Last year, we wondered why we have a Budget night anymore. Not much has changed.
Budget surpluses remain off the agenda for the forecast period. With unemployment at record lows, the Budget has small measures aimed at keeping unemployment low by encouraging education and training. Small businesses are the main beneficiaries of incremental tax incentives and compliance or administration measures. Individuals and families benefit from well publicised cash splashes leaked before Budget night.
The Budget continues last year’s predictions of continued growth in some economic measures. Unemployment is forecast to remain around the 4% mark over the forecast period, with wages increasing slightly over that period. While nominal GDP is expected to increase to 5% year-on-year growth, real GDP growth is expected to stabilise at 2.5% over the forecast period, suggesting inflationary pressures.
The Budget has revised forecasts for net debt, now forecast to peak at $864.7 billion in 2025-26 (down from the $980.6 billion in 2024-25 that was forecast in last year’s budget).
Sadly, genuine structural tax reform remains missing in action.
No income tax cuts
There are no changes to the individual income tax rates. They remain as follows:
|2021-22 to 2023-24||2024-25 onwards|
|Taxable incomes||Marginal rates||Taxable incomes||Marginal rates|
|0 – 18,200||0%||0 – 18,200||0%|
|18,201 – 45,000||19%||18,201 – 45,000||19%|
|45,001 – 120,000||32.5%||45,001 – 200,000||30%|
|120,001 – 180,000||37%|
|180,001 –||45%||200,001 –||45%|
Bold items show changes within the table.
One-off cost of living tax offset
The Government has proposed to increase the low and middle-income tax offset (LMITO) for the current year by $420 to $1,500 per person as a key plank in its cost of living package. The offset is payable from 1 July 2022 as individuals lodge their income tax returns.
As readers would be aware, the LMITO is not refundable, which means this measure only benefits individuals who would otherwise pay income tax. Those whose incomes are too low will not benefit.
The full offset of $1,500 is available where taxable income is between $48,000 and $90,000. The offset starts to phase out thereafter until it reduces to nil at a taxable income of $126,000.
The Budget does not extend the LMITO beyond the 2021-22 year.
One-off cost of living payment
The Government has also committed to pay eligible Australian residents a one-off income tax exempt payment of $250, which will not count as income support for the purposes of any income support payment. This will be automatically paid next month (April 2022) to eligible pensioners, welfare recipients, veterans and eligible concession card holders.
To some extent, this payment addresses the inequity caused by the LMITO being available only to income tax payers, but note the apparent inequity caused by income tax payers getting a greater benefit from Government than those who earn no or low income.
Medicare levy low-income thresholds
The Medicare levy low-income threshold will be increased from 1 July 2021 by between $139 and $307, with a further increase for each dependent child or student of $22.
COVID-19 test expenses deductible
The Government has announced that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals from 1 July 2021.
The details of this measure have not yet been confirmed, however, this should enable individuals to deduct the costs of rapid antigen tests (RATs) they were required to purchase to attend their place of work.
Deductions will be available from 1 July 2021 – which should cover those grossly overpriced rapid antigen tests during the supply shortage earlier this year (provided you kept the receipt!).
Corresponding amendments will be made to the fringe benefits tax (FBT) rules to ensure that employers who provide RATs are not subject to FBT.
Fuel excise relief
The hit to the hip pocket at the fuel bowsers from increasing fuel prices has been noticed by the Government. As another key component of its cost of living package, the Government will reduce excise and excise equivalent customs duty (Excise) rates for petrol, diesel and all other fuel and petroleum-based products, except aviation fuels, by 50%. This measure will be in place for a six-month period, commencing at 12:01am on 30 March 2022 and ending at 11:59pm on 28 September 2022.
For families, this means a reduction of 22c per litre of fuel, working out at approximately $300 over the six-month period. At the end of the six-month period, Excise rates will return to their previous levels.
