Federal Budget update – March 2022

The complete Federal Budget paper is a 365 page document available here:

https://budget.gov.au/2022-23/content/bp1/download/bp1_2022-23.pdf

In the few headlines below we comment on the points that affect the most people, or which we find more relevant. The Budget Paper covers much more, including changes to PBS thresholds, additional funding for preventative diagnosis via Medicare, and close to my heart, boosting funding for regional Australia. We tend to look at the headline short term benefits for us as individuals, but the Budget Paper includes a lot of information on longer term projects.

Superannuation Pension Minimums

The only change to superannuation in the budget was the extension of the reduced minimums for account based pension drawdowns. First introduced in the 2019/20 year as a response to the COVID-19 pandemic sell-off, the 50% is now extended to 30 June 2023.

For people under age 65 as at 1 July 2022, the minimum will be 2% of your account balance. For 65 to 74 the rate is 2.5%, for 75 to age 79 the rate is 3.00% and for 80 to 84 the rate is 3.50%.

This will assist with preserving the account balance where you have other means outside of the superannuation account, and you want to minimize the pension drawing.  

Not everyone gets a benefit, and there is no compulsion to reduce your pension. But it does give us tools to maximise and preserve your super balance if that is what fits with your overall cashflow plan.

Cost of living – Low and Middle income earners

The Low and Middle Income Tax Offset (LMITO) has been around since 2018, and offered up to $1,080 as a tax offset, reducing the overall tax rate. It reaches maximum value at $90,000 of income, and phases out entirely at $126,000 of income.

This Budget added another $420 to this rebate system for the 2021/22 tax year. If you are eligible for some LMITO, then you will get the full $420 allowance. Don’t expect a lump sum. You need to lodge your tax return to get the offset. And it is simply a reduction in your tax payable, which will show up as a bigger tax refund, depending on your total tax payable and tax instalments paid throughout the year.

A warning, don’t get to used to it. This is the last year for the whole LMITO rebate arrangement. The 2022/23 tax year will not have any LMITO rebates available.

Cost of living – Social Security recipients and Concession Card holders

For Age Pensioners, people on Job Seeker, Carer Payment, Disability support and a raft of others, as well as holders of Concession Cards there is a $250 single payment that will be made in April. Referred to as a Cost of Living payment, it is a one-off and not a permanent benefit.

Halving of Fuel Excise

Bound to be seen as a nod to fossil fuel users and a slap in the face to early adopters of electric cars, the cut to fuel excise for 6 months will take a bit of the sting off the fuel price for struggling families. The saving is 22.1 cents per litre. This is another temporary measure which is estimated to cost the government $3 billion over six months. Nothing too complex here, it is paid (or not paid) at the pump.

Employee Share Schemes

While this is of relevance to fewer Australians, it is an example of some real reform that will allow for employees to obtain share ownership in the small companies that they are helping to build. Previously restricted to $5,000 per year, this will now enable participants to take up to $30,000 per year as part of an employment package. This will benefit small, growing businesses who are looking for ways to obtain higher engagement and participation for key employees.

Supporting Home Buyers – Expanding the Home Guarantee scheme

Under the schemes, the government guarantees part of a home loan. This allows the purchase of a home with a smaller deposit without needing to pay Lender’s Mortgage Insurance.

The old number of loans to be supported was 10,000. Now there are an additional 25,000 places available to assist first home buyers with as little as 5% deposit avoid the impost of Lenders Mortgage Insurance.

There are 10,000 new guarantees for the Regional Home Guarantee, which from 1 October 2022 will support eligible home buyers, including non-first home buyers to purchase or construct a new home in regional areas.

The  Family Home Guarantee scheme assists eligible single parents with children to either buy their first home or re-enter the housing market with a deposit as little as 2%.

Technology Incentive Boost

Small businesses, with aggregated annual turnover less than $50 million, will be entitled to a 120% deduction of the cost of business expenses and depreciating assets that support digital uptake, up to $100,000 of expenditure per year. This means that if you spend $1,000 on e-invoicing software, cloud computing etc, you will be entitled to $1,200 of tax deduction. This measure does appear to be limited to “Small Businesses” so check with your accountant about the deductibility in your individual circumstances.

That’s not all folks

There are other aspects to this budget that may affect you. If you have questions please leave a comment in the section below and we will provide more information.