Federal Budget March 2022: What it means for financial services professionals

The Federal Treasurer, the Hon. Josh Frydenberg MP, delivered the 2022 Federal Budget on 29 March 2022.

As anticipated, the Budget included measures to reduce the cost of fuel, a first home buyer measure and a $250 cash payment for certain social security payment recipients.

There were few measures affecting the provision of financial advice.  An increase in the low and middle income tax offset and a further extension of the 50 per cent reduction in the superannuation pension minimum payment requirement are the notable announcements.

Other measures include further Aged Care funding, an enhanced paid parental leave program and greater veterans affairs support.

Highlights

Individuals and trusts:

• Cost of living tax offset
• Medicare levy low-income thresholds
• Digitalising trust income reporting and processing
• Employee Share Schemes – expanding access and further reducing red tape
• Extension of ATO Tax Avoidance Taskforce on multinationals, large corporates and high wealth individuals
• Paid parental leave

Business:

• Small Business – skills and training boost
• Modernisation of pay as you go (PAYG) instalment systems
• Small Business – technology investment boost

Superannuation:

• Extension of the temporary reduction in superannuation minimum drawdown rates

Aged care:

• Further implementation of government response to the Royal Commission into Aged Care Quality and Safety
• COVID-19 Response Package – ageing and aged care

Social security:

• Cost of Living Payment
• Support for Veterans and their Wellbeing
• Pharmaceutical Benefits Scheme – lowering the Safety Net threshold

Other:

• Affordable Housing and Home Ownership
• Building the Long-Term Viability of the Financial Counselling Sector
• Philanthropy – updates to specifically listed deductible gift recipients
• Addressing Cost of Living Pressures – temporary reduction in fuel excise

This summary provides coverage of the key issues of most interest to financial services professionals.

Individuals and trusts

Cost of living tax offset

The Government will increase the low and middle income tax offset (LMITO) for the 2021-22 income year. LMITO is targeted at low- and middle-income earners that are most susceptible to cost of living pressures. The Government is responding in a temporary, targeted and responsible way to reduce cost of living pressures experienced by Australian households.

The LMITO for the 2021-22 income year will be paid from 1 July 2022 when Australians submit their tax returns for the 2021-22 income year. This proposal will increase the LMITO by $420 for the 2021-22 income year. This increases the maximum LMITO benefit in 2021-22 to $1,500 for individuals and $3,000 for couples.

Other than those that do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. 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.

This measure builds on the 2021-22 Budget measure titled Retaining the low and middle income tax offset for the 2021-22 income year.

Medicare levy low-income thresholds

The Government will increase the Medicare levy low-income thresholds for seniors and pensioners, families and singles from 1 July 2021. The increase in thresholds takes account of recent movements in the consumer price index so that low-income individuals continue to be exempt from paying the Medicare levy.

The threshold for singles will be increased from $23,226 to $23,365. The family threshold will be increased from $39,167 to $39,402. For single seniors and pensioners, the threshold will be increased from $36,705 to $36,925. The family threshold for seniors and pensioners will be increased from $51,094 to $51,401. For each dependent child or student, the family income thresholds will increase by a further $3,619 instead of the previous amount of $3,597.

Digitalising trust income reporting and processing

The Government will digitalise trust and beneficiary income reporting and processing, by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes.

The measure will commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.

Employee Share Schemes – expanding access and further reducing red tape

The Government will expand access to employee share schemes and further reduce red tape so that employees at all levels can directly share in the business growth they help to generate.

Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:

• $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70 per cent of dividends and cash bonuses; or
• any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.

The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.

Tax Integrity – extension of the Australian Taxation Office (ATO) Tax Avoidance Taskforce on multinationals, large corporates and high wealth individuals

The Government will provide $325.0 million in 2023-24 and $327.6 million in 2024-25 to the ATO to extend the operation of the Tax Avoidance Taskforce by 2 years to 30 June 2025.

