With the Federal Budget for 2022-23 at last revealed to the Australian public, it’s time to consider the implications for small businesses and individuals. In an election year, the focus of the Budget was inevitably on pleasing the electorate, with large amounts spent on lower and middle income earners, pensioners and welfare recipients and a 50% reduction in fuel duty all geared towards capturing the votes of ‘Middle Australia’.
For small business, there are two key measures in this budget 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 30 June 2023. It seems reasonable to assume it won’t.
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% 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.
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 30 June 2022, a claim has to made in next year’s tax return (ie, the return to 30 June 2023).
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 comes into effect 7.30pm Budget night, but will extend until June 30, 2024. Again, immediate relief is not forthcoming – expenditure incurred before 30 June 2022 has to be claimed in next year’s tax return.
The sting in the tail? Neither of these measures have yet been legislated and the next sitting of Parliament isn’t until August- well after the election and well into the next financial year. So, although the measures were announced to apply from Budget night, it would be a brave business who chooses to take advantage of them in the remainder of the current financial year. Although Labor has indicated that it will support the small business measures, there’s still a degree of uncertainty which means it might be better to wait until the law is finally passed.
For individuals (which includes all small business owners!), the centrepiece was the increase in the low and middle income tax offset, 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, via a tax professional like H&R Block, for 2021-22 – so funds should start to flow to taxpayers from 1 July 2022.
If your taxable income is up to $126,000, you will get some or all of the expanded low and middle income tax 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 $1500 less tax (the maximum). Earn more than $90,000, and the offset gradually phases out, disappearing after $126,000. So, if you earn $126,000, you will pay $420 less tax but 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 low and middle income tax offset disappears completely – meaning that 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 1 July 2024).
Other than the changes to the low and middle income tax offset, the Government did not announce any personal tax rates changes in the Budget.
Finally, the Government announced a reduction in the excise duty rate that applies to petrol and diesel by 50%, for 6 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 that no further oil price shocks occur in the meantime to eat away at that cut!
Mark Chapman is director of tax communications at H&R Block.