On Tuesday, 29 March 2022, Treasurer Josh Frydenberg handed down the 2022-23 Federal Budget, his 4th Budget.
In an election Budget, the Treasurer announced a range of cost of living measures, including a one-off $420 cost of living tax offset for low and middle income earners, and a $250 payment for pensioners and welfare recipients. The fuel excise will also be reduced by 50% for 6 months, starting from midnight on Budget night.
For small businesses, a Skills and Training Boost will provide a new 20% bonus deduction for eligible external training courses for upskilling employees from Budget night. In addition, businesses will receive a similar 20% bonus deduction for expenditure on digital technologies (eg cloud computing, eInvoicing, cyber security and web design) for investments of up to $100,000 per year.
The Treasurer said a strong economic recovery is well underway, notwithstanding the COVID-19 pandemic and new shocks, such as the recent floods and the Russian invasion of Ukraine. Mr Frydenberg said economic growth forecasts have been revised upwards, driven by stronger-than-expected momentum in the labour market and consumer spending. The unemployment rate has also fallen to 4%, and is expected to reach 3.75% in the September 2022 quarter.
Since the Mid-Year Economic and Fiscal Outlook (MYEFO) in December 2021, the underlying cash balance has improved by $103.6bn over the 5 years to 2025-26. Nevertheless, the Government is expected to record a deficit of $79.8bn for 2021-22 and $78.0bn for 2022-23 (down from $134.2bn in 2020-21). Net debt of $714.9bn for 2022-23 is forecast to rise to $864.7bn in 2025-26.
Budget highlights
Key highlights from the 2022-23 Federal Budget delivered on 29 March 2022 are set out below.
Temporary cost of living measures
Excise and excise equivalent customs duty rate on petrol, diesel, and all other fuel and petroleum-based products, except aviation fuels, will be reduced by 50% for 6 months.
Increasing low and middle income tax offset by A$420 in 2021-22, taking maximum tax reduction to up to A$1,500 for more than 10 million eligible people.
One-off payment of A$250 to 6 million eligible pensioners, welfare recipients, veterans and concession card holders.
Housing
A$8.6 million to expand Home Guarantee Scheme to 50,000 places per year. Up to 35,000 places per year will be available for first home buyers; Family Home Guarantee will be increased to 5,000 places per year; and a new Regional Home Guarantee will offer up to 10,000 places per year.
Small business
Small businesses (with aggregated annual turnover less than A$50 million) will be able to deduct a bonus 20% of the cost of business expenses and depreciating assets that support digital uptake, up to $100,000 of expenditure per year.
Small businesses will also have access to a bonus 20% deduction for the cost of external training courses delivered to their employees.
National security
A$9.9 billion over 10 years to deliver a Resilience, Effects, Defence, Space, Intelligence, Cyber and Enablers (REDSPICE) package, which Government says will enhance the offensive and defensive cyber and intelligence capabilities of the Australian Signals Directorate (ASD).
Additional $136.7 million in 2022-23 for Australian Border Force's maritime surveillance and response capability.
A$116.8 million to increase the Australian Criminal Intelligence Commission's capacity to identify and disrupt serious criminal activity.
Health
A$547 million for targeted mental health and suicide prevention initiatives.
A$331 million to promote the health of women and girls, including to support the National Women's Health Strategy.
A$28 million to commence work to establish Genomics Australia
Family
Paid Parental Leave scheme integrating existing schemes to give eligible families access to up to 20 weeks leave to use in ways that suit their specific circumstances.
Infrastructure
Additional A$17.9 billion committed to road, rail and community infrastructure projects.
Regional Australia
A$2.0 billion Regional Accelerator Program will diversify growing regional economies and create jobs in new and existing industries.
A$$7.1 billion investment in infrastructure projects in four key regions seen as export frontiers, including in Darwin's export capacity, water infrastructure and supply chain projects in north and central Queensland, and increasing low-emissions production in Western Australia's Pilbara region.
Personal Taxation
Low income offset - LMITO increased by $420 for 2021-22 (but not extended to 2022-23)
The low and middle income tax offset (LMITO) will be increased by $420 for the 2021-22 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021-22 (up from the current maximum of $1,080).
