• Federal Budget 2022

    Individuals

Individuals

Federal Budget 2022 issues impacting individual Australians.

The Government has announced an immediate six month temporary reduction to fuel taxes. Fuel excise and excise-equivalent customs duty rates for petrol, diesel and other fuels (excluding aviation fuels) will be halved from 30 March 2022 to 28 September 2022. This is part of a suite of measures addressing cost of living pressures and aims to deliver direct relief to the retail price of fuel.

Under the current rates, common fuels such as petrol and diesel are subject to excise or customs of 44.2 cents per litre. The change means a new rate of 22.1 cents per litre will apply from Tuesday, 29 March 2022.

However, the price of fuel to consumers should reduce by 24.31 cents per litre after taking into account the GST levied on excise. The excise rate is indexed bi-annually in February and August, with indexation to proceed in August based on half rates.

A reduction in excise levied will, of course, reduce any corresponding fuel tax credit entitlements for businesses. Under the fuel tax credits regime, businesses can claim a fuel tax credit for fuel used in carrying on their business, other than for light vehicles travelling on public roads.

These changes are expected to cost the Government $2.975 billion, when netted off against the reduced fuel tax credit payments, across the next six months.

BDO Comment

From a consumer and economic perspective, BDO welcomes this initiative which will reduce the cost of living and promote economic activity and growth. This should provide a six month economic turbo-charge across all industries and sectors, especially if the reduction in transportation costs trickle down to the ultimate consumers of goods and services.

From a business perspective, this should provide a cash boost as it reduces the cost of transport for all goods and services across the country and we hope businesses and consumers in the supply chain will benefit.

For businesses already claiming a good majority of their fuel tax credits, (for example in the mining and agricultural industries,) outside of the cash flow impacts, there will not be much of an effect. However, these businesses will need to update their calculation processes to ensure the revised rates are applied. Care must be taken to identify the precise fuel purchase date, noting the change in rate does not neatly align to an accounting period.

As a matter of practical concern, businesses may need to check any applicable ‘pass through clauses’ and pricing mechanisms in commercial contracts that are sensitive to fuel costs or fuel tax credit entitlements to ensure contract pricing is appropriately administered consistently with the new rates.

No comment was made in relation to the Road User Charge. We would expect this is also subject to the same 50% reduction, but this is yet to be seen.

The Government has introduced two new measures intended to ease cost of living pressures for low and middle-income earners, as well as other eligible recipients.

Cost of living tax offset

Improving on last year’s effort, the Government will increase the low and middle-income tax offset (LMITO) for the 2021-22 income year by $420.

LMITO is targeted at low and middle-income earners who are most susceptible to cost of living pressures. Like last year, the LMITO for the 2021-22 income year will be paid from 1 July 2022, when Australians lodge their tax returns for the same income year.

This increase to the LMITO will see low and middle-income earners receive up to a maximum offset of $1,500 – an increase of $420 on the current rate.

Broadly, all LMITO recipients will benefit from the increase, except those that do not require the full offset to reduce their tax liability to zero. All other features of the current LMITO remain unchanged. Consistent with the current LMITO, taxpayers with incomes of $126,000 or more will not receive the additional $420.

Cost of living payment

The Government will provide a $250 economic support payment to eligible recipients in April 2022, including those who receive:

  • The age pension
  • Disability support payments
  • Parenting payments
  • Jobseeker payments
  • Youth allowance payments
  • Commonwealth Seniors Health Care Card holders
  • Recipients of other government supports.

The $250 payments are exempt from taxation and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under two or more categories.

BDO Comment

Given the recent cost of living pressures and the upcoming election, the Government could not afford to ignore the current increases in cost of living. Nevertheless, this is only a temporary fix which may not have a long-lasting impact for vulnerable Australians.

Self-funded retirees will be able to continue to choose to reduce their minimum pension drawdown amount by 50%, with the measure extended for a further year to 30 June 2023.

The measure was first introduced in the 2020 financial year, in response to COVID-19’s impact on investment markets and allows pension members to withdraw less of their retirement savings, leaving a greater amount invested for the future.

BDO Comment

The extension of flexibility in managing superannuation savings is a positive inclusion in the budget for self-funded retirees. The question is, with inflation and rising costs of living impacting all Australians, will retirees be able to take advantage of this concession?

Building on the Women’s Economic Security Package announced in the 2021-22 Federal Budget, the Government has announced changes to enhance the Paid Parental Leave Scheme and improve economic security for women.

This scheme rolls Dad and Partner Pay into a single Parental Leave pay scheme of up to 20 weeks, which is fully flexible and able to be shared between eligible working parents as they see fit.

The Government says its paid parental leave changes, costing $346.1 million over five years, will give families the opportunity to take leave any time within two years of the birth or adoption of the child. Further, the Government has promised this will not result in any existing eligible applicants being worse off. This notion is supported by an expanded eligibility household income means test of $350,000 (previously restricted to mothers earning less than $150,000 per annum) to access the taxpayer-funded leave.

