We have summarised the key points from the 2022-2023 budget, that we believe will have the most impact on our clients.

Please keep in mind that all budget measures below are proposals and will require the passage of legislation to become effective. 

2022 Federal Budget Summary

Individual Summary

Low and Middle-Income Tax Offset (LMITO)

From 1 July this year, over 10 million individuals will benefit from a one-off $420 cost of living tax offset. Together with the extension of the low and middle-income tax offset for 2021-22, eligible taxpayers will see their tax reduced by up to $1,500 for a single income household, or $3,000 for a dual-income household.

Other than those that do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. All other features of the current LMITO remain unchanged. Consistent with the current LMITO, taxpayers with incomes of $126,000 or more will not receive the additional $420.

One-Off Payments

To help Australians most in need the Government is providing a new one-off, income tax-exempt payment of $250. More than half of those who will benefit are pensioners. It will be paid automatically to all eligible pensioners, welfare recipients, veterans, and eligible concession card-holders in April 2022.

No date has been confirmed for payment.

Temporary Reduction in Fuel Excise Tax

The fuel excise tax will be halved as a temporary measure to reduce the cost of petrol for Australian motorists. This means the amount of tax drivers pay at the pump will be cut to 22.1 cents a litre, from 44 cents per litre.

The ACCC will monitor, to ensure the measure is passed on at the Pump.


Business Summary

Small Business – Technology investment boost

Small businesses (with an 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-based services.

The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023.

An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost. 

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 2023 will be included in the income year in which the expenditure is incurred.

Small Business – Skills and training boost

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

The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.

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.

Australian Apprenticeships Incentives Scheme

The renamed Australian Apprenticeships Incentives Scheme has been retargeted so that apprentices, as well as employers, receive financial incentives.

Under the scheme, from July 1 employers in “priority occupations” will receive a 10 per cent wage subsidy for first and second-year apprentices and 5 per cent for third years. The subsidy caps out at $15,000.

In a significant change, apprentices will be eligible for $1250 every six months for two years, up to a total of $5000.

‘Patent Box’ scheme

The ‘patent box’ scheme will expand to cover developments in agriculture and low emission technologies.

The scheme originally permitted income derived from Australian-born medical and biotech patents to be taxed at a concessional rate of 17%; applying the same tax rate to climate-focused tech is hoped to foster climate-focused innovation at home.

Primary Producers – Carbon abatement concessional tax treatment

The proceeds from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates generated from on-farm activities are to be treated as primary production income for the purpose of the Farm Management Deposits (FMD) scheme and primary production tax averaging from 1 July 2022.


Superannuation Summary

Sometimes no news is good news and it was a welcome relief this year, that superannuation has largely been left out of the Budget. The 2022-2023 Budget is “Australia’s Plan for a Stronger Future” and has targeted relief for cost-of-living pressures.

$250 cost of living payment

Age Pensioners and other social security recipients will receive a $250 cost of living payment in April 2022 (before the election). Anyone receiving the following payments or with the concession cards will receive the payment:

  • 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 (CSHCC) holders
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

A person can only receive one payment even if in receipt of two or more benefits above. You must be an Australian resident and the payment is exempt from taxation. It is expected that the payment will assist 6 million people at a cost of $1.5 billion[1].

As a reminder, (since the 20th September 2021) the income test for the Commonwealth Seniors Health Card is:

  • $57,761 a year if you’re single
  • $92,416 a year for couples
  • $115,522 a year for couples separated by illness, respite care or prison.

There is no assets test and income is defined as Adjusted Taxable Income. This is your taxable income plus the deemed income on your Account Based Pension.

It may also be worth reviewing whether you are eligible for a part Age Pension, given that the Assets Test limit is now $901,500 for a couple homeowner and $1,118,000 for a couple non-homeowner. These limits are higher where the couple is separated due to illness. For singles the cut off is $599,750 of homeowners and $816,250 for non-homeowners. For Age Pension, Centrelink applies both an income and an asset test and whichever test provides the worst outcome, is the test used.

Superannuation

Extension of temporary reduction in superannuation minimum drawdown rates

From 1 July 2022

The current 50% reduction in minimum drawdowns from super pensions will be extended to 2023. While the Budget Papers say the Government has made the change, the Government will need to register a new regulation to amend the pension rules under the Superannuation Industry Supervision Regulations. It is unclear at this stage whether the Government will move to do this before calling the election or only if re-elected.

The table below shows the normal minimum drawdown versus current.   We will have to wait for further announcements before being sure that the halved minimums will continue for 2022/2023.

Age Normal minimum percentages 2021/2022 year
Under 65 4.00% 2.00%
65–74 5.00% 2.50%
75–79 6.00% 3.00%
80–84 7.00% 3.50%
85–89 9.00% 4.50%
90–94 11.00% 5.50%
95 or more 14.00% 7.00%

 

This measure is expected to decrease receipts by $50.0 million and increase payments by $2.8 million[2] over the forward estimates period and is the Government's response to ongoing market volatility. 

