Treasurer Josh Frydenberg delivered his fourth budget on Tuesday night. There was a focus on easing cost of living pressures, employment growth, enhancing productivity, upskilling and reskilling, mental health and women’s safety, infrastructure spending, inflationary pressures and managing a budget deficit, all whilst keeping a firm eye on defence.
However many economists are saying the Government is walking too fine a line in balancing inflationary pressures vs their desire to provide immediate relief for cost of living pressures. The concern is that the temporary fuel excise cuts and cost of living payments are simply superficial “sugar hits” adding fuel to an already over-heated, yet constrained economy resulting in a spike in inflation.
Economists are also criticising the Government that the budget lacks strategic focused economy-wide reforms that will help see Australia prosper into the late 2020’s and beyond. Perhaps the election fog will clear in time for the next budget in 2023 and we see some more strategic long-term thinking.
That aside the cut to the fuel excise, the cost of living payment and some of the tax deduction boosts for business is no doubt very welcomed at a time when the cost of filling petrol tanks is at record highs. There’s quite a lot in this budget so we’ve trawled the detail and are pleased to summarise the key announcements that are most relevant to you, your business and your family, including our commentary about what wasn’t said.
individuals and families
Fuel Excise cut by 50% for 6 months
This is an immediate measure applying from 30/3/2022 to 28/9/2022 to ease cost of living pressures. This includes petrol, diesel and other fuels (including aviation fuels). The price of fuel to consumers should decrease by 24.31 cents.
Expect to see a corresponding fuel tax credit reduction for businesses.
Cost of living tax offset
The Government will increase the Low and Middle Income Tax Offset (LMITO) for 2021-22 year by $420.
This means the maximum LMITO is now $1500. The full LMITO rebate phases out for taxpayers with incomes of $126,000 or more.
We feel what wasn’t clear from the Budget delivery on Tuesday night is that the LMITO ceases entirely on 1/7/2022. This will mean a small decrease in net take home pay packets which we feel will come as a surprise to many.
Cost of living payment
Paid in April, 2022, the Government will provide a $250 payment for those on government benefits including age pension, disability support payments, parenting payments, jobseeker payments, youth allowance and Commonwealth Seniors Health Care Card holders.
This is a non-taxable payment.
Reduction in Superannuation Minimum Drawdown amounts extended
Applying to self-funded retirees who are drawing a pension from their superannuation, the minimum drawdown amount has been reduced by 50% for the last several years. This reduction is being extended through to 30th June, 2023.
Apart from this, superannuation changes were notably absent from this year’s budget.
Changes to Paid Parental Leave
A much welcomed enhancement, the changes are intended to make the paid parental leave scheme more flexible for families. The Dad and Partner Pay will be abolished and rolled into Paid Parental Leave (PPL). The PPL will be extended to 20 weeks.
This new change will allow families to take leave anytime within two years of the birth or adoption of their child. The income test has been changed to a combined household income test again reflecting the dynamic nature of families and their working arrangements. Rather than the previous restrictions which was based on the mothers income being less than $150,000 per annum, a new household income test of $350,000 per annum will be introduced.
However don’t hold your breath – these changes aren’t expected to be implemented until 1st March, 2023.
|Skills and Training Boost
In order to support our economy into the short and long-term, the Government recognises that upskilling our workers is critical. To encourage this businesses will be entitled to claim a 120% tax deduction for expenses incurred on external training courses provided to employees.
This measure applies for expenditure from 7.30pm 29/3/2022 and will end on 30/6/2024. For expenses incurred in the 2022 financial year, the deduction boost isn’t claimable until you lodge your 2023 tax return. For expenses in 2023 and 2024 financial years you will claim the deduction in the same tax year that the expense was incurred.
Technology Investment Boost
Similar to the skills boost, businesses will be entitled to claim a 120% tax deduction for expenses incurred to enhance digital adoption including depreciable assets. We expect this will include portable payment devices, new software subscriptions, developing an online presence and spending on cyber security. More details are expected to be released soon.