BDO Comment

As the overwhelming majority of parents who use primary carer leave through the Government’s Parental Leave Pay are women, BDO welcomes the changes aimed to support women returning to the workforce and providing equality and flexibility for both working parents. Whilst this looks like a win for many Australian households, don’t rush in just yet, as the measures are not expected to be introduced until 1 March 2023 – disappointingly more than nine months after this year’s budget!

The Government has enhanced its First Home Guarantee and Family Home Guarantee Schemes to support first home buyers, and single parents to break into the property market with lower minimum deposits. A Regional Home Guarantee Scheme has also been introduced, with the aim of supporting buyers in regional areas.

Home Guarantee Scheme

The Home Guarantee Scheme was initially introduced in 2021 and guaranteed 10,000 mortgages for eligible individuals to purchase a home with a minimum 5% deposit.

This year the Government has extended the scheme to provide 35,000 places to first home buyers, 5,000 places to single parents and 10,000 places for buyers in regional areas in the newly released Regional Home Guarantee.

The Family Home Guarantee is available to single parents with at least one dependant and allows them to obtain a loan with a minimum deposit of 2%. The Family Home, and Regional Home Guarantee, will provide 5,000 and 10,000 places respectively each year until 30 June 2025. The guarantee provided under these schemes allow eligible buyers to purchase a home with a reduced deposit, without having to pay lenders mortgage insurance.

Individuals with a taxable income up to $125,000, and couples with a taxable income up to $200,000, will be eligible for the First Home Guarantee.

BDO Comment

This policy is aimed at assisting a broader range of people to enter the housing market and will likely achieve that goal. However, with increasing interest rates looming, and the housing affordability crisis spurred on by COVID not looking like slowing down, the long-term affordability of these schemes will eventually come into question.

In last year’s Federal Budget, the Government committed to a review of the legislation governing the Employee Share Scheme (ESS) provisions. The 2022-23 Budget announcement is a continuation of the Government’s intention to improve the ESS rules by reducing compliance red tape in order to expand access for all employees to directly participate in the growth of their employers.

Disclosure requirements

The Corporations Act 2001 (Cth) requires a company that makes an ESS offer to provide the employee a disclosure document, unless an exemption in that Act applies, or the company can rely on the relief in the ASIC Class Order 14/1001.
Under this Class Order, unlisted entities are currently provided with relief from certain disclosure obligations, advertising and hawking restrictions and Australian Financial Services Licence (AFSL) obligations when offering ESS interests.

For unlisted entities to access this relief, they must offer:

  • Fully paid voting ordinary shares or options and rights that related to fully paid voting ordinary shares
  • Interests for no more than nominal monetary consideration which, in aggregate, do not exceed $5,000 in value per participant per year
  • Interests with reasonable grounds to believe the number of shares that have been, or may be issued under the current offer, when aggregated with offers made under ASIC relief during the previous three years, do not exceed 20% of the issued capital of the unlisted body.

Reduced red tape

The proposed changes allow unlisted companies to make larger offers of ESS interests to participants by allowing:

  • Up to $30,000 per participant per year, accruable for unexercised options for up to five years, plus 70% of dividends and cash bonuses or
  • Any amount, if it would allow the participant to immediately take advantage of a planned sale or listing of the company, to sell their purchased interests at profit.

The proposed changes also remove the same regulatory requirements for offers to independent contractors, where they do not have to pay for interests.

BDO Comment

The Australian ESS rules are complex and not usually aligned with other jurisdictions in the world. While this is a small step in the right direction, more work needs to be done to ensure Australian companies are competitive globally in order to retain local talent. In particular, these regulatory changes do not address the situation where the taxing point for the ESS interests occur before the shares are liquid, leaving the employee with a tax burden prior to the receipt of any cash to fund the liability.

The Government has announced an extension of the Tax Avoidance Taskforce focussed on multinationals, large corporates and high-wealth individuals. It will further extend the operation of these investigations by two years to 30 June 2025 and provide $325 million in 2023-24 and $327.6 million in 2024-25.

The Taskforce was established in 2016 to undertake compliance activities, detect tax avoidance and protect the integrity of the tax system for all Australians. It also scrutinises specialist tax advisers that promote tax avoidance schemes.

As of June 2021, the Tax Avoidance Taskforce has helped the ATO raise nearly $23 billion in tax liabilities. By extending the measure, the ATO is estimated to increase receipts by $2.1 billion.

BDO Comment

BDO agrees with the approach to increase transparency in the administration of the tax system by extending the measures for large businesses and high-wealth individuals. From BDO’s experience with these assurance reviews, the ATO has worked collaboratively with taxpayers to improve their tax governance procedures.      

However, the extent to which the compliance revenue is a result of the budget measure, resources provided for the Taskforce is uncertain. An Australian National Audit Office review of the Taskforce in 2019 found the ATO could not conclusively demonstrate the Taskforce met the revenue and resourcing commitments set out in the 2016–17 Budget. There is no indication this will change for the current budget cycle.

Further, the ATO’s estimated receipts, as a result of these measures are considerably less, and the related expense is higher in this Budget compared to the Government’s estimate in the 2019-20 Budget.