With a federal election just around the corner, Treasurer Josh Frydenberg’s delivery of the 2022 Federal Budget was met with some skepticism around long-term economic growth versus short-term re-election initiatives. A huge focus was on easing the cost of living pressures through tax cuts, one-off stimulus pay-outs, and excises – particularly given the lower forecasted wage growth with respect to inflation.
But there was plenty of good news for small businesses, including large investments in training, technology and streamlined reporting. And many changes in relation to individual supports such as the parental leave scheme, superannuation draw-downs and home ownership.
So, as we do every year, let’s take a look at the highlights and their potential impacts for your businesses, yourself and the Australian economy as a whole. There are always winners and losers but with the right advice, there are certainly opportunities to tap into business and personal wealth growth as a result of this year’s federal budget.
What does the 2022 Federal Budget mean for Aussie businesses?
As our economic recovery continues off the back of the pandemic, attention has turned to the huge challenge of skills shortages and supply chain constraints, improving reporting processes, as well as tax concessions.
Skills and Training Boost
The government is introducing a Skills and Training Boost to support small businesses to train and upskill their employees. Small businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online, and be delivered by entities registered in Australia.
The Skills and Training Boost will apply to expenditure incurred from 7.30pm 29 March 2022 (Budget night) 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 while 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.
For example, Andrew owns a transport company, Distribute R Us Pty Ltd, that has annual turnover of $30 million and 120 employees. To upskill their employees, in April 2022, Distribute R Us pays for a registered training provider to run supply chain training courses, costing $200,000. Distribute R Us pays for its employees to undertake specialist logistics training, costing a further $400,000, across the 2022-23 and 2023-24 income years. Under the Government’s new Skills and Training Boost, Distribute R Us can claim a bonus deduction of $120,000, reducing its tax bill by $30,000. This is extra money that Distribute R Us can use to reinvest and grow the business.
Technology Investment Boost
The government is introducing a Technology Investment Boost to support digital adoption by small businesses. Under the boost, small businesses with aggregated turnover of less than $50 million will be able to deduct an additional 20% of the cost of expenses and depreciating assets that support their digital adoption (e.g., for portable payment devices, cyber security systems, subscriptions to cloud-based services, online sales platforms, cyber security enhancements, cloud computing and digital tracking for livestock).
The boost will apply to eligible expenditure of up to $100,000 per year, incurred from 7.30pm 29 March 2022 (Budget night) 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 while 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.
For example, Harley owns a furniture manufacturing company, Star Sofas Pty Ltd, that has annual turnover of $35 million and 120 employees. In April 2022, as part of an overseas expansion, Star Sofas invested $100,000 to develop an online presence and build a digital inventory tracking system. In July 2022, Star Sofas purchases multiple software subscriptions to enhance customer data analytics and marketing. Star Sofas incurs total expenditure of $100,000. The government's new Technology Investment Boost means that Star Sofas can deduct an extra $40,000, reducing their tax bill by $10,000. The company can use the extra money to reinvest and grow.
Small Business Support Package
The government will provide $25.2 million over three years from 2021-22 to deliver support initiatives to small businesses. Funding includes:
- $10.4 million over two years from 2022-23 to enhance and redesign the Payment Times Reporting Portal and Register to improve efficiency and reporting;
- $8 million in 2022-23 to the Australian Small Business and Family Enterprise Ombudsman to work with service providers to enhance small business financial capability
- $4.6 million over two years from 2021-22 to support the New Access for Small Business Owners program delivered by Beyond Blue to continue to provide free, accessible, and tailored mental health support to small business owners; and
- $2.1 million over two years from 2021-22 to extend the Small Business Debt Helpline program operated by Financial Counselling Australia to continue to provide financial counselling to small businesses facing financial issues.
COVID-19 Response Package
This measure, which was originally announced on 13 September 2020, enables payments from certain State and Territory COVID-19 business support programs to be made non-assessable non-exempt (NANE) for income tax purposes until 30 June 2022.