This one-off $420 cost of living tax offset will only apply to the 2021-22 income year. Importantly, the Government did not announce an extension of the LMITO to 2022-23. So it remains legislated to only apply until the end of the 2021-22 income year (albeit up to $1,500 instead of $1,080).
The Government said the LMITO for 2021-22 will be paid from 1 July 2022 to more than 10 million individuals when they submit their tax returns for the 2021-22 income year. Other than those that do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. That is, the proposed one-off $420 cost of living tax offset will increase the maximum LMITO benefit in 2021-22 to $1,500 for individuals earning between $48,001 and $90,000 (but phasing out up to $126,000). Those earning up to $48,000 will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37,001 and $48,000) - see table below.
All other features of the current LMITO remain unchanged (including that it will only apply until the end of the 2021-22 income year). Consistent with the current LMITO, taxpayers with incomes of $126,000 or more will not receive the additional $420. The measure is estimated to cost the Budget $4.1bn.
Low and middle income tax offset for 2021-22 (only)
Taxable Income (TI) | LMITO 2021-2022 (current) | LMITO 2021-2022 (proposed) |
$0 - $37,000 | $255 | $675 |
$37,001 - $48,000 | $255 + ([TI - 37,000] x 7.5%) | $675 + ([TI - 37,000] x 7.5%) |
$48,001 - $90,000 | $1,080 | $1,500 |
$90,001 - $126,000 | $1,080 - ([TI - 90,000] x 3%) | $1,500 - ([TI - 90,000] x 3%) |
$126,001 + | Nil | ​Nil |
As noted above, the Government has proposed that eligible taxpayers with income up to $126,000 will receive the additional one-off $420 cost of living tax offset for 2021-22 on top of their existing LMITO benefit.
Currently, the amount of the LMITO for 2021-22 is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000,
LMITO phases out at a rate of 3 cents per dollar.
Low income tax offset (unchanged)
The low income tax offset (LITO) will also continue to apply for the 2021-22 and 2022-23 income years. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022-23, but the new LITO was brought forward in the 2020 Budget to apply from the 2020-21 income year.
Low income tax offset for 2021-22 and 2022-23 (unchanged)
Taxable Income (TI) | Amount of Offset |
$0 - $37,500 | $700 |
$37,501 - $45,000 | $700 - ([TI - 37,500] x 5%) |
$45,001 - $66,667 | $325 - ([TI - 45,000] x 1.5%) |
$66,668 + | Nil |
The maximum amount of the LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Source: Budget Paper No 2 [p 16]; Treasurer's media release, 29 March 2022
Personal tax rates unchanged for 2022-23; Stage 3 start from 2024-25 unchanged
In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.
Resident rates and thresholds for 2022-23
The 2022-23 tax rates and income thresholds for residents (unchanged from 2021-22) are:
Tax rates and income thresholds for 2022-23 (unchanged from 2021-22)
Taxable Income ($) | Tax Payable ($) |
0 - 18,200 | Nil |
18,201 - 45,000 | Nil + 19% of excess over 18,200 |
45,001 - 120,000 | 5,092 + 32.5% of excess over 45,000 |
120,001 - 180,000 | 29,467 + 37% of excess over 120,000 |
180,001 + | 51,667 + 45% of excess over 180,000 |
Stage 3: rates and thresholds from 2024-25 onwards
The Stage 3 tax changes commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be 3 personal income tax rates - 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Resident rates and thresholds - from 2024-25 onwards
The tax rates and income thresholds from the 2024-25 for residents (as already legislated) are:
Tax rates and income thresholds - from 2024-25 onwards
Taxable Income ($) | Tax Payable ($) |
0 - 18,200 | Nil |
18,201 - 45,000 | Nil + 19% of excess over 18,200 |
45,001 - 200,000 | 5,092 + 30% of excess over 45,000 |
200,001 + | 51,591 + 45% of excess over 200,000 |
Rates and thresholds – summary
Tax rates and income thresholds
Rate | 2021-22 | 2022-23 to 2023-24 | From 1.7.2024 (unchanged) |
Nil | $0 - $18,200 | $0 - $18,200 | $0 - $18,200 |
19% | $18,201 - $45,000 | $18,201 - $45,000 | $18,201 - $45,000 |
30% | N/A | N/A | $45,001 - $200,000 |
32.5% | $45,001 - $120,000 | $45,001 - $120,000 | N/A |
37% | $120,001 - $180,000 | $120,001 - $180,000 | N/A |
45% | $180,001 + | $180,001 + | $200,001 + |
Low and middle income tax offset (LMITO) | Up to $1,500 (proposed) | N/A | N/A |
Low income tax offset (LITO) | Up to $700 | Up to $700 | Up to $700 |
Foreign residents
For 2022-23, the tax rates for foreign residents (unchanged from 2021-22) are:
$0 - $120,000 - 32.5%;
$120,001 - $180,000 - 37%;
$180,001+ - 45%.
