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2022 Federal Budget Summary – What it Means For You

Following their election in May this year, Treasurer Jim Chalmers has delivered the first Federal Budget for the new Labor Government. This is the second federal budget this year, following the Morrison Government’s final budget late March. The Albanese Government faces many of the same issues that the Morrison Government faced seven months ago, with international supply issues, rising inflation, high government debt, and a bleak international economic outlook all factors to consider when planning spending.


There is very little that is new or different in this budget – while acknowledging the above challenges, the budget doesn’t really provide a clear road map for navigating them. The Treasurer made it clear that this is a two-part budget, but didn’t provide any clarity about its forward vision.


This October federal budget appeals to families, patients accessing medicines, renters and home-buyers, and those in vocational training. More than a third of the budget (approximately 35%) will go to paying for social security and welfare – things like aged care, supporting families with children, people with disabilities, veterans, carers, and the unemployed.


Let’s see how this budget impacts you.


Individuals


Personal Tax

  • There are no major changes to the personal income tax rates or thresholds, nor to any existing rebates or credits that are currently in place.

  • The low and middle income tax offset (LMITO), which allowed for a tax offset of up to $1,500 for individual taxpayers earning up to $126,000, came to an end on 30 June 2022 and Labor’s budget did not reinstate it.

  • Labor intends to proceed with the stage-three tax cuts legislated by the previous Government, but these are not scheduled to commence until July 2024. If they go ahead, these measures will flatten individual tax rates:

    • Taxpayers earning between $45,000 and $200,000 will all be taxed at the same (30%) rate

    • The 45% top marginal rate would commence at $200,000 (previously $180,000)

Given that these measures are expected to cost the Government an estimated $184 billion over 10 years, this is the space to watch to see whether changes are made before the July 2024 start date.


Cryptocurrency

  • It is estimated that at least 1million Australians trade in cryptocurrencies, with the majority of those being in the 18 to 34 age group.

  • The Government will introduce legislation to clarify that cryptocurrencies are excluded from the tax treatment of foreign currencies.

  • The majority of cryptocurrency investors will be taxed on their trading on capital account i.e. cryptocurrency gains and losses will be subject to the Capital Gains Tax (CGT) rules.

  • The ATO has data-matching capability in this area, and is often aware of who holds, or has sold, cryptocurrencies. If you are in the cryptocurrency space, please alert your client manager who can assist you in compiling the relevant information for your tax return.

Business Taxation


Temporary Full Expensing Measures Remain In Place until 30 June 2023

  • The instant asset write-off concession will continue to be available to businesses with an aggregated annual turnover of <$5B,enabling them to deduct the full cost of new eligible depreciating assets acquired from 7.30 pm on 6 October 2020 and first used or installed ready for use by 30 June 2023.

  • Small and medium sized businesses (turnover <$50M) can also continue to deduct the full cost of second hand assets up to 30 June 2023.

  • Note that the maximum deduction for motor vehicles for FY23 is $64,741.

  • From 1 July 2023, “normal” depreciation rules will return – essentially, depreciating assets over their effective life for tax purposes.

Company Loss Carry-Back Measures Remain In Place


The loss carry-back provisions allow companies with aggregated turnover of <$5B who have paid tax in the past, but who are now in a tax loss position, to carry their tax loss back to the past years to obtain a tax refund.

  • Losses in FY20, FY21, FY22 & FY23 income years can be carried back to offset against taxable incomes from FY19 and subsequent years.

  • Companies can elect to claim the tax refund when they lodge their FY21, FY22 & FY23 tax returns.

  • The loss carried back must not be more than their earlier taxed profits.

  • The tax refund created by the carry-back cannot generate a franking account deficit. This means if the company has paid franked dividends that have used up the franking account balance the loss carry-back provisions cannot be utilised.

Note that companies do not have to adopt these carry back loss provisions and can still carry forward losses as usual.


Concessional FBT Treatment for Electric Vehicles


From 1 July 2022, battery, hydrogen fuel cell, and plug-in hybrid electric cars will be exempt from Fringe Benefits Tax (FBT) and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 in FY23).


The exemption will only apply to eligible electric vehicles purchased on or after 1 July 2022 – you cannot apply the exemption to electric vehicles already held or used before this date.


The “Base Rate Entity” Company Tax Rate remains at 25% for 2022 and future years


Companies that do not meet the “base rate entity” criteria will continue to be taxed at 30%.


Supporting Small Business Owners


Funding will be provided to extend the Small Business Debt Helpline and the NewAccess for Small Business Owners programs


Superannuation


Reminders:

  • The $450/month minimum income threshold under which employers do not have to pay Superannuation Guarantee contributions for employees was removed effective 1 July 2022

  • The 2022/2023 Super Guarantee contribution rate is 10.5% (scheduled to increase to 11% effective 1 July 2023).


General


Other measures provided for in the budget include:

  • Families with young children are set to benefit from an increase in the Child Care Subsidy rate (from 85% to 90%) from July 2023. This applies to families earning less than $80,000.

  • Changes to the Paid Parental Leave Scheme will take effect from 1 July 2023, increasing the allowable time taken and adding flexibility between parents as to who takes the leave.

  • The minimum eligibility age for people to make Superannuation downsizer contributions will reduce from 60 to 55 years of age. This allows downsizers to contribute up to $300,000 each tax free from their home sales proceeds to superannuation, without affecting any other superannuation caps. This applies from the start of the first quarter after Royal Assent.

  • Housing – the budget contains several targeted housing initiatives, including the introduction of a Regional First Home Buyers Guarantee.

  • Education – the Government will provide 480,000 fee-free vocational education places, over five years, in industries and regions with skills shortages.

  • Health Expenses – changes to the Pharmaceutical Benefits Scheme are expected to reduce the cost of prescription medicines from 1 January 2023.

Conclusion


This budget is very much a “steady as she goes” approach, which is relatively light on personal impact and with no major reform predicted before the May budget next year.


For more information on how this budget affects you and your business, please contact Jeni, Terry or your Sullivan Dewing client manager.





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