Federal Budget 2022-23
On Tuesday 29th March the Australian public received the 2022-23 Federal Budget.
With the nation emerging from the midst of the COVID pandemic and an election looming, we expected to see a budget that would be particularly favourable for smaller businesses, individuals, and households.
The Government has created the budget with macroeconomic indicators exhibiting an expanding economy with record low unemployment, increased consumption, increased household expenditure (albeit through higher inflation) and sustained business growth and investment.
The messaging from this budget is clear, and that is essentially to go forth, innovate and invest! Invest in people, invest in technology, invest in growing your business and you will be assisted with a subsidy from the government for your investment.
With that in mind, there is also a cautionary tale when it comes to your tax compliance and risk of ATO audit, as the government are taking their own advice and investing more and more into their people and technology to target non-compliance with taxation laws.
So, the key take-outs to pay attention to are the following:
Take advantage of the 120% tax deduction for spending on digitizing your businesses and training your people (which equates to a 5% subsidy of your spend based on the reduced corporate tax rate).
Watch your cash flow, develop a more comprehensive financial forecast and budget in light of your investment and anticipated economic expansion.
Develop innovative strategies around attracting and retaining talented people in an employment market that is expected to remain tight for quite some time.
Focus on improving internal quality control systems, reporting processes and ongoing tax compliance obligations to keep big brother at bay.
Please read on below for more in-depth commentary on the key budget initiatives.
As always, our consultants are here to help so please reach out to us to have a conversation about how the budget initiatives can fit in to your circumstances and financial goals.
Key Budget Initiatives in more depth
Individuals
Changes to the low- and middle-income tax offset
The low- and middle-income tax offset (LMITO) will include a cost-of-living tax offset in the 2021–22 income year. The cost-of-living tax offset is a flat $420 to be applied to all recipients of LMITO when they lodge their tax return.
|
Taxable income (TI) |
LMITO 2021-22 (current) |
LMITO 2021-22 (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 |
Payment to reduce cost of living pressure
Whilst the government has halved the fuel excess tax for the next 6 months, there are further benefits to assist with cost-of-living pressure.
Individuals who are currently in receipt of an Australian government allowance or pension will receive a one-off payment of $250 in April 2022 to ease the cost-of-living pressures. Certain concession card holders will also receive this payment.
The cost-of-living payment will be exempt from tax and will not count towards an individual’s income for social security income test purposes.
If an individual receives multiple pensions or allowances, they will only receive the one-off payment once.
Paid parental leave scheme enhancement
With an ever-modernising workforce, the paid parental leave scheme will be enhanced to combine the current Primary carer (18 weeks) and Partner leave (2 weeks) payment. This will allow for a total of 20 weeks to be shared across both parents and provide flexibility as to how they split the leave periods between themselves.
The income test will also be broadened to have an additional household income eligibility test.
Business
Extra 20% Tax Deduction for Spend on Technology or External Training
Small and medium sized business (i.e. businesses with an aggregated turnover of less than $50 Million) can obtain an additional 20% tax deduction for eligible expenditure incurred on supporting digital adoption or external training courses.
Essentially, this will equate to subsidy of 5% on the expenditure (based on the current corporate tax rate).
This concessional tax deduction will run from 7.30pm on 29 March 2022 (Budget night) through to 30 June 2024. The kicker however is that the concessional deduction for any spend from now until 30 June 2022 is claimed in the 2023 financial year.
The training courses must be external sessions, run by an Australian based provider and must be provided in Australia or online.
Eligible digital expenditure will include the cost of depreciating assets and business expenses supporting digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services. An annual cap of $100,000 will apply to expenditure eligible for the additional deduction.
What does this mean for you?
This time of year is an opportune time for reviewing your business budgets and planning out the next 12 to 18 months, what type of technology and training spend has been scheduled (if any) and how will this help to drive your overall business strategy and growth objectives. Please talk to us about how we can help in developing your business strategic plans and how technology and training can help accelerate those plans.
COVID-19 Business Grants – Tax Exempt
To further support businesses affected by the lockdowns during the pandemic, payments from additional state and territory COVID-19 business support grants will not be taxable for the 2022 financial year. In prior years, these payments were treated as taxable.
What do you need to do - There is nothing more for you to do, our Halkin consultant will take care of this in our annual tax preparation process and identify all grants received that fall within the tax free treatment.
PAYG Instalments – Change to the Annual Uplift Rate
To help alleviate cash flow pressures for small and medium business, the PAYG income tax and GST instalments will only be increased by 2%, instead of 10%, for the 2023 financial year.
Employee Share Schemes
For company law purposes, the investment thresholds for unlisted companies will be changed so that ESS 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
any amount if it allows them to immediately take advantage of a planned sale or listing of the company.
Whilst this creates opportunities for tying in employees to your business growth, there are tax implications for the employee and reporting obligations for the employer, particularly if the share issue price is discounted below market value. There have been no changes proposed to the taxation treatment of Employee Share Schemes.
Insolvency reforms
Additional funding will be provided to further reform insolvency arrangements. This includes:
$22 million to implement reforms to unfair preference rules, including enhancing the Assetless Administration Fund, from 1 July 2023
$7 million to clarify the treatment of trusts with corporate trustees under Australia’s insolvency laws, and
$0.8 million in 2022–23 to implement the government’s response to the recommendations of the review of the insolvent trading safe harbour, released in March 2022.
Superannuation
Reduction in minimum drawdown rates
The superannuation measures include halving of the superannuation minimum drawdown requirements for account-based pensions and similar products and will be extended for a further year to 30 June 2023.
There have been no alterations to the existing plan to increase the superannuation guarantee rate to 12% over the next few years. The next increase to 10.5% is slated to come into effect from 1 July 2022.
Tax administration
Sharing STP Data
IT infrastructure will be developed to allow the ATO to share single touch payroll (STP) data with state and territory revenue offices on an ongoing basis.
This further emphasizes the need to have robust and accurate payroll systems and processes in place as well as statutory payroll payments up to date.
Our internal technology, outsourced accounting and human resource consulting teams are ready and available to assist you with these measures.
Modernised PAYG instalment
Companies will be able to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. 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.
Digitalising trust income reporting
Trust and beneficiary income reporting and processing will be digitalised, by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes.
This measure is proposed to commence from 1 July 2024.
ATO Tax Avoidance Taskforce extension
The ATO will be given funding to extend the operation of the Tax Avoidance Taskforce by 2 years to 30 June 2025.
The taskforce is established to undertake compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. The taskforce also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.
Our Recommendations
Technology
Introduce digital transformation
Automate and implement efficiency within internal processes
Implement enhanced payroll, compliance, and human resource software
Compliance
Implement robust Human Resource and Payroll systems
Refine Human Resource and Payroll processes
Ensure payroll statutory compliance is up to date
Undertake audit insurance due to increased ATO scrutiny
Employment
Innovate Human Resource strategy to encompass the following;
New methods to attract and retain talent
Revised apprenticeship options
Outsource work where possible
Please feel free to send your query to StimulusPackage@halkinbp.com.au and a consultant will respond. Alternatively, please contact your Halkin Consultant directly.