Easing the cost-of-living and investing in small businesses
Last night, the government handed down the 2022-23 Federal Budget. We have unpacked the Budget proposals and summarised their insights and analysis, including potential impacts to your financial strategy.
Some of the proposals include:
Temporary reduction in fuel price
There will be a temporary reduction of 50% in excise and excise-equivalent custom duty rates for all petrol and diesel for six months. The excise and excise-equivalent customs duty rate for all other fuel and petroleum-based products (excluding aviation fuels) will also be reduced by 50% for a period of six months. This will decrease excise on petrol and diesel from 44.2 cents per litre to 22.1 cents per litre. This measure will commence from 12:01 am on 30 March 2022 until 11:59 pm on 28 September 2022.
The reduction may result in total savings (including GST savings) per tank of fuel of:
• $9.72 for a small hatchback with a 40 litre petrol tank
• $14.59 for a mid-sized SUV with a 60 litre petrol tank
• $19.25 for a large 4WD with an 80 litre petrol tank.
To ensure that the reduced rates are passed on to the end consumer, the Australian Competition and Consumer Commission will monitor the price behaviour of retailer.
Superannuation
Extension of the 50% reduction to the superannuation minimum payment requirements
The Government has announced the extension of the current 50% reduction to the superannuation minimum drawdown requirements for account-based income streams for a further year until 30 June 2023.
The following table summarises the reduced minimum payment requirements for account-based income streams:
| Age | 2019–20 to 2022–23financial years (inclusive) | From 1 July 2023 |
| Under 65 | 2.0% | 4.0% |
| 65–74 | 2.5% | 5.0% |
| 75–79 | 3.0% | 6.0% |
| 80–84 | 3.5% | 7.0% |
| 85–89 | 4.5% | 9.0% |
| 90–94 | 5.5% | 11.0% |
| 95 + | 7.0% | 14.0% |
These rules may allow you to draw a smaller amount from your superannuation account-based income stream if you choose. A reduced level of drawdown could help sustain your retirement savings for a longer period, but this would come at the cost of reduced income for you.
Tax changes
One-off cost of living tax offset for low and middle-income tax offset recipients
There will be a one-off tax offset of $420 for low and middle-income earners to help ease the cost of living. This will be combined with the current LMITO offset for the 2021-22 financial year.
The Government estimates this will benefit over 10 million individuals. The LMITO for the 2021-22 financial year will be paid from 1 July 2022 when individuals submit their tax returns.
This can also mean an effective tax free threshold of $25,436.
Tip: Individuals with expected taxable income at or near the cut-off of $126,000 can consider making personal deductible contributions to reduce taxable income below $126,000 to at least qualify for $1 of the LMITO. This will allow them to also qualify for the one-off $420 cost of living tax offset.
No change to the Government’s previously announced personal income tax cuts
The Government’s legislated ‘Stage 3’ personal income tax cuts will continue as planned from 1 July 2024. These changes will mean anyone earning between $45,000 p.a. and $200,000 p.a. will pay a maximum tax rate of 30%.
Increase to Medicare levy low-income thresholds
The 2021-22 financial year Medicare levy low-income thresholds will be indexed for individuals and families. The threshold for singles will increase to $23,365 per annum and, for families with no children, increase to $39,402 per annum.
For individuals and couples who are eligible for the Seniors and Pensioners Tax Offset (SAPTO), the thresholds will increase to $36,925 per annum and $51,401 per annum respectively. The additional threshold amount for each dependent child or student will increase to $3,619 per annum.
Lowering the safety net thresholds for the Pharmaceutical Benefits Scheme
The Government will reduce the Pharmaceutical Benefits Scheme (PBS) safety net thresholds from 1 July 2022. The thresholds will reduce from $326.40 to $244.80 for concessional patients and from $1,542.10 to $1,457.10 for general patients. These reduced thresholds are a good news story meaning eligible persons will reach the safety net sooner, with approximately 12 fewer scripts for concessional patients and two fewer scripts for general patients in a calendar year.
On reaching the PBS safety net threshold, concessional patients receive their PBS medicines at no cost for the rest of the calendar year and general patients receive their medicines at the concessional co-payment rate which is currently $6.80 per prescription.
Allowing tax deductibility of COVID-19 test expenses
From 1 July 2021, expenses incurred on COVID-19 tests (both Polymerase Chain Reaction and Rapid Antigen Tests) in order to attend work are allowed as a tax deduction. This applies to employees who are required to attend work as well as those who have the option to work remotely. Fringe Benefit Tax (FBT) will also not apply to businesses where COVID-19 tests are provided to the employees for work-related purposes. This measure is ongoing and applies to future years as well.
