With the upcoming federal election in May, Treasurer Josh Frydenberg has handed down what the Government considers to be a safe, ballot box friendly Budget. Labor is likely to start over if elected, meaning it is uncertain how many of these measures will ultimately come to fruition. However, we wanted to share the main initiatives with you in some detail.
Some aspects can be unclear or confusing – please don’t hesitate to contact us if we can answer any questions about items possibly affecting your business or personal finances.
Supporting SMEs and startups
Encouraging digital adoption
Effective from 7:30pm AEDT, 29 March 2022 until 30 June 2023
The Government intends to support small businesses with an aggregated annual turnover of less than $50 million with a 120% tax deduction (i.e. a $120 deduction for every $100 spent) for expenditure on business expenses and depreciating assets that support digital adoption, e.g. portable payment devices, cyber security systems or subscriptions to cloud-based services. There will be a $100,000 annual expenditure cap.
Upskilling the workforce
Effective from 7:30pm AEDT, 29 March 2022 until 30 June 2024
In a similar measure, small businesses of the same size will be offered a 120% deduction for eligible training courses provided to their employees. Training providers must be entities registered in Australia and some exclusions will apply (e.g. on-the-job training and training courses for people other than employees). Expenses incurred by 30 June 2022 will be added to those incurred in FY23 for that year’s tax return. FY24 expenses will be claimed that same financial year.
Apprentice wage subsidy extended
Just prior to the Budget, the Government announced the extension of the Boosting Apprenticeship Commencements wage subsidy and the Completing Apprenticeship Commencement wage subsidy. Any employer (or Group Training Organisation) who takes on an apprentice or trainee up until 30 June 2022 will be offered 50% of the eligible wages in the first year (capped at a maximum payment value of $7,000 per quarter per apprentice), 10% in the second year (capped at $1,500 per quarter) and 5% in the third year (capped at $750 per quarter).
Reduction in tax instalment uplift
Tax instalments that would have seen a 10% uplift for the 2022-23 income year will now increase by 2% for SMEs (up to $10 million annual aggregated turnover for GST instalments, and up to $50 million annual aggregated turnover for PAYG instalments) once amending legislation takes effect.
Employee Share Scheme changes
The Government has flagged changed to the Employee Share Scheme (ESS) rules, which will be of particular interest to startup companies using such arrangements to align interests and attract high-quality talent without being able to offer high salaries. The Government would make changes to ensure employees at all levels can take part and remove regulatory requirements for offers to independent contractors where they do not have to pay for interests. Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to: $30,000 per participant per year (accruable for unexercised options for up to 5 years, plus 70 per cent of dividends 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.
‘Patent Box’ tax regime extended
The Patent Box regime was announced in the 2021 Budget for the medical and biotech industries, providing a concessional effective corporate tax rate of 17% on income derived from patents, to the extent that the taxpayer undertakes the R&D of that patent in Australia. Now the Government will be extending the regime to include technology focused innovations aimed at reducing emissions in line with net zero emissions by 2050, as well as tech innovations for the Australian agricultural sector. Note however that the enabling legislation for the 2021 regime has not yet been enacted.
Linking PAYG instalments to financial performance
From 1 January 2024, companies will be able to choose to have their PAYG instalments calculated using current financial performance as extracted from their accounting software, with some tax adjustments, to ensure that instalment liabilities are aligned to business cashflow.
Digitising taxable payments reporting system
From 1 January 2024, businesses will be able to report Taxable Payments Reporting System data via their accounting software on the same lodgment cycle as their activity statements.
Sharing of Single Touch Payroll data
As announced prior to the Budget, the Government will commit $6.6 million for the development of IT infrastructure that will enable the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis.
Tax status of COVID-19 grants
The ability to treat payments from certain state COVID-19 business support programs as non-assessable non-exempt (NANE) income has already been extended until 30 June 2022. It has been indicated that the following programs will be eligible. In NSW: 2022 Small Business Support Program, Accommodation Support Grant, Commercial Landlord Hardship Grant, Performing Arts Relaunch Package and Festival Relaunch Package. In QLD: 2021 COVID 19 Business Support Grant. In SA: COVID 19 Tourism and Hospitality Support Grant and COVID 19 Business Hardship Grant.