May 2021 Federal Budget Super changes

A number of contribution changes were announced in last year’s Budget and many of them have recently been confirmed. The following table summarises where these changes are up to:

Announcement Status Effective Date

Removal of work tests for personal and voluntary employer contributions for members aged 67-75

Regulations registered and now law [3] 01 July 2022
Requirement for members aged 67-75 to satisfy a work test (or work test exemption) to claim a deduction for a personal contribution Change now law [4] 01 July 2022
Reducing the eligibility age for downsizer contributions from 65 to 60 Change now law [4] 01 July 2022
Removing the $450 per month superannuation guarantee eligibility threshold Change now law [4] 01 July 2022
Maximum amount of voluntary contributions that can be released under the First Home Super Saver Scheme increased from $30,000 to $50,000 Change now law [4] 01 July 2022
Two-year window to commute certain legacy complying income streams Bill yet to be introduced to be confirmed
Relaxing the residency requirements for superannuation funds by: - extending the central management and control safe harbour period from 2 years to 5 years - abolishing the active member test. Bill yet to be introduced to be confirmed

 

It will be important that those over 60, carefully consider current super contribution rules in conjunction with the amended rules coming in from 1 July 2022. There are some interesting planning opportunities if you consider the difference in contributing before 30 June and after 1 July depending on your age. It is also important to understand that the removal of the work test from 1 July is only in relation to personal and voluntary employer contributions. In order to make personal deductible concessional contributions, you will still need to meet the work test.

I was interested to see that there was no mention of any freeze on the legislated increase of the Superannuation Guarantee in the Budget. Therefore, it looks like the Super Guarantee will increase to 10.5% from 01 July 2022, in line with the last amendment to the Superannuation Guarantee (Administration) Act 1992.


Social Security and Family Assistance Summary

Aged Care

Funding to implement reforms in response to the Royal Commission

Effective 2021/22 onwards

The Government will provide $468.3 million over five years from 2021-22 to further implement the Government’s response to the Royal Commission into Aged Care Quality and Safety. This funding is to continue ongoing reforms announced in the 2021-22 Federal Budget. This will include spending in five key areas:

  1. Home care
  2. Residential Aged Care Services and Sustainability
  3. Residential Aged Care Quality and Safety
  4. Workforce
  5. Governance

This spending brings the total response to the Royal Commission into Aged Care Safety and Quality to $18.8 billion[5].

Pharmaceutical Benefits Scheme

Safety net threshold lowered for the Pharmaceutical Benefits Scheme

Effective 1 July 2022

The Pharmaceutical Benefits Scheme (PBS) safety net threshold will be lowered from $1,542.10 to $1,4571.10 for general patients and from $326.40 to $244.80 for concessional patients, which will allow patients to reach the safety net sooner. Concessional patients will require approximately 12 fewer scripts and general patients will require approximately two fewer scripts. On reaching the PBS safety net, concessional patients receive their PBS medicines at no cost for the rest of the calendar year and general patients receive their PBS medicines at the concessional co-payment rate, which is currently $6.80 per prescription.

The Government estimates that around 2.4 million Australians will benefit from this measure[6].

Home Ownership

First, Family and Regional Home Guarantees

Effective 1 July 2022

The number of guarantees provided under the Home Guarantee Scheme will increase to 50,000 for three years from 1 July 2022. This will reduce to 35,000 a year on an ongoing basis.

The 50,000 guarantees will be allocated as follows:

  • 35,000 - on an ongoing basis as part of the First Home Guarantee (previously called First Home Loan Deposit Scheme). The First Home Guarantee provides a government loan guarantee of up to 15% to eligible new first home buyers with at least a 5% deposit.
  • 5,000 - as additional Family Home Guarantee until 30 June 2025. The Family Home Guarantee supports single parent households by providing a loan guarantee for home buyers with at least a 2% deposit, regardless of previous home ownership status.
  • 10,000 - for the newly created Regional Home Guarantee from 1 October 2022 until 30 June 2025. The Regional Home Guarantee will assist eligible participants who have not owned a home for five years to purchase a new home in a regional location. Part of the eligibility is the requirement to have a 5% deposit.

The First, Family and Regional Home Guarantees can be used in addition to other support measures including the First Home Super Saver Scheme and state-based measures, such as stamp duty concessions and first homeowner grants. Some lenders may require a deposit greater than the minimum under the specific scheme.

 


Other Summary

Paid Parental Leave

The paid parental leave scheme will become ‘fairer’ under the federal budget, even if the total number of weeks' leave isn’t increasing.

In short: 18 weeks’ paid leave, plus two weeks of ‘dad and partner pay’, will become 20 weeks of paid leave, fully sharable between eligible parents.

For the first time, single parents will be able to access 20 weeks of paid leave.

