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Budget 2022: What it means for your taxes

·Director Of Tax Communications, H&R Block
·5-min read
Composite image showing tax payers crossing a busy street and a Australian note money.
Budget 2022 includes some tax sweeteners ahead of the election. (Source: Getty)

In this, an election year, the focus of the Budget was inevitably on pleasing the electorate.

The large amounts spent on lower- and middle-income earners, pensioners and welfare recipients, and a 50 per cent reduction in fuel duty, are all geared towards capturing the votes of “Middle Australia”.

Read more by Mark Chapman:

So, are these election sweeteners as helpful as the Government says they are?

Tax implications for individuals

Low and middle income tax offset

For individuals, the Budget's centrepiece was the increase in the low and middle income tax offset (LMITO), which is welcome.

People earning up to $126,000 will get a rebate of $420 in excess of what they would have got anyway through the existing tax offset.

All you have to do to get it is lodge a tax return for 2021-22 - so funds should start to flow to taxpayers from July 1, 2022.

If your taxable income is up to $126,000, you will get some or all of the expanded offset.

Basically, if your income is less than $37,000, you will pay $675 less tax.

If your income is between $37,001 and $48,000, the tax offset will increase steadily to $1,500.

Between $48,000 and $90,000, you will pay $1,500 less tax (the maximum).

Earn more than $90,000, and the offset gradually phases out, disappearing after $126,000.

So, if you earn $126,001, you won’t benefit from the offset at all.

Unfortunately, this is just a short-term measure.

Next year, the LMITO disappears completely, meaning people earning up to $126,000 will see a tax rise of up to $1,080.

It's hard to see how that will do anything to help cost-of-living pressures over the medium and long term.

Worse, just as most Australians will experience this tax rise, the wealthiest Australians will be anticipating a tax cut of up to $9,075 in 2024/25 (remember, the Government’s third-stage tax cuts - which predominantly benefit the wealthy - were passed several years ago and finally kick in on July 1, 2024).

$250 cost-of-living payment

This month, 6 million eligible pensioners, welfare recipients, veterans and concession card holders will receive the $250 one-off payment.

The payment will only be available to Australian residents who are eligible recipients of the following payments, and to concession card holders:

  • Age Pension

  • Disability Support Pension

  • Parenting Payment

  • Carer Payment

  • Carer Allowance (if not in receipt of a primary income support payment)

  • Jobseeker Payment

  • Youth Allowance

  • Austudy and Abstudy Living Allowance

  • Double Orphan Pension

  • Special Benefit

  • Farm Household Allowance

  • Pensioner Concession Card (PCC) holders

  • Commonwealth Seniors Health Card holders

  • Eligible Veterans' Affairs payment recipients and Veteran Gold card holders.

Medicare levy changes

The Government did not announce any personal tax-rate changes in the Budget but it did announce small changes to the Medicare levy low-income threshold, which is the amount you can earn before you become subject to the 2 per cent Medicare levy.

For the 2021-22 income year, the Medicare levy low-income threshold for singles will be increased to $23,365 (up from $23,226 for 2020-21).

For couples with no children, the family income threshold will be increased to $39,402 (up from $39,167 for 2020-21).

The additional amount of threshold for each dependent child or student will be increased to $3,619 (up from $3,597).

50 per cent cut to fuel excise

Finally, the Government announced a 50 per cent reduction in the excise duty rate that applies to petrol and diesel for six months.

This cut will apply to all fuel and petroleum-based products, except aviation fuels, and should see the price of a litre of fuel coming down by 22.1 cents over the next week or two.

Let’s hope no further oil price shocks occur in the meantime to eat away at that cut.

Tax implications for small businesses

For small business, there are two key measures in Budget 2022 but no word as to whether the "Temporary Full Expensing" tax break - which benefits almost all businesses with the instant write-off of capital purchases - will be extended beyond June 30, 2023.

Technology investment boost

The main headline grabber is the Technology Investment Boost, which gives businesses with an annual turnover of less than $50 million the ability to deduct an extra 20 per cent of the cost of expenses that support their digital uptake.

Businesses will be able to claim the additional deduction on up to $100,000 of expenditure a year.

Graphic showing where and how the 2022 Budget is being spent.
Graphic showing where and how the 2022 Budget is being spent.

It isn’t yet clear how widely drawn the scope of this deduction will be. The Budget papers list portable payment devices, cyber-security systems and cloud-subscription services as examples of what money can be spent on, but could a deduction also be claimed on the cost of computers, laptops, mobile phones, etc?

After all, it’s all technology.

If so, this could prove to be a very valuable reform for small businesses.

The tax break will apply to any purchases made between 7.30pm Budget night (March 29, 2022) and June 30, 2023.

However, businesses that take advantage of the boost this financial year will have to wait to get the benefit – in relation to eligible expenditure incurred by June 30, 2022, a claim has to be made in next year’s tax return (ie, the return to June 30, 2023).

Skills and training boost

In addition, there will be a similar tax break for small businesses that fund digital training and upskilling for staff.

The Skills and Training Boost gives a small business that spends $100 on training employees a $120 tax deduction. This also came into effect from 7.30pm Budget night, but will extend until June 30, 2024.

Again, immediate relief is not forthcoming – expenditure incurred before June 30, 2022 has to be claimed in next year’s tax return.

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

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