The Federal Budget for Families and Individuals

Last night the government announced a number of different initiatives to support families and businesses. On Wednesday the 6th of April, Michael Beddoes will be answering your questions and touching on the topics that are most important to you. Register via the email at the bottom of this article, or via the link in our newsletter.

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The 2022 Federal Budget is supporting families by providing temporary or one-off benefits to help families with the cost of living.

The Government is providing temporary support with the cost of living through a temporary reduction in fuel excise for six (6) months, cost of living payments to eligible recipients in April 2022 and a one-off cost of living tax offset from July 2022. Other key measures include expanding the home guarantee scheme and providing greater flexibility for parental leave payments.

As expected, there were no personal income tax cuts in the budget and no bringing forward of previously legislated personal income tax changes that apply from 1 July 2024. However, there were targeted one-off and temporary measures to reduce cost of living pressures.

Here we highlight some of the key tax measures affecting Australians, which include:

• temporary reduction in fuel excise
• cost of living payment
• one-off cost of living tax offset for low to middle income earners
• supporting home ownership
• paid parental leave
• retirement, superannuation and aged care

Temporary reduction in fuel excise

The Government will halve the fuel excise on petrol and diesel, a reduction of 22.1 cents per litre from 30 March 2022. This is a temporary measure for six (6) months ending on 28 September 2022.

It aims to provide temporary relief from the current high fuel prices for individuals and families.

Cost of living

The Government will provide a one-off $250 economic support payment to eligible recipients to help with cost of living pressures. Eligible recipients are Australian residents in receipt of the age pension and other government support payments and certain concession card holders.  The payment will be made in April 2022.

One-off cost of living tax offset for low to middle income earners

The Government announced a one-off cost of living tax offset through an increase to the Low and Middle Income Tax Offset (LMITO) for the 2022 income year. The proposal will increase the LMITO by $420 for the 2022 income year.

This change will increase the maximum LMITO benefit to $1,500 (up from $1,080) for individuals and $3,000 for couples. The LMITO benefit will be received from 1 July 2022 when individuals lodge their tax return for the 2022 income year.

There was no extension to the LMITO which ceases to apply after the 2022 income year.

Supporting home ownership

The Government is expanding on the Home Guarantee Scheme announced in last year’s budget by increasing the number of places to 50,000 for the 2023 to 2025 financial years. There will be an ongoing 35,000 places a year beyond 2025 but only under the First Home Guarantee.

This Scheme supports eligible homebuyers to purchase a home with a lower deposit (5 percent) without lenders mortgage insurance.

The 50,000 places are to be allocated:

35,000 places per year for first home buyers under the First Home Guarantee

5,000 places per year will be available under the Family Home Guarantee for eligible single parents with dependents

10,000 places per year will be available under a new Regional Home Guarantee to support homebuyers who have not owned a home for at least five (5) years to purchase a new home in a regional area

Paid parental leave

The Government is proposing to make changes to the existing 18 week Paid Parental Leave Scheme and two (2) week Dad and Partner Pay Scheme by rolling these payments into a single 20 week scheme which is designed to be fairer and provide greater flexibility to families.

The new scheme will allow parents to share the Paid Parental Leave entitlement in a way that suits their family and enables single parents to benefit from the full 20 weeks pay at the minimum wage, now equal to what a household with two (2) parents is entitled to under the existing schemes.

There is also an extension to the means testing to include a household income threshold of $350,000. Under the current Paid Parental Leave Scheme there is an income cap on the primary caregiver making the claim of $151,350, meaning some families will be ineligible for the scheme even where their partner has a lower or no income. This change is designed to support those families where the primary earner is to become the primary caregiver. No families will be worse off as a result of this additional means test.

It is expected that these changes will be introduced no later than 1 March 2023.

Retirement, superannuation and aged care

It was a quiet night for the superannuation sector in the Budget with the only announcement being an extension of an existing concessional provision with pension drawdowns.

The Government has extended the 50 percent reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year until 30 June 2023.

Given ongoing volatility, this change will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.

Retirees who may have other sources of income or who simply don’t need to draw down on their super for living expenses will benefit most, allowing them to keep more money in the favourably taxed superannuation environment.

The Treasurer also pledged that the Government will not increase taxes on superannuation if re-elected.

The Federal Budget for Aussie Businesses

The small business sector, in particular, has received some targeted stimulus spending in this year’s budget, as business comes out the other side of COVID.  This is designed to improve cashflow, sustain employment and encourage investment in business efficiency measures.