For 2024-25 and later income years, the tax rates for foreign residents are:
$0 - 200,000 – 30%;
$200,001+ - 45%.
Working holidaymakers
For 2022-23, the rates of tax for working holiday makers (unchanged from 2021-22) are:
$0 - $45,000 – 15%;
$45,001 - $120,000 - 32.5%;
$120,001 - $180,000 - 37%;
$180,001+ - 45%.
For 2024-25 and later income years, the rates of tax for working holiday makers are:
$0 - $45,000 - 15%;
$45,001 - $200,000 - 30%;
$200,001+ - 45%.
Medicare levy low-income thresholds for 2021-22
For the 2021-22 income year, the Medicare levy low-income threshold for singles will be increased to $23,365 (up from $23,226 for 2020-21). For couples with no children, the family income threshold will be increased to $39,402 (up from $39,167 for 2020-21). The additional amount of threshold for each dependent child or student will be increased to $3,619 (up from $3,597).
For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $36,925 (up from $36,705 for 2020-21). The family threshold for seniors and pensioners will be increased to $51,401 (up from $51,094), plus $3,619 for each dependent child or student.
Date of effect
The increased thresholds will apply to the 2021-22 and later income years. Note that legislation is required to amend the thresholds and a Bill will be introduced shortly.
Source: Budget Paper No 2 [p 24-25]
COVID-19 test expenses to be deductible
The Budget papers confirm that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals from 1 July 2021. In making these costs tax deductible, the Government will also ensure FBT will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose.
Date of effect
The changes will take effect from 1 July 2021 (ie last year). It was previously announced on 8 February 2022: see 2022 WTB 6 [105].
Source: Budget Paper No 2 [p 18]
Business Taxation
Deduction boosts for small business: skills and training and digital adoption
The Government announced two support measures for small businesses (aggregated annual turnover less than $50 million) in the form of a 20% uplift of the amount deductible for expenditure incurred on external training courses and digital technology.
External training courses
An eligible business will be able to deduct an additional 20% of expenditure incurred on external training courses provided to its employees. The training course must be provided to employees in Australia or online, and delivered by entities registered in Australia. Some exclusions will apply, such as for in-house or on-the-job training.
The boost will apply to eligible expenditure incurred from 7:30pm (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 the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.
Digital adoption
An eligible business will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets that support its digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.
An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the 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 the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.
Source: Budget Paper No 2 [p 26-27]
Scope of concessional tax treatment of patent box income extended
In the 2021-22 Budget, the Government announced the introduction of concessional tax treatment for eligible corporate income associated with new patents in the medical and biotechnology sectors (referred to "patent box" income).
Under legislation currently before Parliament (Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022), such income will be taxed at a concessional rate of 17%, with effect for income years starting on or after 1 July 2022. Eligible income will be taxed at the concessional tax rate to the extent that the R&D of the innovation took place in Australia.
The Government will now extend the patent box income measures to provide concessional tax treatment for corporate taxpayers who:
commercialise their eligible patents linked to agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority's Public Chemicals Registration Information System register, or eligible Plant Breeder's Rights; or
commercialise their patented technologies which have the potential to lower emissions. Patents relating to low emissions technology, as set out in the 140 technology areas listed in the Government's 2020 Technology and Investment Roadmap Discussion Paper or included as priority technologies in the Government's 2021 and future annual Low Emissions Technology Statements will be within scope, provided the patented technology is considered to reduce emissions.
In both cases, patent box income will be taxed at an effective income tax rate of 17% in relation to rights and patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023.
The Government will consult with industry before settling the detailed design of the patent box extension.