This measure started at 7.30pm 29/3/2022 and will end on 30/6/2023.
Both of these measures only apply to businesses with an aggregated turnover of less than $50 million.
Measures to boost Apprenticeships
As part of a push for an upskilling of our workforce, a range of initiatives are being introduced and extended to support employers to engage and retain new apprentices. The current Apprenticeships wage subsidy has been extended from 31/3/22 to 30/6/22. After this a new incentive system will be introduced. Details of this are sketchy at this point.
Modernisation of the PAYG Instalment system
This one was pre-leaked a few days before the Budget and I must admit I’m sceptical as to how well it will be rolled out and whether it will result in any real benefits for business.
The Government are promoting that these changes will lead to improved cashflow for businesses and that it will help taxpayers with their reporting obligations which, if it achieves these things smoothly, then that is a win for business owners.
Under the new policies, businesses will be able to choose to have the ATO automatically calculate their PAYG Instalments based on live financial information captured directly from their accounting software. Arguably this will mean that businesses are paying the right amount of tax at the right time, based on current earnings, compared to the current system which relies on the previous year income as a basis for the current year tax payments.
The real challenge for business owners will be improving their day to day bookkeeping processes and financial reporting to ensure their data is reliable.
Not to mention that many business owners are likely to feel uncomfortable having their live financial information available to the ATO. It will be interesting to see how the ATO roll this out.
This new system is expected to be in place by 1/1/2024.
Changes to the Taxable Payments Annual Reports (TPAR) system
TPAR’s capture payments made to contractors across a range of industries including those businesses in IT, building and construction, cleaning, road freight, couriers and security.
The ATO have declared this system such a success that the Government plan to continue rolling out this scheme to more industries over time. However they recognise that it’s a compliance and reporting burden for businesses at year end and the new changes seek to streamline this.
Rather than an annual report, from 1/1/2024, businesses will need to report their taxable payments quarterly This will align their contractor reporting with BAS lodgement time.
The Government have acknowledged they will need to run this timeline by the software providers to assess readiness, so it’s quite likely this date will be extended.
STP continuing to expand
The Government will commit $6.6 million to develop IT infrastructure to allow STP data to be shared on a continuing basis between the ATO and State/Territory Revenue offices. It is hoped that this will mean state and territory payroll tax compliance will be simpler and more efficient for businesses.
If there’s one common theme through the budgets and with the ATO of the last few years it is their push forward with digitisation. The flow on of this is that it’s very important for businesses to steadily and continually adopt new technology and processes to ensure they can realise the benefits of the Government’s streamlining initiatives.
More funding for the ATO Tax Avoidance Taskforce
The taskforce, established in 2016, undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. One of the primary aims of the taskforce is to detect tax avoidance and protect revenue. The taskforce activities have been extended by a further two years until 30/6/2025.
Depreciation of Intangible Assets
The new law proposes to allow taxpayers to choose to self-assess the effective life of intangible assets rather than using the statutory effective life as determined by the ATO.
This applies for intangible assets like standard patents, innovation patents, copyrights, licences, in-house software etc.
What does this mean? A business can determine the effective life themselves of their intangible assets and claim depreciation over this timeframe, instead of the ATO determined timeframe.
what business tax initiatives didn’t get a mention?
There was no announcement of any changes or extension to the Temporary Full Expensing or Instant asset write-off rules for businesses purchasing depreciable assets.
Currently the Temporary Full Expensing measures, which provide eligible businesses with a 100% tax deduction for business assets purchased, are in place until 30/6/2023.
These rules are unchanged at this point and no announcement has been made by Government as to whether the rules will be extended past this point.
Another COVID initiative for businesses was the Loss Carry Back Tax Offset. The Government has not extended these rules past the 2023 financial year.
Finally, what didn’t get a mention was changes to employer super obligations. As such the planned increase on 1/7/2022 to 10.5% is expected to proceed. Superannuation is legislated to increase by 0.5% each year now until 30/6/2028.