Here we highlight some of the key tax measures affecting Australian businesses, which include:

Small and Medium Businesses

• Small business – technology investment boost
• Small business – skills and training boost
• Making COVID-19 business grants non-assessable non-exempt
• Tax deductibility of COVID tests
• Small business cash flow boost – varying the GDP uplift factor for tax instalments
• Modernisation of pay as you go (PAYG) instalment systems
• Smarter reporting of Taxable Payments Reporting System data
• Digitalising trust income reporting and processing
• Primary producers – increasing concessional tax treatment for carbon abatement and biodiversity stewardship income

Large Businesses

Tax Avoidance Taskforce

Innovation and Incentives

Expansion and enhancement of Patent Box to agriculture and the CleanTech sectors

Small and Medium Businesses

Small business – technology investment boost

A technology investment boost will be introduced to encourage small business investment in digital technologies.

Small businesses (aggregated turnover less than $50 million) will be able to claim an additional 20 percent of the cost incurred on up to $100,000 eligible expenditure (per income year) incurred from 7.30pm (AEDT) on 29 March 2022 until 30 June 2023.

Eligible expenditure will include costs 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 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 claimed in tax returns in the year the expense is incurred.

The short timing in relation to this measure may encourage small businesses to accelerate new tech investment before the end of 30 June 2023 which also aligns with the cut off date for the temporary full expensing measure. Typically such capital expenditures can have a long lead time and a deduction will generally only arise where the asset is actually installed and in use.

Small business – skills and training boost

A skills and training boost will be introduced to support small businesses to train and upskill their employees.

Small businesses (aggregated turnover less than $50 million) will be able to claim an additional 20 percent of the cost incurred on eligible expenditure incurred from 7.30pm (AEDT) on 29 March 2022 until 30 June 2024.

Eligible expenditure will include costs 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.

Ineligible expenditure will include 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 claimed in tax returns in the year the expense is incurred.

This measure may have the effect of changing which courses employers will fund. Training providers will need to closely review their programs to ensure they are eligible programs under the scheme.

Making COVID-19 business grants non-assessable non-exempt

The Government has extended the measure which enables payments from certain state and territory COVID-19 business support programs to be made non-assessable non-exempt for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.

The state government grants which have been made non-assessable non-exempt are:

• New South Wales Accommodation Support Grant
• New South Wales Commercial Landlord Hardship Grant
• New South Wales Performing Arts Relaunch Package
• New South Wales Festival Relaunch Package
• New South Wales 2022 Small Business Support Program
• Queensland 2021 COVID-19 Business Support Grant
• South Australia COVID-19 Tourism and Hospitality Support Grant
• South Australia COVID-19 Business Hardship Grant.

Where businesses have received these grants you will need to pay close attention to the tax treatment adopted in the income tax return to ensure it is correctly showing as non-assessable.

Tax deductibility of COVID tests

The Government has announced that the cost of a COVID-19 test to attend a workplace will be tax deductible for individuals from 1 July 2022.

In making these cost tax deductible, the Government will also ensure that where a business incurs the expense in providing the Covid-19 tests to employees, the expense will be exempt from FBT.

Small business cash flow boost – varying the GDP uplift factor for tax instalments

Legislation is to be introduced such that regular tax instalments will be calculated based on the previous year plus two (2) percent rather than the current legislated 10 percent GDP uplift factor for tax instalments.

The lower uplift rate will provide cash flow support to eligible small to medium enterprises eligible to use the relevant instalment methods in respect of instalments for the 2022-23 income year.

This change applies to small businesses, including sole traders and other individuals with investment income.

Businesses need to be aware that it is just allowing them to keep potential tax payments as cashflow for longer. They will need to forecast their tax cashflows carefully to ensure they keep sufficient amounts aside to fund future liabilities.

Modernisation of pay-as-you-go (PAYG) instalment systems

The Government will look to assist companies improve their cashflow by improving the alignment between PAYG instalment liabilities and profitability. This will be done by enabling companies to choose to have their PAYG instalments calculated based on current business performance extracted from accounting software, with some tax adjustments.

The Government plan to consult with the affected stakeholders, including tax practitioners and digital service providers to finalise the policy.

It is anticipated that this will be ready to commence on 1 January 2024, subject to advice from the software providers about their capacity to deliver the integration required.