The Taskforce was established in 2016 to undertake compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. It also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.

The ATO’s total resourcing requirement, including for the delivery of the extension of the Tax Avoidance Taskforce, will be settled as part of the independent review of the ATO’s ongoing resourcing requirement announced as part of the 2021-22MYEFO measure titled Australian Taxation Office – continuation of compliance programs and independent resourcing review.

Paid parental leave

The Government is investing $346.1 million over five years from 2021-22 to introduce Enhanced Paid Parental Leave (PPL), which is fairer and provides full flexibility for eligible working families. These changes will provide increased choice for families to decide how best to manage work and care. Eligibility for the scheme is also being expanded. Changes to PPL, to be introduced no later than 1 March 2023 following stakeholder consultations, will increase eligibility for working parents, which will further help families with raising children and with cost of living pressures. These changes will benefit the roughly 260,000 parents who access PPL annually, with an additional 2,200 families gaining access who were previously not eligible.

Business

Small Business – skills and training boost

The Government is introducing a skills and training boost to support small businesses to train and upskill their employees. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.

Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

Modernisation of pay as you go (PAYG) instalment systems

The Government will enable companies to choose to have their pay as you go (PAYG) instalments calculated based on current financial performance, extracted from business accounting software, with some tax adjustments. This will support business cash flow by ensuring instalments reflect current performance.

The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications of this measure.

Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.

This measure will improve alignment between PAYG instalment liabilities and profitability, and support companies in managing cash flows.

Small Business Support Package 

The Government will provide $25.2 million over 3 years from 2021-22 to deliver initiatives to support small businesses. Funding includes:

• $10.4 million over 2 years from 2022-23 to enhance and redesign the Payment Times Reporting Portal and Register to improve efficiency and reporting
• $8.0 million in 2022-23 to the Australian Small Business and Family Enterprise Ombudsman to work with service providers to enhance small business financial capability
• $4.6 million over 2 years from 2021-22 to support the New Access for Small Business Owners program delivered by Beyond Blue to continue to provide free, accessible, and tailored mental health support to small business owners
• $2.1 million over 2 years from 2021-22 to extend the Small Business Debt Helpline program operated by Financial Counselling Australia to continue to provide financial counselling to small businesses facing financial issues.

Further information can be found in the media release of 13 January 2022 issued by the Acting Minister for Employment, Workforce, Skills, Small and Family Business.

Small Business – technology investment boost

The Government is introducing a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023.

Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.

An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.

Superannuation

Supporting Retirees – extension of the temporary reduction in superannuation minimum drawdown rates

The Government has extended the 50 per cent reduction of the superannuation minimum drawdown requirements for account based pensions and similar products for a further year to 30 June 2023.

The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions. Given ongoing volatility, this change will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.

Aged care

Further implementation of government response to the Royal Commission into Aged Care Quality and Safety

The Government will provide funds to continue ongoing reforms announced in the 2021-22 Budget in response to the Royal Commission into Aged Care Quality and Safety, and to improve transparency and regulatory standards. The funding will be focused on the following pillars:

• Pillar 1: Home Care continuing consultation on the design of the wider aged care reforms, including a new regulatory framework for the Support at Home Program.
• Pillar 2: Residential Aged Care Services and Sustainability to complete implementation of the Australian National Aged Care Classification (AN-ACC) and support the transition of facilities to a new funding model.
• Pillar 3: Residential Aged Care Quality and Safety to improve the administration of medication management for residential aged care residents, to establish a fund and invite states and territories to put forward proposals to trial new models of multidisciplinary outreach care for residents in residential aged care facilities, and to extend arrangements for the third party Quality Assessor surge workforce to conduct residential aged care site audits.
• Pillar 4: Workforce to provide additional clinical placements for students in the care and support sectors and to expand the Rural Health Multidisciplinary Training program , to implement the next stage of regulatory reforms across the aged, disability and veterans’ care sectors through the Cross Agency Taskforce on Regulatory Alignment, and to support co-operatives and other collaborative business models access the aged, disability and veterans’ care sectors.
• Pillar 5: Governance to extend the aged care system regional stewardship outreach model for a further 6 months to 31 December 2022.