20% bonus deduction in technology investment and skills & training for small businesses
Businesses with an annual “aggregated turnover” of less than $50 million will receive a 20% uplift on deductions for costs incurred on business expenses and depreciating assets on digital adoption, with an annual cap up to $100,000 per year. Such costs include portable payment devices, cyber security and cloud computing. To put simply, for every $100 incurred on eligible technological investments, eligible businesses can claim a $120 tax deduction. The boost will apply to eligible expenditure incurred from 7:30pm on 29 March 2022 until 30 June 2023. It is not clear how this measure works in the context of depreciating assets, including those that may be eligible for the temporary full expensing measures.
Additionally, a 20% uplift on deductions will also apply for businesses with an annual “aggregated turnover” of less than $50 million for expenditure incurred on external training courses delivered by entities registered in Australia which are provided to employees (in Australia or online). The boost will apply to eligible expenditure incurred from 7:30pm on 29 March 2022 until 30 June 2024. There is no mention of annual caps on training courses that can be deducted at the bonus rate, but certain rules apply such as the boost will not apply for in-house or on-the-job training.
There will be a small lag where bonus deductions for expenditure incurred by 30 June 2022 will be claimed in tax returns in the following income year. However, the boost for eligible expenditure incurred between 1 July 2022 to 30 June 2023 (for technological investments) and 1 July 2022 to 30 June 2024 (for skills and training) will be included in the income year in which the expenditure is incurred.
Making COVID-19 business grants non-assessable non-exempt
The Government has extended the measure for payments from certain state and territory COVID-19 business support programs to be made non-assessable non-exempt for income tax purposes until 30 June 2022. Such programs include the NSW Commercial Landlord Hardship Grant and Queensland 2021 COVID-19 Business Support Grant.
Digital economy strategy
The Budget will add approximately $130 million over four years to the implementation of the digital economy strategy, building on the $1.2 billion provided in last year’s budget. Funding in this year’s Budget in relation to the digital economy strategy includes:
- Implementation of the Government’s response to the consumer data right inquiry;
- Extension of the cyber hubs pilot, which allow leading agencies such as Defence, Home Affairs and Services Australia to provide services to agencies without the same breadth and depth of skills;
- Supporting the digitalisation of the transport sector;
- Investment to position Australia as a world leader in regulating the digital economy and new technologies;
- Funding to support women to pursue career opportunities in technology; and
- Funding for the Department of Industry, Science, Energy and Resources for investment in the quantum computing industry.
Disappointingly, the Budget lacks any measures in respect of cryptocurrencies, blockchain and Web3.
Expanding the “Patent Box” to agriculture and clean energy
The Government has announced that it will expand the Patent Box (announced as part of the 2021-22 Budget) to corporate taxpayers:
- who commercialise eligible patents linked to agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority, PubCRIS register, or eligible Plant Breeder’s Rights; and
- who commercialise their patented technologies which have the potential to lower emissions.
The new measures will apply to eligible rights and patents granted after 29 March 2022 and for income years starting on or after 1 July 2023.
As with the existing Patent Box for Australian-developed medical and biotechnology patents granted or issued after 11 May 2021, the new Patent Box rules will broadly provide a concessional effective corporate tax rate of 17% for income referable to eligible rights and patents.
Taxpayers looking to take advantage of these regimes should seek advice. Under the existing Patent Box regime, taxpayers must elect into the regime prior to lodgement of their tax return for the relevant year (with a failure to elect resulting in a loss of access to the concessions for that year).
Tax changes for farmers
To encourage more primary producers in regional and remote areas to undertake additional carbon abatement and biodiversity stewardship activities, the Government will apply concessional tax treatment to primary producers generating revenue from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates from on-farm activities.
The changes will allow primary producers to treat the revenue from the sale of ACCUs and biodiversity certificates as primary production income, thereby providing access to concessional tax treatment under the Farm Management Deposits scheme and tax averaging arrangements from 1 July 2022.
Also from 1 July 2022, the taxing point of ACCUs or biodiversity certificates issued under the Agriculture Biodiversity Stewardship Market scheme will change to the year when they are sold.