Employee share schemes – expanding access and further reducing red tape
The Government will expand access to employee share schemes and further reduce red tape. Where employers make offers in connection with employee share schemes in unlisted companies, participants can invest up to:
$30,000 per participant per year, an increase from the current $5,000 per year limit, accruable for unexercised options for up to five years, plus 70% 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.
The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.
At this time, the effective date of this measure is not yet known.
Reduction to the GDP uplift factor for tax instalments
Each year GST and pay as you go (PAYG) instalment amounts are adjusted using a formula known as the gross domestic product (GDP) adjustment.
For 2022-23 income year, the GDP uplift factor will be set to 2% instead of 10% (under the statutory formula) for PAYG and GST instalments. This reduction will help small businesses, sole traders, and individuals with investment income to improve their cash flow.
Social security
The Government will make a one-off $250 Cost of Living Payment to eligible recipients to help with the higher cost of living pressure. The payment will be made from 28 April 2022 and will not be taxable and will not be counted as income for Social Security purposes.
The Cost of Living Payment will be made to people in receipt of the following on 29 March 2022:
- Age Pension
- Disability Support Pension
- Parenting Payment
- Carer Payment
- Carer Allowance (if not in receipt of a primary income support payment)
- Jobseeker Payment
- Youth Allowance
- Austudy and Abstudy Living Allowance
- Double Orphan Pension
- Special Benefit
- Farm Household Allowance
- Pensioner Concession Card holders
- Commonwealth Seniors Health Card holders
- Eligible Veterans’ Affairs payment recipients and Veteran Gold Card holders
Only one Cost of Living Payment can be received per person. The payment will only be available to Australian residents.
Enhancing the Paid Parental Leave scheme
Proposed effective date: 1 July 2023
Currently, the Paid Parental Leave scheme comprises of two payments for eligible carers of a newborn or recently adopted child:
- Parental Leave Pay of up to 18 weeks at a rate based on the national minimum wage.
- Dad and Partner Pay of up to 2 weeks at a rate based on the national minimum wage to fathers and partners.
The Government proposes to provide eligible working families with greater choice by integrating Dad and Partner Pay into Parental Leave Pay to create a single scheme of up to 20 weeks, fully flexible and shareable for working parents as they see fit within two years of their child’s birth or adoption.
Additionally, the income test will also be broadened. Parents who do not meet the individual income threshold (currently $151,350) can still qualify for payment if they meet a family income threshold of $350,000 per annum.
Observation:
Single parents will also benefit from the extended 20-week entitlement, in the same way a household with two parents can. The Government notes that the change to the income test will not result in any households being worse off.
Housing affordability
Expanding the Home Guarantee Scheme
Proposed effective date: 1 July 2022 or 1 October 2022 depending on the specific scheme
The Government is expanding the Home Guarantee Scheme which allows first home buyers to build or purchase a newly built home with a low deposit, replacing the need for commercial Lenders’ Mortgage Insurance.
Under the expanded Home Guarantee Scheme, the Government will make available:
- 35,000 guarantees each year (up from the current 10,000) from 1 July 2022 under the First Home Guarantee, to support eligible first homebuyers to build or purchase a newly built home with a deposit as low as 5%;
- 10,000 guarantees each year from 1 October 2022 to 30 June 2025 under a new Regional Home Guarantee, to support eligible homebuyers (including non-first home buyers and permanent residents), to purchase or construct a new home in regional areas with a deposit as low as 5%; and
- 5,000 guarantees each year from 1 July 2022 to 30 June 2025 to expand the Family Home Guarantee. This program enables eligible single parents with dependants to enter or re-enter the housing market with a deposit as little as 2%.
Observation:
Application for the various Home Guarantee Schemes is made with the loan application through participating lenders. Eligible first home buyers may also be able to take advantage of the Government’s First Home Super Saver Scheme which allows them to use the concessionally taxed superannuation system to save their first home deposit. Other federal and state-based grants and stamp duty concessions may also be available.
Small business
Skills and training boost
The Government is introducing a new 20% bonus deduction for expenditure by small businesses with annual turnover less than $50 million to train and upskill their employees.
This boost means small businesses can claim a deduction for 120% of the cost of external training courses delivered to employees in Australia or online, and delivered by providers registered in Australia, and is expected to deliver $550 million in tax relief. There will be some exclusions including for in-house or on-the-job training and expenditure on external courses for persons other than employees.
The boost will apply to eligible expenditure incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2024. The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for 2022-23, and for eligible expenditure incurred between 1 July 2022 and 30 June 2024 will be claimed in tax returns for the financial year in which the expenditure is incurred.
