On Tuesday 29 March 2022, the incumbent Liberal Party released their fourth budget of this term, which was also the third Federal Budget of the COVID-19 pandemic and final before May’s Federal Election.
This budget places a significant emphasis on the short-term, particularly cost of living relief, while also continuing to support those in business.
Whilst there has been a strong rebound from the COVID-triggered recession experienced in 2020, with unemployment now expected to reduce to under 4% later this calendar year, one recurring issue has been Australia’s supply chain pressures and self-sustainability.
Along with the focus on creating more jobs, reducing the cost of living pressures and strengthening Australia’s regions and critical infrastructure and, the 2022 Budget’s priorities are to improve essential services, such as health and aged care, as well as an increased focus on national security and defence.
The key elements of the 2022 Federal Budget are summarised below:
Low and Middle Income Tax Offset (LMITO)
The Low and Middle Income Tax Offset will increase by $420, from $1,080 to $1,500, for individual taxpayers with incomes of less than $126,000.
This is a once off increase that will only apply to the 2022 financial year.
Small Business Technology Investment Boost
Small businesses will be eligible for an additional 20% for eligible expenditure incurred from Budget Night (7:30pm AEDT 29 March 2022) until 30 June 2023.
There will be an annual expenditure cap of $100,000, which provides for an allowable deduction of $120,000.
Eligible expenses are still to be confirmed by legislation but will include depreciating assets that support digital adoption, such as;
Portable payment devices
Cloud-based services subscriptions
Cyber security systems
Costs incurred from Budget Night to 30 June 2022 will receive the benefit of the additional 20% deduction in the following year, being the 2023 income tax return
This additional 20% deduction is concurrent with the temporary full expensing measures, that have been extended to 30 June 2023.
Small Business Skills and Training Boost
Small businesses will be eligible for an additional 20% for expenditure incurred on eligible courses from Budget Night (7:30pm AEDT 29 March 2022) until 30 June 2024.
Any external training courses must be delivered by entities that are registered in Australia and provided to employees in Australia or online
Costs incurred from Budget Night to 30 June 2022 will receive the benefit of the additional 20% deduction in the following year, being the 2023 income tax return.
Expenditure incurred in the 2023 and 2024 financial years will be claimed in the year that the expenses are incurred, along with the 20% boost.
Temporary Fuel Excise Cut
The current fuel excise is a 44.2 cents per litre tax levied by the Federal Government on all fuel and petroleum products.
Given the recent spike in global fuel prices, the Federal Government has announced a temporary reduction.
The reduction should translate to a reduction of at least 22.1 cents per litre for consumers.
This measure will apply for 6 months, from 30 March 2022 to 28 September 2022.
PAYG Instalment Reform
The existing PAYG Instalment system will be modernised so that instalments will be based on an entity’s current financial performance, as is recorded in the business’ accounting software.
The GDP uplift factor will also be reduced from 10% to 2% for small businesses.
The tax liability will be calculated as normal at the end of a financial year.
This will commence from 1 January 2024.
Employee Share Schemes
The goal of this amendment is to expand access to employee share schemes and relaxing the conditions to qualify for the exemption from providing a disclosure document to employees.
The employee share offer cap will increase from $5,000 to $30,000 per employee and can accrue for unexercised options for up to 5 years, meaning a potential increased cap of up to $150,000.
The cap will be removed entirely if the share offer is made just before a liquidity event.
However, it has not yet been disclosed when this amendment will be implemented.
Tax Avoidance Taskforce
The existing Tax Avoidance Taskforce will be extended by two years to 30 June 2025.
The Taskforce was established in 2016 to target the compliance activities of multinationals, large public and private groups, trusts and high net wealth individuals.
It also reviews and scrutinises specialist tax advisors who promote tax avoidance schemes and strategies.
Patent Box Scheme
There will be a significant expansion of the Patent Box Scheme, originally announced in the 2021 Budget, to agriculture, medical, biotech and low emissions technology.
The Scheme allows eligible patent income to be taxed at the concessional rate of 17%, rather than 25% or 30%.
Any research and development activities must take place in Australia.
This expansion applies to patents granted as follows:
Agriculture and low emissions technology: patents granted after 29 March 2022, and for income years starting from 1 July 2023
Medical and biotech patents granted after 11 May 2021
It is important to note that many of the new measures will be further clarified when the relevant legislation is passed.
Should you wish to discuss any of these items in further detail or have any questions, please do not hesitate to contact your usual Jaquillard Minns contact.