A variety of minor measures that will impact businesses going forward include:
- PAYG instalments will be able to be calculated based on current financial performance extracted from business accounting software, with some tax adjustments so as to align instalments with current performance. It is anticipated the systems will be in place by 31 December 2023.
- PAYG instalments include an adjustment for GDP. This adjustment will be reduced from 10% to just 2% for the 2022-23 income year, freeing up cash for businesses. This measure will also apply to individuals with investment income.
- A variety of measures relating to excise designed to streamline licensing, administration and compliance.
- A variety of job and trainee-related incentives have been introduced which may benefit some businesses in hiring and training decisions.
As part of the Government’s plan for a stronger future, significant investment in infrastructure continues to be one of the key budget initiatives designed to create new jobs.
The 10-year infrastructure pipeline
In last October’s federal budget, the Government committed to a significant infrastructure spend of $110 billion over 10 years with a focus on near-term investments in major road and rail projects, road safety and community infrastructure. As part of the 2022-23 Budget, this infrastructure pipeline is proposed to increase to over $120 billion including $17.9 billion in new commitments to road, rail and community infrastructure projects expected to support around 40,000 jobs.
The regions are a key focus with the Government committing to invest $7.1 billion over 11 years from 2022-23 in regional economies including four key regional hubs across Australia. These hubs are the Northern Territory, North and Central Queensland, the Pilbara and the Hunter where the investment is aimed at unlocking production in agriculture, low emissions manufacturing and renewable energy.
Faster and safer rail
The government has committed $3.7 billion to deliver three faster rail projects – the Brisbane to the Sunshine Coast rail extension, the Brisbane to the Gold Coast faster rail upgrade, and the Sydney to Newcastle faster rail upgrade – with a view to reducing congestion and improving travel times along these corridors, and generating employment and social opportunities for Australians.
Road safety investment
To reduce the road fatality rate in regional areas, the Government is proposing to spend $180.1 million to establish the Regional Australia Level Crossing Safety Program, which includes upgrades to level crossings and a national level crossing safety education and awareness campaign.
Local jobs and infrastructure
The Local Roads and Community Infrastructure program was previously introduced to enable local councils across Australia to deliver priority projects to quickly stimulate local economies. A further $501.7 million has been committed to this program bringing the total Government commitment to $3 billion.
The National Water Grid
With a view to providing a safe, reliable and affordable water industry, the Government will provide a further $6.9 billion through the National Water Grid Fund.
Small Business Support Package
The Government will provide approximately $25 million over three years from 2021-22 for initiatives focused on small businesses. Funding includes:
- Mental health support such as NewAccess, which provides free, confidential, one-on-one mental health support via phone or video;
- Financial counselling support to help small business owners navigate issues such as avoiding bankruptcy, negotiating payment plans and insolvency; and
- Redesigning the Payment Times Reporting Portal and Register to improve efficiency and reporting.
- Reducing compliance costs for businesses through enhanced sharing of single touch payroll data
The Government announced that it has committed $6.6 million for the development of IT infrastructure required to allow the Australian Taxation Office (ATO) to share single touch payroll (STP) data with State and Territory Revenue Offices (SROs) on an ongoing basis.
Subject to participation by SROs, the measure is expected to reduce payroll tax compliance costs for businesses by enabling SROs to pre-fill payroll tax returns with STP data.
Unsurprisingly, the Government has announced an extensive COVID-19 response package to protect Australians from COVID-19 and support health workers on the frontline.
Ageing and aged care
An additional $458.1 million will be provided over 5 years from 2021-22 to support older Australians in the aged care sector with managing the impacts of the COVID-19 pandemic. Key funding measures include $215.3 million to provide bonuses of up $800 to aged care workers over the next two years and $124.9 million in 2022-23 to expand training programs to help aged care providers manage and prevent outbreaks.
Guaranteeing Medicare and access to medicines
$892.1 million is to be provided over 2 years from 2021-22 to continue the health response to the COVID-19 pandemic, to support access to health care services and reduce the risk of community transmission of COVID-19. Key funding measures include:
- $546 million in 2022-23 to extend temporary MBS pathology items for the testing and detection of COVID-19; and
- $248.1 million from 2021-22 for the extension of the General Practitioner-led Respiratory Clinics Program to manage and diagnose COVID-19 cases.
