With a significant upturn in the economy and tax receipts since the Government’s last economic update in December 2021, this year’s Federal Budget handed down on 29 March 2022 contains a range of temporary tax and spending measures targeted at reducing cost of living pressures on households, particularly in light of surging fuel, energy and grocery prices. There are also a range of measures to assist small business’ as well as big spending in areas like defence and national security, health, infrastructure projects, the environment and the digital economy.

Legislation to give effect to some of the measures announced in the Budget was introduced into Parliament on 30 March 2022, to allow the Senate to pass the measures on its last sitting day (particularly measures applicable for this financial year).  The legislation was passed by the Senate last night and now awaits the Royal assent.

Summary of Key Measures

Households and Individuals

  1. Temporary Reduction in Fuel Excise – reduced by 50% from 44.2 cents per litre to 22.1 cents per litre effective 12.01am 30 March 2022 and ending 28 September 2022.
  2. Low and Middle Income Tax Offset (LMITO) increased by a one-off $420 for the 2021-22 year (payable from 1 July 2022).  It will apply to eligible individuals and certain trustees who have a taxable income less than $126,000 for the 2021-22 year.
  3. one-off $250 cost of living payment payable in April 2022 to a range of eligible pensioners, welfare recipients, veterans and concession card holders.
  4. Covid-19 test expenses to be deductible to employees from 1 July 2021 (as announced on 8 February 2022) where the tests were/are required to attend a place of work (these expenses are subject to the current substantiation rules for work expenses).  Further, no FBT will apply to employer provided tests for these purposes.
  5. An increase in the Medicare levy and Medicare levy surcharge low-income thresholds for the 2022 and later years.

There has been no changes to personal tax rates for 2022-23 and the Stage 3 cuts are legislated to start from 1 July 2024.  There is also no change to the low income tax offset (LITO) with the maximum remaining at $700 for 2021-22 and 2022-23.

Small Business

The two temporary support measures apply to small businesses with aggregated turnover of less than $50 million (Eligible Businesses). This is in the form of a 20% uplift of the amount deductible for expenditure on external training courses and digital technology.

1. External Training

  • Eligible Businesses can deduct an additional 20% of expenditure on external training provided to employees.
  • Training must be provided to employees in Australia or online and delivered by entities registered in Australia (some exclusions will apply).
  • Applies to eligible expenditure incurred from 7.30 pm on 29 March 2022 to 30 June 2024.
  • For expenditure incurred by 30 June 2022, claims will be made in the 2023 year.
  • For expenditure incurred between 1 July 2022 and 30 June 2024 deductions can be claimed in the year the expenditure is incurred.

2. Digital Technology

  • Eligible Businesses will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets such as cloud-based services and portable payment devices.
  • Each income year will be subject to an annual cap on expenditure of $100,000.
  • Applies to expenditure incurred from 7.30 pm 29 March 2022 to 30 June 2023.
  • Expenditure incurred by 30 June 2022 will be claimed in the 2023 year.
  • Expenditure incurred between 1 July 2022 and 30 June 2023 will be deductible in the year it is incurred.

Superannuation

  1. The temporary reduction of 50% in minimum annual payment amounts for superannuation pensions and annuities will be extended from 30 June 2022 to 30 June 2023.
  2. No changes to the legislated superannuation guarantee rate rise (rising from 10% to 10.5% from 1 July 2022).

Other Measures

  1. Extension of the measure that treats payments from certain State and Territory Covid-19 support programs as non-assessable non-exempt income until 30 June 2022 (includes the Queensland 2021 Covid-19 Business Support Grant).
  2. Digitalising trust income reporting and processing (from 1 July 2024) which will allow for greater data matching and beneficiary tax return pre-filling.
  3. GDP uplift factor for PAYG and GST instalments will be set at 2% for the 2022-23 income year (reduced from 10%).
  4. Expanding the access to employee share schemes in unlisted companies with further changes to the Corporations Act 2001 to commence 6 months after the legislation takes effect.
  5. Extension of the concessional tax treatment (an applicable rate of 17%) for eligible corporate income associated with new patents in the medical and biotechnology sectors (“patent box” income), to encourage Australian companies to commercialise their patents in Australia rather than offshore (this will be similar to regimes in countries like the U.S. and the U.K.).
  6. Enhanced sharing of single touch payroll (STP) data by the ATO with State and Territory Revenue authorities.
  7. From 1 July 2024, changes to the Taxable Payments Reporting System will allow businesses the option to report data in line with the timing for lodgement of their activity statements.
  8. The Government will be extending the apprentice wage subsidy schemes by 3 months to 30 June 2022 and introducing, from 1 July 2022, an Australian Apprentice Incentive Scheme with payments to eligible apprentices of $5,000.

Key Takeaways

The legislation that has now to be enacted implements all the cost of living measures for households.  Importantly:

  • Many of the Budget measures are temporary only and cost of living pressures remain subject to many external factors and events e.g. world oil prices, continued disruption to supply chains, inflation and interest rate rises.
  • The LMITO is a one off $420 increase to the existing offset.  The maximum LMITO will increase from the current $1,080 to $1,500.
  • The $250 cost of living payment will be exempt from income tax.
  • On 29 September 2022, the fuel excise will return to the 1 February 2022 rate and be subject to indexation at the CPI indexed rate (for August 2022).  The temporary reduction does not apply to aviation fuels.
  • The expectation that the existing temporary full expensing and loss carry-back measures would become permanent did not eventuate.
  • There was no further changes to the current company tax rates.

With the Federal Election date to be announced in the coming days (likely to be 7,14 or 21 May 2022), it will be some months before we know when the incoming Government proceeds with the unenacted Budget measures.

This information does not constitute financial or legal advice and is for general information purposes only. Please contact DLA Partners for specific advice relating to your particular circumstances.

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