However, in recognition that NANE tax treatment is only to be provided in exceptional circumstances, eligibility is limited to COVID-19 grant programs directed at supporting businesses that are the subject of a public health directive applying to a geographical area in which the businesses operate and whose operations have been significantly disrupted as a result of the public health directive.
Consistent with this, the government has made the following State and Territory programs eligible for this treatment since the 2021-22 MYEFO:
- New South Wales Accommodation Support Grant
- New South Wales Commercial Landlord Hardship Grant
- New South Wales Performing Arts Relaunch Package
- New South Wales Festival Relaunch Package
- New South Wales 2022 Small Business Support Program
- Queensland 2021 COVID-19 Business Support Grant
- South Australia COVID-19 Tourism and Hospitality Support Grant
- South Australia COVID-19 Business Hardship Grant.
Tax Deduction for COVID-19 Test Expenses
From 1 July 2021, the government will ensure that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals. Corresponding amendments will be made to the fringe benefits tax (FBT) rules to ensure that employers who provide RATs are not subject to Fringe Benefits Tax.
Expanded Access to Employing Share Schemes
The government will expand access to employee share schemes and further reduce red tape so that employees at all levels can directly share in the business growth they help to generate.
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.
Varying the GDP Uplift Factor For Tax Installments
For the 2022-23 income year, the government has decided to set the GDP uplift factor for pay as you go (PAYG) and GST installments at 2%, which is lower than the 10% that would have been applied under the statutory formula.
Modernisation of PAYG Installment Systems
The government will streamline the PAYG reporting process by enabling companies to choose to have their pay as you go (PAYG) installments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments.
It’s 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. This measure will improve alignment between PAYG installment liabilities and profitability, and support companies in managing cash flows by ensuring installments reflect current business performance.
Digitising Trust and Beneficiary Income Reporting and Processing
From 1 July 2024, the government will digitise trust and beneficiary income reporting and processing by providing the option of lodging tax returns electronically through increased pre-filing and automated ATO assurance processes.
This measure will reduce the compliance burden on taxpayers, reduce processing times and enhance ATO processes.
Smarter Reporting of Taxable Payments Reporting System Data
The government will allow businesses the option of reporting Taxable Payments Reporting System data (via accounting software) on the same lodgment cycle as their activity statements. It is expected that the measure will increase the accuracy and timeliness of reporting while lowering compliance costs for taxpayers.
The government anticipates systems to be in place by 31 December 2023 and the measure will commence on 1 January 2024, for application to periods starting on or after that date.
Supporting Migrants and Employers Through COVID-19
The government has made over 70 changes to the migration and visa settings in response to COVID-19 and to assist with economic recovery. These include:
- Relaxation of the 40 hours per fortnight working condition for international students
- Exempting working holiday makers (WHM) from the 6-month single employer work limitation, and increasing country caps for the Work and Holiday visa in 2022-23 by 30%
- Introduction of the Priority Migration Skilled Occupation List
- Incentivising international students and WHM visa holders to bring forward their arrival in Australia by refunding the Visa Application Charge for Student visa holders who arrive in Australia between 19 January 2022 and 19 March 2022, and for WHM visa holders who arrive in Australia between 19 January 2022 and 19 April 2022, inclusive.
Primary Producers – Increased Concessional Tax Treatment for Carbon Abatement and Biodiversity Stewardship Income
The government will allow the proceeds from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates generated from on-farm activities to be treated as primary production income for the purposes of the Farm Management Deposits (FMD) scheme and tax averaging from 1 July 2022.
Currently, proceeds from selling ACCUs are treated as non-primary production income and are generally ineligible for concessional tax treatment under the Farm Management Deposit scheme or tax averaging.
Tax Integrity – Extension of the ATO Tax Avoidance Taskforce
The government will provide $325 million in 2023-24 and $327.6 million in 2024-25 to the ATO to extend the operation of the Tax Avoidance Taskforce (on multinational, large corporates and high-wealth individuals) by two years to 30 June 2025.
