payments in the same lodgement cycle as their activity statements.
The new system is expected to be in place by 1 January 2024, subject to advice from software providers.
Temporary Reduction in Fuel Excise
The fuel excise tax will be halved for the next 6 months to help reduce the burden of higher fuel prices due to the recent Russian invasion of Ukraine. This measure will reduce petrol and diesel price by 22.1 cents per litre from 30 March 2022 to 28 September 2022.
Tax Deductibility of COVID-19 Test Expenses
The cost of taking a COVID-19 test to attend a workplace will be tax deductible for individuals from 1 July 2021. There will also be no fringe benefit tax for employers providing COVID-19 tests to their employees.
Apprenticeship Incentives Scheme
Building on previous announcements, the government has extended the incentives available to apprentices and their employers.
The currently operating measures provide wage subsidies to employers and were due to end on 30 March 2022, but will now be extended to 30 June 2022. This subsidy was available for apprentices first engaged between 5 October 2020 and 30 June 2022 and was set at 50% of the apprentice’s gross wages paid, up to a cap of $7,000 per quarter per employee for the first 12 months. Beyond the first year, an employer is then entitled to a 10% subsidy for second year apprentices (capped at $1,500 per quarter per apprentice) and a 5% subsidy for third year apprentices (capped at $750 per quarter per apprentice).
The new incentives will target apprenticeships in priority occupations. From 1 July 2022 to 30 June 2024 an employer taking on a new or recommencing apprentice in a priority occupation would be entitled to a subsidy equal to 10% of wages up to $1,500 per quarter for first and second year apprentices, and 5% of wages for third year apprentices, up to $750 per quarter. This produces a maximum subsidy over the three years of $15,000. Employers in regional and remote areas in the same circumstances qualify for an additional 5% subsidy over each year.
Where an apprentice is hired in a non-priority occupation, an employer is entitled to a $3,500 hiring incentive, which is paid in 2 equal 6 monthly instalments.
Apprentices in priority occupations are also entitled to a training support payment of $1,250 every six months over the first 2 years of their apprenticeship, or a maximum $5,000.
From 1 July 2024, a hiring incentive will only be available to the employer for apprentices hired in a priority occupation, being $1,000 paid at 6 months after commencement, and $3,000 paid 12 months after commencement.
Apprentice training support payments will also reduce to $750 every six months over the first 2 years of their apprenticeship.
The material contained in this newsletter is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this newsletter without taking appropriate professional advice.