Smarter reporting of Taxable Payments Reporting System data

From 1 January 2024, businesses will have the option to report Taxable Payments Reporting System data (via accounting software) on the same lodgement cycle as their activity statements which start on or after that date.

This measure is intended to increase the accuracy and timeliness of reporting while lowering compliance costs for taxpayers.

Digitalising trust income reporting and processing

Starting on 1 July 2024 the Government will digitalise trust and beneficiary income reporting and processing. This is aimed to increase pre-filling and automating the ATO assurance processes.

In recent years the trust income reporting processes have not been automated to the same extent as individual or company tax returns. This has resulted in longer processing times and limited pre-filling opportunities. This measure is aimed at reducing the compliance burden on taxpayers, reduce processing times and enhance ATO procedures.

Primary producers – increasing concessional tax treatment for carbon abatement and biodiversity stewardship income

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

The Government will also change the taxing point of ACCUs and biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market Scheme for eligible primary producers to when they are sold from 1 July 2022. Eligible producers are those who are currently eligible for the FMD scheme and tax averaging.

This is a change from the current arrangement where the proceeds from selling are treated as non-primary income and generally ineligible for concessional tax treatment under either the FMD scheme or tax averaging.

Currently ACCU holders are taxed based on the changes in value of their ACCU each year, which can result in tax liabilities prior to sale.

Large Businesses

Tax Avoidance Taskforce

No new measures announced for the larger end of town but Tax Office review and audit activity for larger businesses will continue.

The Tax Office has been provided additional funding to support the continued operation of the Tax Avoidance Taskforce.

Additional Government funding of over $650 million will be provided to the Tax Office to extend the operation of its Tax Avoidance Taskforce for an additional two years up to 30 June 2025.

The role of the Taskforce is to monitor tax compliance activities at the larger end of town. Such activities have included the Top 1000 Public Groups Performance Program and next 5000 Private Groups Tax Performance Program.

The Government has seen additional revenue collections exceeding $12 billion over a five-year period as a result of the Taskforce review activities since its establishment in July 2016. An additional $2.1 billion in additional revenue is expected by the Government.

With ongoing Tax Office scrutiny, it is expected that many larger businesses including multinationals operating in Australia will now review or reassess their current tax governance protocols and procedures.

Innovation and Incentives

Expansion and enhancement of Patent Box to agriculture and the CleanTech sectors

Commencing 1 July 2023, the Patent Box Tax Incentive announced in the 2021 budget specifically for the Biotech sector will be expanded to support technology-focused innovations in the both the Australian agricultural and CleanTech sectors. The latter is designed to drive the Government’s technology-focused approach to achieve the Government’s target of net zero emissions by 2050.

Eligible corporate income from patents relating to agricultural innovations, Plant Breeders Rights (PBRs) and patents relating to low emissions technology will be subject to an effective income tax rate of 17 percent for patents granted or issued after 29 March 2022 with respect to income years starting on or after 1 July 2023. Eligible income will be taxed at the concessional tax rate to the extent that the research and development of the innovation takes place in Australia.

The patent box will offer a competitive tax rate for profits generated from eligible Australian owned and developed patents, supporting the commercialisation of innovation in Australia.

Importantly, only granted patents, which were applied for after the Budget announcement, will be eligible for support through Patent Box.

The implementation of the Patent Box should increase the number of patent applications lodged in Australia which is currently low by international standards. However, given the time it takes (two to four years) to secure a granted patent from application any tangible benefits from the program are unlikely to be realised for several years.

Nevertheless, the Patent Box has the potential for Australia to further enhance its already strong competitive advantage in the AgTech sector and, with regards to CleanTech support the Government’s target to achieve net zero emissions by 2050.

Michael Beddoes will be helping to unpack the Federal Budget on Wednesday the 6th of April. Register your interest for our 2022 Federal Budget Webinar by emailing cbuxton@mbapartnership.com.au and let us know what you are most curious about or what questions you have, so Michael can discuss what is most important to you.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

This information was sourced from these articles: https://www.bentleys.com.au/knowledge-centre/federal-budget-and-election-year/ and https://www.bentleys.com.au/knowledge-centre/2022-federal-budget-for-businesses/  

Thank you to the Bentleys team for preparing this information. Special mention to Simon How, Darren Lee, David Spurritt, Dean Steer, Sonia Mascolo, Ross Prosper, Mike Burfield, Nicole Black, Michael Senchenko, Vicki Cremona, Chris Hodgins and Tomas Mackay.