2022 Federal Budget summary – Not much to see here
Nina Kazmierczak- Partner and Principal Adviser
Sovereign Wealth Partners
The Federal Treasurer, the Hon. Josh Frydenberg MP, delivered his third Federal Budget on 29th March 2022, earlier this year given the looming 2022 federal election in May.
This year’s budget focus is firmly on rebuilding Australia post the COVID pandemic with support and continued stimulus for small businesses and national infrastructure. Notwithstanding, with a federal election only a couple of months the cost of living was also addressed.
Important to note- ALL the below proposals do require passage through legislation before they are implemented/ applicable.
What’s in it for me?
1. Taxation
There was very little in this year’s budget.
We’re in the middle of a progressive tax change (announced as a 6-7year programme in 2018), which due to COVID was brought forward with stage 2 starting 1 July 2020.
Stage 2 introduced the low- and middle-income tax offset (LMITO) which was extended to include FY22 and increased to include a one-off cost of living payment. To help with the increasing cost of living experienced post pandemic, low- and middle-income earners will receive an extra one-off $420 increase to LMITO in their tax returns.
Am I eligible?
You may indeed be eligible depending on your income bracket:
The LMITO benefit for those earning up to $37,000 will be $675 (currently $255).
If you earn between $37,000 and $48,000, the offset increases at the rate of 7.5c per $1 above $37,000 to a maximum offset of $1,500 (currently $1,080).
For those with incomes between $48,000 and $90,000, you are also eligible for the maximum LMITO benefit of $1,500; and
For incomes above $90,000, the offset phases out at a rate of 3c per $1 and is no longer available once your taxable income exceeds $126,000.
So…?
For many, your primary income source would be a tax-free pension. Therefore, there may be scope to be eligible for the offsets should any other taxable income you earn fall within the thresholds outlined above.
Worth noting- the LITO, LMITO (inclusive of the one-off payment increase) are tax offsets to reduce tax liabilities. If you don’t have the tax to pay, you will not get the full benefit of the offset nor the amounts unused paid into your back pocket.
Therefore, it is vital that you pre-plan either with your financial adviser and or accountant how best to structure your income for FY22. This includes your concessional contributions, if you are eligible to contribute, ensure that you claim a deduction for an amount that leaves some tax liability, enabling you to take full advantage of the offsets on offer.
2. Medicare
It has been proposed the Medicare thresholds increase. The new thresholds would be-
Source- Macquarie Bank
How does this impact me?
Similar to ensuring you maximise the benefit of the offsets available, it is also worth careful planning with your financial adviser and or accountant on how best to utilise any ability to reduce your income (for example, with the use of concessional contributions) to, if possible, get below the threshold for your circumstance.
3. Superannuation
For many, the biggest budget announcement was not new but a further extension of the minimum pension drawdown relief. The temporary reduction in the minimum income drawdown requirement, which applied during the 2019-20 to 2021-22 income years, will be further extended until 30 June 2023.
This measure will allow individuals, whose circumstances permit, to reduce income payments from their superannuation-based income streams, to minimise the need to sell down assets given ongoing market volatility.
This measure, as per previous years, is not compulsory and individuals should consider their own personal circumstances before implementing any changes.
4. Business Support
Training and skills
Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of the expense incurred on providing external training courses to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia.
Exclusions to be eligible include in-house or on-the-job training and expenditure on external training courses for persons other than employees.
Digital Investment
Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of the cost(s) incurred on business expenses and depreciating assets that support 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 expenses up to $100,000 will be eligible for the additional deduction.
New apprentice incentive scheme
The October 2020 budget provided a subsidy to business to help courage appointments of new apprentices and the employment of young individuals. This has been continued with the proposal of the improved apprentice investment scheme. It also includes the ability for trainees themselves to apply for training support payments.
Not new news…
As proposed in last year’s budget:
Removing the work-test
From 1 July 2022, individuals aged 67-74 (inclusive) will now be allowed to make or receive non-concessional superannuation contributions or salary sacrifice contributions without meeting the work-test^, subject to existing contribution caps.
Eligible individuals will also be able to access the $330,000 non-concessional “bring-forward” rule, subject to meeting eligibility criteria.
The work-test will still need to be met by individuals aged 67-74yrs wanting to make personal deductible contributions.
Downsizer contributions
From 1 July 2022, individuals aged 60 and older will now be able to make downsizer contributions. Currently the legislation allows individuals 65 and older to utilise the contribution rule. All other eligibility criteria for the downsizer contributions remain unchanged.
The outline of eligibility criteria can be found in our article here.
First Home Super Saver
From 1 July 2022, the Government has proposed an increase to the withdrawal cap of voluntary contributions from $30,000 to $50,000 (each if a couple). Voluntary contributions to a cap of $15,000 pa made from 1 July 2018 will count towards the total amount able to be released (to a maximum of $50,000). Please note to qualify you must meet the eligibility criteria. Read more details here.
Business asset depreciation
Businesses continue to have the ability to advance depreciation of capital assets in the year purchased. This remains a powerful tool for small businesses post COVID and in recovery mode; helping create expansion with the ability to immediate depreciate assets- aiding with cashflow and potentially bringing forward investment.
A bit more….
The proposal of a temporary reduction to the fuel excise and excise equivalent customs duty rate will be halved from midnight 30 March 2022 for 6 months, until 28 September 2022. The indexation applicable in August 2022 will be applied to the halved rate. Many of us are already benefiting from this announcement.
Social security recipients will receive a one-off payment by the end of April 2022 of $250 to help with the rise to cost of living.
We will continue to monitor these proposals and provide further communications as more details emerge.
^To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period each financial year in which the contributions are made.
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