2022 Federal Budget update

We’ve reviewed the Budget and provide our analysis of what it means for you.

What is small business – Technology investment boost

The Government is introducing a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2023.

Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their 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 expenditures up to $100,000 will be eligible for the boost.

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.

Skills & training boost

The Government is introducing a skill and training boost to support small businesses to train and upskill their employees. The boost will apply to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2024.

Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent 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 delivered by entities registered in Australia.
Some exclusions will apply, such as for in‑house or on‑the‑job training and expenditure on external training courses for persons other than employees.

The boost for eligible expenditure incurred by 30 June 2022 can be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, can be included in the income year in which the expenditure is incurred.

ATO attack on family trust distributions

The Australian Taxation Office released in February an array of documentation relating to family trust distributions – technical documents that may not be fully understood by those uninvolved or unqualified to handle tax matters. However, they may impact you if you are a taxpayer who uses family trusts.

The ATO is attacking distributions from trusts where the tax is paid by one individual (who is usually a low-income earner), but the economic benefit of the distribution is obtained by someone else (who is usually a higher income earner).

As an example, there is a trust that benefits the Smith family, consisting of two parents and two children (who are at university and are not earning money). The Smith Family Trust decides to distribute a significant portion of the money to the two university-attending children. However, the catch is that the parents do not want the children to have control of the significant amounts of money, and decide they wish to keep the benefits of the lower tax thresholds of the low-income earners.

This is an arrangement that the ATO has deemed in the public advice guidance and draft rulings as needing to be addressed and changed.

However, the rulings on income distributions from family trusts are currently in draft form, which the ATO has asked for feedback on before finalising the rulings. This may not happen before trust resolutions need to be completed this June, so it is possible that those may need to be addressed under the draft rulings.

It is not expected that these new rulings will impact many of our clients. If you may be impacted, you will be contacted and this issue will be resolved to avoid ATO scrutiny on your trust and its distributions. This action may even warrant a whole structure review of your current trust setup.

Primary producers – Increasing concessional tax treatment for carbon abatement & 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. This is an important step for primary producers.

The Government will also change the taxing point of ACCUs for eligible primary producers to the year when they are sold, and extend similar treatment to biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market scheme, from 1 July 2022. Eligible primary producers are those who are currently eligible for the FMD scheme and tax averaging.

Currently, proceeds from selling ACCUs are treated as non‑primary production income and are generally ineligible for concessional tax treatment under the FMD scheme or tax averaging. ACCU holders are taxed based on changes in the value of their ACCUs each year, which can result in tax liabilities prior to sale.

Smarter reporting of taxable payments reporting system data

As a part of the Budget Announcements, the Government has issued a statement that it will work with accounting software providers to see if they have the capacity to deliver specific reporting systems by 31 December 2023. This should allow taxpayers to report Taxable Payments Reporting Payments System data on the same lodgement cycle as their activity statements.

This may sound complicated, and you may be unsure of what that could mean to you as a small business taxpayer.
Here’s a brief explanation about why this should interest you:

Certain industries such as building & construction, couriers, IT and security (amongst others) that regularly engage permanent contractors have to report payments to those contractors on an annual basis (known as a TPAR). This is similar to reporting payments to employees.

Effectively, this is an extra process for payers to these contractors. It is hoped that by the end of next year, this reporting will be all able to be wrapped up in your Business Activity Statement (BAS), saving your small business a lot of time and a lot of red tape.

Reduction in minimum pension drawdown announced

The reduction in the minimum pension drawdown amount for superannuation pension recipients has been extended for another year by the Federal Government, as announced in the Budget for 2022-23.

The minimum pension amount will be only 50% of the general amount (the balance from which the pension is drawn). For example, a 65-year old would usually need to draw down 5% of their opening balance as a pension payment throughout the year.

For the 2022-23 financial year, the minimum amount will be reduced 50% (dropping this to 2.5%). This measure is set to cost the Federal Government around $19.2 million dollars for the 2022-23 years, but you need to be alert and conscientious about this measure.

Whilst it is a great outcome to keep as much of your money in your super as is possible (if it’s not required for you to live on), you do need to be conscious that at some point, the remaining balance will be passed onto the next generation. When this money does change hands and is given to the next generation if the superannuation balance includes a taxable component, then your children may be subject to as much as 17% tax on the capital value of that balance.

However, if you take that money out of your super and it passes to your children as a part of your estate instead, there will be no death duties payable.

The primary reason for the reduction in the minimum pension payment amount is to protect pensioners from having to sell their assets during a volatile period. However, this is a double-edged sword that needs to be carefully considered and weighed against your circumstances.

Budget aims to help ease the costs of living

One-off cost of living tax offset

The Government has announced a one-off increase to the low and middle-income tax offset (LMITO) to raise it from $1,080 to $1,500 for the 2021-22 financial year. An increase of $420.

This payment is claimed in your income tax return if you are eligible for the payment. You need to check the table below to see how much payment you are entitled to.

Currently, the Low and Middle Income Tax Offset is available to eligible individuals who are earning less than $126,000, with different tax brackets incurring different offset rates.

One-off income support payment for individuals

The Government will provide a one-off, income tax-exempt payment of $250 to approximately 6 million eligible people.

This payment will be paid automatically to all eligible pensioners, welfare recipients, veterans and eligible concession card holders in April 2022. This could result in eligible individuals earning more than $500 when combined with other existing indexation agreements on other support payments (such as the Age Pensions, Disability Support Pension and Carer Payment).

More affordable child care continues

The Government is committing $279 million in COVID-19 support, $6.9 million in business continuity payments and support for services through Special Circumstances Grants in the Community Childcare Fund. As yet it is unclear as to the impact this will have on individual households.

Fuel excise cut in half

Among the Federal Government’s announcements was the temporary action to cut fuel excise (the tax paid on fuel) to reduce this pressure on household budgets.
The fuel excise will be reduced by 50 per cent for 6 months, dropping the current excise on petrol and diesel from 44.2 cents per litre to 22.1 cents per litre. This should lead to an equivalent drop in the price of fuel.