As the 2022 Federal Budget was released it got us wondering. Is it a budget to ease cost of living pressures or a don’t rock the boat budget?
Treasurer, Josh Frydenberg said a strong economic recovery is well underway despite the COVID-19 pandemic and new shocks such as recent floods and the Russian invasion of Ukraine. Mr Frydenberg said economic growth forecasts have been revised upwards. This is driven by momentum in the labour market and consumer spending. Astoundingly the unemployment rate has fallen to 4%, the lowest in 48 years. It is expected to reach 3.75% in the September 2022 quarter.
What’s it costing us
Since the Mid-Year Economic and Fiscal Outlook (MYEFO) in December 2021, the underlying cash balance has improved by $103.6 billion over the five years to 2025-26. In saying that, the Government is expected to record a deficit of $79.8 billion for 2021-22 and $78.0 billion for 2022-23 (down from $134.2 billion in 2020-21). Net debt of $714.9 billion for 2022-23 is forecast to rise to $864.7 billion in 2025-26.
The major tax-related measures announced in the Budget include
Temporary 50% reduction in fuel excise
The Government will help reduce the burden of higher fuel prices by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel. This includes all other fuel and petroleum-based products (except aviation fuels), for six months. This measure will commence from 12.01am on 30 March 2022 and will remain in place for six months.
What this means for you
An estimated saving of approx. $15 when filling up and hopefully a reduction in input costs for supply chains that rely on transport.
Tax deductibility of your COVID-19 Tests
The Government will ensure that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals from 1 July 2021.
What this means for you
Keep your receipts to claim a tax deduction for your out-of-pocket expenses.
Training and technology: $120 tax deduction for every $100 spent on digital technology or training by small business
“The main headline grabber is the Technology Investment Boost, which gives businesses with an annual turnover of less than $50 million the ability to deduct an extra 20% of the cost of expenses that support their digital uptake and external training courses. Businesses will be able to claim the additional deduction on up to $100,000 of expenditure a year.”
What this means for you
Spend $100 on eligible training or digital adoption expenses and claim $120 deduction. This can only be claimed in 2023 tax return so there is no incentive to do it before 30 June this year.
Increase to low-and middle-income tax offset (LMITO or The Lamington Offset as we ‘very funny’ accountants call it)
The Government announced a once-off $420 ‘cost of living tax offset’ for the 2022 income year. This will be provided in the form of an increase to the existing LMITO. So this will increase the maximum LMITO benefit to $1,500 for individuals and $3,000 for couples and will be paid from 1 July 2022 when Australians submit their tax returns for the 2022 income year.
What this means for you
- If you are earning between $48k & $90k you will get the benefit of the full $1,500 LMITO.
- Those earning up to $48k will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37k and $48k).
- For incomes between $90k and $126k the amount phases at 3 cents per dollar you earn over $90k.
Cost of Living Payment
The Government will provide a one-off $250 cost of living payment to help eligible recipients with higher cost of living pressures.
What this means for you
Concession card holders, pensioners and those receiving eligible Govt allowances will receive a one-off payment of $250.
Modernising the PAYG Instalment (PAYG I) system
The Government will enable companies to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. This will support business cash flow by ensuring instalments reflect current performance.
What this means for you
Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023. However, nothing just yet (sorry) but it will help with cashflow in the future and better matching of PAYG I to your actual tax payable in that year.
Varying the GDP uplift factor on tax instalments (PAYG I)
The Government has decided to set the GDP uplift factor for PAYG and GST instalments at 2% for the 2023 income year. This uplift factor is lower than the 10% that would have applied under the statutory formula.
What this means for you
The lower uplift rate will provide cash flow support to small businesses, including sole traders and other individuals with investment income.
Superannuation & Pensions – Extending the reduction in minimum drawdowns
The Government will extend the 50% reduction of superannuation minimum drawdown requirements for account-based pensions (‘ABPs’) and similar products for a further year to 30 June 2023 (i.e., for the 2023 income year).
What this means for you
Based on this change, the (effective) reduced minimum percentage factors for ABPs (including TRISs), which are used to calculate the minimum annual pension amount under Schedule 7 to the SIS Regulations, are set out in the following table for the 2023 income year.
| Recipient’s age | Minimum percentage factor | Reduced minimum percentage factor |
| Under 65 | 4% | 2% |
| 65 – 74 | 5% | 2.5% |
| 75 – 79 | 6% | 3% |
| 80 – 84 | 7% | 3.5% |
| 85 – 89 | 9% | 4.5% |
| 95 & above | 14% | 7% |
Making COVID-19 business grants non-assessable & non-exempt income
The Government has extended the measures that enable payments from certain state and territory COVID-19 business support programs to be made non-assessable non-exempt income (‘NANE’) for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.
What this means for you
If you have received JobSaver, JobSaver 2.0 (Small Business Support Program), Commercial Landlord Hardship Grant etc. You will not have to pay tax on any money received from these business support programs.
$9.9bn investment in offensive and defensive cyber capabilities
Russia’s invasion of the Ukraine has increased the likelihood of cyber-attacks on Australian businesses. CPA Australia research shows that Australian small businesses are among the least prepared in the Asia-Pacific region to withstand a cyber-attack.
What this means for you
It’s extremely disappointing that more isn’t being done to help small businesses manage their cyber risk. We know that cyber security is an on-going issue for businesses and cyber threats are constantly evolving. After all, when it comes to cybersecurity, your defences are only as good as your weakest link.
Our final thoughts
This is a safe, ballot box friendly Budget as expected with a focus on jobs, cost of living, home ownership, and health.
Key initiatives include:
- 6-month, 50% reduction in fuel excise with effect from midnight Budget night
- A $420 cost of living tax offset for low- and middle-income earners from 1 July 2022
- One-off $250 economic support payment to some social security payment recipients
It is also a Budget that drives digitisation. Not just to support innovation but to streamline compliance, create transparency and more readily identify anomalies. Single touch payroll (STP) was the first step, the PAYG instalment system, trust compliance, and payments to contractors are next.
We are positioning ourselves to assist, our clients in capitalising on the benefits of the Government’s push towards innovation, investment in new technology & employee skills.
So while the economy is strong, the outlook buoyant and unemployment is low, inflation and cost of living pressures are a very real concern for everyday Australians (think fuel, groceries, building supplies). In short, if an environment of rising inflationary pressures continues the Reserve Bank may have to raise interest rates sooner than anticipated.