The Taskforce was 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.
What does the 2022 Federal Budget mean for individuals?
For individuals, the focus was obviously on reducing the cost of living to offset rising inflation against slow wage growth. Apprentices will be well invested in and first home buyers will see further support.
Cost of Living Tax Offset
The government will increase the Low-and-Middle-Income Tax Offset (LMITO) by $420 for the 2021-22 income year. This means that eligible low and middle-income earners will increase the LMITO up to $1,500 for a single income household, or up to $3,000 for a dual income household.
Consistent with the current LMITO, taxpayers with taxable incomes of $126,000 or more will not receive the additional $420. The LMITO will be paid from 1 July 2022 when eligible Australians lodge their tax returns.
Cost of Living Payment
The government will also provide a one off, income tax-exempt cash payment of $250, which it estimates will help up to 6 million Australians. The cash payment will be automatically paid in April 2022 to all eligible pensioners, welfare recipients, veterans and concession card holders.
Paid Parental Leave Changes
In a long-overdue win for working parents, the budget includes a more streamlined paid parental leave (PPL) scheme, whereby up to 20 weeks of fully flexible leave will be available for eligible working families to provide them with increased choice in how they manage work and care.
The measure also means that eligible single parents will be able to access an additional two weeks of PPL, and working two-parent household will have access to 20 weeks of PPL, which can be split between those parents at their discretion in the two years following their child’s birth or adoption.
Currently, mothers who earn up to $151,350 can access paid leave, but any woman who earns more – even if her partner has no income or a much lower income – is not entitled to it. The government has pledged to broaden that threshold so that any household with an income of up to $350,000 a year between both partners will be able to make use of the 20-week scheme.
Personal Income Tax – Increased Medicare Levy Low-income Thresholds
The government will increase the Medicare levy low-income thresholds for seniors and pensioners, families and singles from 1 July 2021.
- The threshold for singles will be increased from $23,226 to $23,365.
- The family threshold will be increased from $39,167 to $39,402.
- For single seniors and pensioners, the threshold will be increased from $36,705 to $36,925.
- The family threshold for seniors and pensioners will be increased from $51,094 to $51,401.
- For each dependent child or student, the family income thresholds will increase by a further $3,619 instead of the previous amount of $3,597.
Subsidy for Apprentices in High-Demand Industries
The government is providing subsidised apprenticeships for what they deem to be 'priority occupations’, which means apprentices in these industries can get up to $5,000 in cash payments for the first two years of their training (i.e., $1,250 every 6 months).
Increase in New Home Guarantee Spots
The government has expanded its first home buyers scheme in the form of the New Home Guarantee Scheme (formerly the First Home Loan Deposit Scheme) which allows first home buyers to buy a property with only a 5% deposit (reduced further to 2% for single parent households). There are limited places available for this grant each year which the government has now doubled to 35,000 places.
Increase of First Home Super Saver (FHSS) Scheme
The First Home Super Saver (FHSS) scheme allows people to voluntarily contribute up to $30,000 to their superannuation fund and withdraw this amount (plus earnings, less tax) to buy their first home. From 1 July 2022, this amount increases to $50,000.
In response to the significant increase in global oil prices since the Russian invasion of Ukraine, the government will help reduce the burden of higher fuel prices at home by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel.
Specifically, under this measure, the excise on petrol and diesel will be cut from 44.2 cents per litre to 22.1 cents per litre (i.e. by 50%) which the government expects will impact prices at service stations over the next two weeks.
The measure will commence from 12.01am on 30 March 2022 and will remain in place for six months, ending at 11.59pm on 28 September 2022.
Reduction of Superannuation Drawdowns
The government has extended the 50% reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023.
The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions. Given ongoing volatility, this change will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.
What does the 2022 Federal Budget mean for industry, investing and the economic outlook?