Super Saver Scheme expanded

The budget also committed to expand the First Home Super Saver Scheme.
This scheme allows you to save part of the deposit for your house by making voluntary contributions to your super.

Currently, you can save a deposit of up to $30,000 using this program. That limit will increase to $50,000 from 1 July this year, as announced in last year’s budget.

Disaster Funding

Disaster funding is on the way for flood-affected communities in NSW and Queensland. Some $150 million from the Emergency Response Fund will flow towards recovery and disaster resilience activities through 2022-2023, budget papers say.

Elsewhere, $800,000 in funding will bolster the Regional Small Business Support Program in 2023, assisting flood-impacted small businesses in northern NSW and southern Queensland.


Economic Summary

Last night the Treasurer, Josh Frydenberg delivered the Federal Government's final budget before the upcoming election, which is expected to be announced any day now.

The budget has all the hallmarks of a pre-election budget with significant cash giveaways for low to middle-income earners, as well as increased spending for infrastructure, particularly in regional Australia, defence and health. This budget also comes at a time when Australia is posting strong economic performance as it emerges from 2 years of the pandemic with historically low unemployment. However, there remains significant uncertainty as international supply chains remain stretched. The pandemic still remains a problem in many parts of the world and a war in Europe is causing ongoing shortages, together with increased commodity prices, all providing fuel for inflation and interest rate rises in the near future.

The Government has at least listened to middle Australia who are suffering from increased prices for groceries and fuel, by providing up to $8b in cash through direct cash payments, tax offsets and a substantial reduction in the fuel excise for 6 months. The Coalition is hoping that this will be enough to return them to Government over the coming months.

However, the budget comes with risks, a stimulus at a time of near-record employment of 4% and falling, GDP growth of 3.5% and record household cash reserves, which could mean that inflation and interest rate increases could damage the economy in the longer term.

Australia’s economic performance over the last year has shown significant improvement on forecasts 12 months ago, with the budget deficit for 21/22 some $20b lower than the original forecast at $79.8b. The Government's peak debt is now expected to be $865b in the 25/26 year, peaking 12months earlier and over $100b better than expected.

The budget is predicated on economic conditions remaining strong, however, the budget will remain in deficit for the foreseeable future relying on economic growth to reduce debt relative to GDP, with no planned budget surplus in the near future, debt will have to grow, even if more slowly.

Although the budget again provides missed opportunities with respect to tax and productivity reform, we expect business conditions to remain relatively good although a tight labour market will provide challenges for many businesses. The Government has provided additional funding to improve skills education in the medium-term however in the short-term skilled labour will be in short supply requiring business to take innovative approaches to attract and retain their workforce.

Finally, this is an optimistic budget timed for an election providing significant stimulus to an already strong economy. It will be interesting to see if inflation and interest rates can be kept under control.


Brian_Richards_HEADSHOT_round-image_v2Brian Richards LLB B/Bus CTA FCA FCPA

Taxation Specialist, Brian Richards shares his opinion on how the 2022 Federal Budget will shape the nation and impact you, your savings, your business and the community.

To read more, click here


Want to read more about a specific area of the budget. Click on the icons below.

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We're here to help

If you have any questions or concerns about the proposals from the Federal budget announcements, please contact your Ulton Advisor to discuss.


Sources:

[1] Budget 2022-2023, Australia’s Plan for a Stronger Future, Guaranteeing the essential services, page 9

[2] Budget Measures, Budget Paper No.2, 2022-2023, page 28

[3] Treasury Laws Amendment (Enhancing Superannuation Outcomes) Regulations 2022

[4] Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Act 2022

https://www.servicesaustralia.gov.au/income-test-for-commonwealth-seniors-health-card?context=21966

https://www.servicesaustralia.gov.au/assets-test-for-pensions?context=22526

[5] Budget 2022-2023, Australia’s Plan for a Stronger Future, Guaranteeing the essential services, page 27

[6] Budget 2022-2023, Australia’s Plan for a Stronger Future, Guaranteeing the essential services, page 20

https://www.servicesaustralia.gov.au/income-test-for-commonwealth-seniors-health-card?context=21966

https://www.servicesaustralia.gov.au/assets-test-for-pensions?context=22526

FirstTech, Federal Budget Briefing 29 March 2022

MLC, 2022 Federal Budget Adviser Analysis, 29 March 2022

Disclaimer

Our liability is limited by a scheme approved under Professional Standards Legislation, except where we provide financial services as an authorised representative of Ulton Wealth Services Pty Ltd (holder of Australian Financial Services License No. 497721). This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individuals needs and you should seek advice from your financial adviser before making any investment decisions. All Ulton Wealth Managers can provide financial services as Sub-Authorised Representatives of Ulton Wealth Management Pty Ltd. ABN 73 168 815 450 | Corporate Authorised Representative 460875 of Ulton Wealth Services Pty Ltd | ABN 86 614 308 628 | AFSL 497721.

 

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