Technology investment boost
The Government is introducing a new 20% bonus deduction for expenditure by small businesses with annual turnover less than $50m to support digital adoption through investment in items such as an online sales platform, cyber security enhancements, cloud computing and digital tracking for livestock. This boost, expected to provide $1 billion in tax relief, means small businesses can claim a deduction for 120% of expenditure up to an annual cap of $100,000 per year 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 Government estimates around 3.6 million small businesses are eligible to access this new boost.
The boost will apply to eligible expenditure incurred from 7.30pm (AEDT) on 29 March 2022 until 30 June 2023. The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for 2022-23, and for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be claimed in tax returns for the financial year in which the expenditure is incurred.
Aged care
Additional funding for Five Pillars over Five Years aged care reform plan
The Government will provide additional funding to implement the Government’s response (Five Pillars over Five Years) to the Royal Commission into Aged Care Safety and Quality:
- $5.4 million in 2022-23 to continue consultation on the design of the wider aged care reforms, including a new regulatory framework for the Support at Home Program.
- $20.1 million over three years from 2022-23 to complete implementation of the Australian National Aged Care Classification (AN-ACC) and support the transition of facilities to the new funding model over a two-year period.
- $345.7 million over four years from 2022-23 to improve the administration of medication management for residential aged care residents.
- $22.1 million over three years from 2022-23 to establish a fund and invite states and territories to put forward proposals to trial new models of multidisciplinary outreach care for residents in residential aged care facilities.
- $18.3 million over two years from 2021-22 to extend arrangements for the third-party Quality Assessor surge workforce to conduct residential aged care site audits.
- $32.8 million over four years from 2022-23 (and $2.8 million per year ongoing) to provide additional clinical placements for students in the care and support sectors and to expand the Rural Health Multidisciplinary Training program to five new aged care demonstration sites.
- $10.8 million in 2022-23 for the Cross-Agency Taskforce on Regulatory Alignment to implement the next stage of regulatory reforms across the aged, disability and veterans’ care sectors.
- $6.9 million over three years from 2022-23 to support co-operatives and other collaborative business models access the aged, disability and veterans’ care sectors. The Business Council of Co-operatives and Mutuals will be funded to support the start-up and development of cooperative and mutual enterprises, and deliver business resources and professional support.
- $6.1 million in 2022-23 to extend the aged care system regional stewardship outreach model for a further six months to 31 December 2022 to strengthen governance of the aged care system.
Aged Care Sector COVID-19 Response Package
The Government will provide additional funding over five years from 2021-22 to support older Australians in the aged care sector with managing the impacts of the COVID-19 pandemic:
- $215.3 million over two years from 2021-22 to provide bonuses of up to $800 to aged care workers in residential aged care and home care.
- $124.9 million in 2022-23 to extend and expand funding for the Aged Care Preparedness program that supports aged care providers to manage and prevent outbreaks of COVID-19 and prepare providers to transition to living with COVID-19.
- $50.4 million over four years from 2022-23 to improve the capability and capacity of the residential aged care workforce to deliver vaccination services to residents and staff.
- $37.6 million for two years from 2022-23 to establish grants for Infection Prevention and Control training for qualified nurses in residential aged care facilities.
- $22.1 million in 2022-23 to extend in-reach screening for COVID-19 in residential aged care facilities using Polymerase Chain Reaction technology for a further three months to 30 September 2022.
- $7.9 million in 2022-23 to extend and expand the commissioned home visits initiative for COVID-19 positive patients in residential aged care facilities for a further three months to 30 September 2022.
Progress of previously announced superannuation and retirement income legislative measures
A lot has happened over the last 12 months, making it difficult to track what has or has not been legislated. Here is an overview of the progress of a number of these measures:
Legislated and effective from 1 July 2022
- Repeal of the work test for those under age 75 who make non-concessional and salary sacrifice contributions.
- Those aged 67-74 and wanting to make personal deductible contributions still need to meet the work test or meet the one-off work test exemption.
- Ability for those aged 74 or under at the start of the financial year to use bring-forward arrangement subject to total superannuation balance restrictions.
- Eligibility age for downsizer contributions reduced to 60 or over from 65 or over.
- Removing the $450 per month threshold for Superannuation Guarantee eligibility.
What hasn’t been legislated?
- Two-year amnesty on commutations of certain non-commutable legacy pensions.
- Relaxation of SMSF residency rules by allowing temporary absences of up to five years under the central management and control and repeal of the active member test.
- Disregarding excess transfer balance tax which cannot be rectified upon commutation and restarting of certain legacy pensions.
What is not changing?
- Superannuation Guarantee will be 10.5% from 1 July 2022 and will increase by 0.5% every year so that it will be 12% from 1 July 2025.
- The legislated personal income tax cuts will continue in accordance with the planned timetable.