Tax treatment of COVID-19 test expenses
From 1 April 2021, FBT will not be payable by employers if they provide fringe benefits relating to COVID‑19 testing to their employees for work‑related purposes.
Supporting individuals and families
With rising inflation and stagnating wages growth, many Australians have been feeling the sting of higher prices. Many budget measures are aimed at easing cost of living pressures and housing affordability going forward.
A $420 increase to the low and middle income tax offset (LMITO) will offer some relief from 1 July 2022. The maximum possible offset will now be $1,500 instead of $1,080 for individuals earning a taxable income of up to $126,000. The tax offset is triggered when a taxpayer lodges their 2021-22 tax return.
Cost of living payment
A one-off, tax-exempt $250 payment will be offered to some social security payment recipients and concession card holders across 14 categories, including: Age Pension, Disability Support Pension, Parenting Payment and Carer Payment. This will not count as income support for the purposes of any income support payment.
Fuel excise reduction
Recent price increases at bowsers around the country will be addressed with a temporary 6-month 50% reduction in fuel excise taking effect from midnight on Budget night. The current rate of 44.2 cents per litre will reduce to 22.1 cents per litre, however, enabling legislation is required so we don’t expect to see an immediate impact.
Housing affordability has been a topic of great discussion and debate in recent years, with the Government announcing the following just prior to the Budget:
- First Home Guarantee: from 1 July 2022, an increase from 10,000 to 35,000 guarantees to support eligible first homebuyers purchase a new or existing home.
- Single Parent Family Home Guarantee: offering 5,000 guarantees each year from 1 July 2022 to 30 June 2025, enabling eligible single parents to buy with a deposit of as little as 2%.
- Introduction of a Regional Home Guarantee: supporting eligible citizens and PRs to purchase or build a new home in a regional area with a minimum 5% deposit; pending enabling legislation.
Medicare low income thresholds increase
The Medicare levy low income thresholds for seniors and pensioners, families and singles will increase from 1 July 2021.
For each dependent child or student, the family income thresholds increase by a further $3,619 instead of the previous amount of $3,597.
COVID-19 test expenses tax deductible
From 1 July 2021, work‑related COVID‑19 test expenses incurred by individuals will be made tax deductible. At this stage it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home.
Reduction in minimum superannuation drawdown rates extended
On the super front, the temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023:
Digitalisation of trust and beneficiary income reporting
From 1 July 2024, trust and beneficiary income reporting and processing will be digitalised with all trusts being provided with the option of lodging income tax returns electronically. Though compliance costs will increase, so will transparency and the ATO’s ability to see anomalies.
The Australian economy has rebounded from the effects of COVID-19 better than other major advanced economies, with unemployment at a historic low of 4% (the lowest rate in 48 years) with a further fall to 3.75% predicted for the September quarter of 2022.
Real GDP is forecast to grow by 4.25% in 2021-22 (and then by 3.5% in 2022-23 and by 2.5% per cent in 2023-24).
The Budget deficit for 2022‑23 is expected to be $78 billion or 3.4% of GDP, with a projected halving to 1.6% of GDP by 2025‑26 before falling to 0.7% of GDP by the end of the medium term.
Inflation is expected to rise to 4.25% through the year to the June quarter of 2022. This reflects higher global oil prices and ongoing supply chain pressures as well as price pressures in the housing construction sector. It is expected to then moderate to 3% in 2022-23 and 2.75% in 2023-24.
The Wage Price Index (WPI) is forecast to increase from 2.75% through the year to the June quarter of 2022 to 3.25% through the year to the June quarter of 2023. However, there is “significant uncertainty around the pace at which wages growth will accelerate.”
In response to the recent devastating floods in Queensland and NSW, the Government expects to spend over $6 billion in total on disaster relief and recovery (in addition to the $3.6 billion already allocated to households, businesses and communities).