Key industries such as manufacturing, construction, cybersecurity, farming, health and tourism fared well in this year’s budget. There's also $2 billion allocated to a new Regional Accelerator Program, which brings together existing schemes designed to improve skills, education, exports and supply chains in regional Australia.
Boost to the Federal Modern Manufacturing Strategy
An additional $1 billion in new investment has been added to the $2.5 billion Modern Manufacturing Strategy, which was revealed in 2020, to increase investment in regional manufacturing, create jobs and secure supply chains.
$500 million of the funding will drive growth and innovation to regional manufacturers through a new Regional Accelerator Stream of the Modern Manufacturing Initiative to create even more high-quality jobs for regional workers.
$200 million of the funding will be invested in a Regional Accelerator Stream of the Supply Chain Resilience Initiative to assist regional businesses to address supply chain vulnerabilities.
Patent Box – Expanding the patent box tax concession to agricultural sector innovations
The government is expanding the patent box to support practical, technology-focused innovation in the Australian agricultural sector.
Under this measure, the government will provide concessional tax treatment to corporate taxpayers who commercialise their eligible patents linked to agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority, PubCRIS register, or eligible Plant Breeders Rights (PBRs).
Eligible corporate income will be subject to an effective tax rate of 17% for PBRs granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023. Eligible income will be taxed at the concessional tax rate to the extent that the research and development of the innovation took place in Australia.
Patent Box – Expanding the patent box tax concession to low emissions technology innovations
The government will expand the patent box to support the Government’s technology-focused approach to reducing emissions in line with the Government’s target to achieve net zero emissions by 2050. Concessional tax treatment for corporate taxpayers who commercialise their patented technologies which have the potential to lower emissions.
Eligible corporate income will be subject to an effective tax rate of 17% for patents granted after 29 March 2022 and for income years starting on or after 1 July 2023. Eligible income will be taxed at the concessional tax rate to the extent that the research and development of the innovation took place in Australia.
Patent Box – Tax concessions for Australian medical and biotechnology innovations
The government has expanded the 2021-22 Budget Measure Patent Box – tax concession for Australian medical and biotechnology innovations by now allowing patents granted or issued after 11 May 2021 to be eligible for the regime.
The Government will also now allow standard patents granted by IP Australia, utility patents issued by the United States Patent and Trademark Office (USPTO), and European patents granted under the European Patent Convention (EPC) to be eligible.
Taxpayers will still only benefit from the concessional tax treatment under the patent box to the extent that the R&D occurred in Australia.
Implications to the Economic and Market Outlook
The Treasurer has underpinned this Budget with the themes of “responsible, temporary and targeted” in light of the resilience of Australia’s economy in the face of the pandemic-induced recession in 2020. This outlook is reflected in the Budget’s short-term cost-of-living measures and longer-term commitments to regional infrastructure and cybersecurity.
While it appears there are expectations for unemployment to dip below 4% later this year, which is undoubtedly good news, the Budget’s measures to increase workplace participation reflect the Federal Government’s acknowledgement in the evident gap of skilled workers which is a challenge that businesses will continue to face for some time.
While there is no broad headline impact in regard to investment (i.e. reversal of current franking credit legislation), it’ll be interesting to understand how the broader spend could and will impact inflation. If the government over-stimulates the economy, this could then drive inflation rates higher. Frydenberg has to walk the line regarding expenditure, but Glenn Stevens also has the RBA mandate to tame inflation. If the market senses that government policy could indeed over-stimulate and result in a steeper yield curve, this could then result in a stalling market or indeed one which is more sensitive to industries that can pass inflation through to the consumer on a more proactive basis.
If you would like to discuss any of the above Federal Budget 2022 topics or wish to talk through your plans for the upcoming year, please get in touch with the BlueRock team. Our multidisciplinary approach to business and wealth growth allows us to take into account all these measures in the context of your broader strategic and personal goals.