Personal protective equipment and rapid antigen tests
$2.6 billion is to be provided over 2 years from 2021-22 for the procurement and distribution of RATs and personal protective equipment (PPE). Key measures include:
- A program to deliver up to 20 free RATs over 7 months until 31 July 2022 to all Australians with a concession card.
- Purchase of PPE for the National Medical Stockpile (NMS) to distribute to residential aged care facilities to assist them in managing COVID-19.
- Programs for the procurements and distribution of RATs to residential aged care, GP-led Respiratory Clinics and other remote or vulnerable communities.
Supporting hospitals and emergency response extension
$1.1 billion over 2 years from 2022-23 to support the Government’s emergency response to COVID-19. $984 million of which will be used over the next 2 years from 2022-23 to extend activities under the National Partnership on COVID-19 Response.
Vaccines and treatments
The Government will provide $1 billion over 2 years from 2021-22 for the continued distribution and uptake of COVID-19 vaccines across Australia. Key funding measures include:
- $800.8 million over 2 years from 2021-22 for the administration of primary and booster doses in primary care settings, pharmacies, aged and disability care facilities, and Aboriginal and Torres Strait Islander and culturally and linguistically diverse communities; and
- $172.9 million over 2 years from 2021-22 for the implementation, monitoring, communications and reporting of the vaccine rollout, including digital and non-digital capabilities and expert advisory services.
The Government has also made further COVID-19 treatment purchases under existing advance purchase agreements, including:
- oral protease inhibitor (Paxlovid®) by Pfizer
- molnupiravir (Lagevrio®) by Merck, Sharp and Dohme
- tixagevimab and cilgavimab (Evusheld®) by AstraZeneca
- sotrovimab (Xevudy®) by GlaxoSmithKline
- remdesivir (Veklury®) by Gilead Sciences.
Education, Skills and Employment
The Government has announced that it will provide $153.5 million over 5 years from 2021-2022 to address workforce shortages, support job seekers to find employment, and make it easier for vulnerable Australians to participate in the workforce, including:
- $52.8 million over 5 years from 2021-22 to deliver the new ReBoot initiative and support Workforce Australia;
- $49.5 million over 2 years from 2022-23 to the JobTrainer Fund;
- $44.6 million over 2 years from 2022-23 to support the Restart Wage Subsidy;
- $3.2 million in 2022-23 to extend the time to Work Employment Services program;
- $1.9 million over 5 years from 2021-22 to extend the pension suspension period and Pensioner Concession access period to 2 years;
- $1.5 million in 2022-23 to extend the trial of career coaching in Digital Services under Workforce Australia.
Consistent with Australia’s Long Term Emissions Plan, the Government will provide further funding of $446.1 million over 5 years from 2021-22 to increase energy security, maintain affordable and reliable power for households and businesses and reduce the cost of deploying low emissions technologies, including:
- $247.1 million over 5 years from 2021-22 to support increased private sector investment in low emissions technologies;
- $148.6 million over 5 years from 2022-23 to support more investment in affordable and reliable power; and
- $50.3 million over 2 years from 2022-23 to accelerate the development of priority gas infrastructure projects consistent with the Future Gas Infrastructure Investment Framework and support investment in carbon capture and storage pipeline infrastructure.
The Government will also release Australian crude oil stocks held in the United States Strategic Petroleum Reserve in response to an International Energy Agency declared collective action, and seek to replenish storage of refined product and purchase replacement oil stocks at a later date.
Extension of the Tax Avoidance Taskforce
Recognising the savings generated by the Tax Avoidance Taskforce, the Government will provide a further $652.6 million to extend the Tax Avoidance Taskforce by 2 years to 30 June 2025, for an expected increase in receipts of $2.1 billion.
Established in 2016, the Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts, high wealth individuals, and their advisors.
Source: Gilbert & Tobin