Source: Budget Paper No 2 [p 22-23]
PAYG instalments: option to base on financial performance
The Budget papers confirm the Treasurer's earlier announcement that companies will be allowed to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software (with some tax adjustments).
Date of effect
The commencement date is "subject to advice from software providers about their capacity to deliver". It is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date. There are no details as to what tax adjustments will be required (although presumably this will involve a reverse, modified form of tax effect accounting).
Source: Budget Paper No 2 [p 21]
PAYG and GST instalment uplift factor: 2% for 2022-23
The Budget papers confirm the Treasurer's earlier announcement that the GDP uplift factor for PAYG and GST instalments will be set at 2% for the 2022-23 income year. The papers state that this uplift factor is lower than the 10% that would have applied under the statutory formula.
Date of effect
The 2% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2022-23 income year and fall due after the enabling legislation receives assent.
Source: Budget Paper No 2 [p 29]
Employee share schemes for unlisted companies: thresholds amended
The Budget confirms the Government's intention to change the investment thresholds for unlisted companies in relation to employee share schemes.
Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:
$30,000 per participant per year, accruable for unexercised options for up to 5 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.
Date of effect
No date of effect is specified in the Budget papers.
Source: Budget Paper No 2 [p 19]
Superannuation
Superannuation pension drawdowns - 50% reduction extended to 2022-23
The temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities will be extended by a further year to 30 June 2023.
The 50% reduction in the minimum pension drawdowns, which has applied for the 2019-20, 2020-21 and 2021-22 income years, was due to end on 30 June 2022. However, the Government announced that the SIS Regulations will be amended to extend this temporary 50% reduction for minimum annual pension payments to the 2022-23 income year. Given ongoing volatility, the Government said the extension of this measure to 2022-23 will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.
Source: Budget Paper No 2 [p 28]
Minimum drawdowns reduced 50% for 2022-23
The reduction in the minimum payment amounts for 2022-23 is expected to apply to account-based, allocated and market linked pensions. Minimum payments are determined by age of the beneficiary and the value of the account balance as at 1 July each year under Sch 7 of the SIS Regs.
Age of Beneficiary (years) | Standard percentage factor (%) | Minimum drawdown for 2019-20 to 2021-22 (and 2022-23 proposed) (after 50% reduction) |
0-64 | 4 | 2 |
65-74 | 5 | 2.5 |
75-79 | 6 | 3 |
80-84 | 7 | 3.5 |
85-89 | 9 | 4.5 |
90-94 | 11 | 5.5 |
95+ | 14 | 7 |
No maximum annual payments apply, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year.
For the purposes of determining the minimum payment amount for an account-based pension or annuity for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed), the minimum payment amount is half the amount worked under the formula in clause 1 of Sch 7 of the SIS Regs. The relevant percentage factor is based on the age of the beneficiary on 1 July in the financial year in which the payment is made (or on the commencement day if the pension commenced in that year).
For market linked income streams (MLIS), the minimum payment amount for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed) must be not less than 45% (and not greater than 110%) of the amount determined under the standard formula in clause 1 of Sch 6 of the SIS Regs.
Super Guarantee no change to legislated rate rise to 10.5% for 2022-23
The Budget did not announce any change to the timing of the next Super Guarantee (SG) rate increase. The SG rate is currently legislated to increase from 10% to 10.5% from 1 July 2022, and by 0.5% per year from 1 July 2023 until it reaches 12% from 1 July 2025.
With the SG rate set to increase to 10.5% for 2022-23 (up from 10%), employers need to be mindful that they cannot use an employee's salary sacrificed contributions to reduce the employer's extra 0.5% of super guarantee. The ordinary time earnings (OTE) base for super guarantee purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement (defined in s 15A of the Superannuation Guarantee (Administration) Act 1992 (SGAA)) are not treated as employer contributions which reduce an employer's charge percentage.
SG opt-out for high-income earners
The increase in the SG rate to 10.5% from 1 July 2022 also means that the SG opt-out income threshold will decrease to $261,904 from 1 July 2022 (down from $275,000). High-income earners with multiple employers can opt-out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap ($27,500 for 2021-22 and 2022-23). Therefore, the SG opt-out threshold from 1 July 2022 will be $261,904 ($27,500 divided by 0.105).
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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