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Budget 2022: What tax changes to expect - for you and your business

People walk down a crowded city street ahead of Budget day.
The Budget isn't likely to have much bad news for most Australians. (Source: Getty)

The Budget is early this year because an election is due in May at the latest and the Government wants to get its fiscal plan passed in good time to take all the credit for everything contained within it.

Given the election’s proximity, it’s extremely unlikely there will be any “bad news”. Expect all of the measures to be delivered with both eyes firmly fixed on the polls and the impact on voters.

Also by Mark Chapman:

So, given all that, here are my predictions for next Tuesday’s Budget.

Personal taxes

Don’t expect any negative changes to personal tax rates.

While the cost of COVID-19 means there is probably a need to increase the personal-tax take to pay down the deficit, the Government is simply not going to process tax rises at this stage of the electoral cycle.

Indeed, Treasurer Josh Frydenberg is likely to offer counterintuitive tax cuts, in the hope of bolstering the vote.

Expect the low and middle income tax offset (that is currently scheduled to end on June 30) to be extended for one more year.

This is an amount paid to people earning up to $126,000 when they lodge their tax return for the year. The amount varies between $255 and $1,080, with people earning between $48,001 and $90,000 in the “sweet spot” where they get the full amount.

Treasurer Josh Frydenberg sits with his hand on his chin during Question Time in the House of Representatives.
With the election so close, Treasurer Josh Frydenberg has had to carefully consider the best way forward. (Source: Getty)

This will be sold as a tax cut but really it’s simply a deferred tax rise. When the offset does finally end, everybody earning up to $126,000 will lose the amount of the tax offset, which has been a feature of the tax system since 2018-19.

Expect the Government to recommit to its already-legislated stage three tax cuts, which take effect from 2024, but not to bring them forward to this year.

Under these cuts, the 37 per cent tax bracket will be abolished, the top 45 per cent bracket will start from $200,000 and the 32.5 per cent rate will be cut to 30 per cent for all incomes between $45,000 and $200,000.

Work-related deductions have been in the sights of Treasury boffins for years now but they have struggled to come up with a way of reforming the system that doesn’t either outrage taxpayers or end up costing more than it saves.

The Treasurer might have one eye on the purported $22 billion claimed in work-related deductions every year, but we’re not convinced he has been able to work out a way of getting his hands on that pot of money without encountering the same hurdles as his predecessors.

So, we don’t believe any changes will be announced imminently but longer-term change could be under consideration.

Lastly, in light of soaring petrol prices, expect the rate of fuel duty to be cut. In the grand scheme of things, this will be a drop in the ocean compared to recent price rises but the Treasurer will want to be seen to be helping Aussie motorists.

Small Business

I would expect the very popular temporary full-expensing scheme, which gives businesses an immediate deduction for all capital items purchased right through to June 30, 2023, to be extended for another year.

This won’t have an impact on revenue immediately but will signal the Government’s commitment to helping small businesses, which continue to “do it tough”, with COVID-19 and now cost-of-living pressures to deal with.

The Government set out an agenda of reducing corporate taxes for all companies - even the biggest ones - a few years ago but Parliament didn’t take the bait.

Other than passing some modest tax cuts for businesses with a turnover up to $50 million, the Senate put a block on the Government's more ambitious plan to reduce the corporate tax rate to 25 per cent for all companies.

I don’t believe the Government will give up on its aspiration for lower tax rates but it continues to be politically difficult to give tax cuts to big businesses.

So, I wouldn’t be surprised to see further cuts to the rate of tax for small businesses - accompanied with a possible increase in the turnover threshold (currently $50 million) to qualify.

Mark Chapman is director of tax communications at H&R Block.

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