Further information can be found in the joint media release of 28 February 2022, issued by the Minister for Health and Aged Care and the Minister for Senior Australians and Aged Care Services.

COVID-19 Response Package – ageing and aged care

The Government will provide additional funds to support older Australians in the aged care sector with managing the impacts of the COVID-19 pandemic. Funding includes:

• bonuses of up to $800 to aged care workers in residential aged care and home care
• extending and expanding funding for the Aged Care Preparedness program
• improving the capability and capacity of the residential aged care workforce to deliver vaccination services to residents and staff,
• Infection Prevention and Control training for qualified nurses
• Extending in-reach screening for COVID-19 and the commissioned home visits initiative.

This measure will also expand eligibility for the Aged Care Surge Workforce program and the Aged Care Support Program Extension Grant under the Aged Care Preparedness program in response to the recent floods crisis to include aged care providers directly impacted by floods.

Further information can be found in the joint media release of 11 March 2022 issued by the Minister for Health and Aged Care and the joint media release of 1 February 2022 issued by the Minister for Health and Aged Care and the Minister for Senior Australians and Aged Care Services.

Social security

Cost of Living Payment

The Government will provide $1.5 billion in 2021-22 to provide a $250 economic support payment to help eligible recipients with higher cost of living pressures. The payment will be made in April 2022 to 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.

The 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 2 or more of the categories outlined above. The payment will only be available to Australian residents.

Support for Veterans and their Wellbeing

The Government will provide $165.0 million over 4 years from 2022-23 to support veterans and improve wellbeing support services for veterans and their families. Funding includes:

• $36.8 million over 4 years from 2022-23 for the Family Support Package to increase the eligibility age for military widowed partners from 60 to 65 to align with the age limit of veterans and to increase the value of services offered, including counselling and childcare support. Prior to 1 July 2022, widowed partners eligible for the current Family Support Package program will also be able to use unspent funds from Home Help services for child care support services
• $22.0 million over 4 years from 2022-23 to extend the Psychiatric Assistance Dog Program on a permanent basis, and extend support to veterans who had privately sourced their assistance dogs but would otherwise be eligible for the program
• $20.0 million over 2 years from 2021-22 to fund innovative community-level projects through the Veteran Wellbeing Grants Program
• $13.7 million over 3 years from 2022-23 to the Australian Kookaburra Kids Foundation to support children of current and former Australian Defence Force members who have been affected by mental illness
• $9.0 million over 3 years from 2022-23 for Invictus Australia to support attendance at the Invictus Games and the Warrior Games, and engage veterans in sport and community sports clubs
• $7.1 million in 2022-23 to extend the pilot program where incapacity payments to eligible former members of the Australian Defence Force completing studies as part of a return to work rehabilitation plan, are maintained at 100 per cent of their normal earnings for the duration of their period of study
• $2.5 million over 2 years from 2021-22 to the Tasmanian Veteran Wellbeing Centre to boost veterans’ access to local services, including health services, mental health support, community organisations, advocacy, and wellbeing support
• $2.1 million over 3 years from 2022-23 for financial counselling services through the Bravery Trust to current and former Australian Defence Force members experiencing financial difficulties. The cost of this element will be met from within the existing resources of the Department of Defence.

This measure builds on the 2021-22 Budget measures titled Expanding Support for Veterans and their Families and Wellbeing and Support Funding.

Pharmaceutical Benefits Scheme – lowering the Safety Net threshold

The Government will provide $525.3 million over 4 years from 2022-23 to reduce the Pharmaceutical Benefits Scheme (PBS) Safety Net thresholds. As a result of this measure, patients will reach the Safety Net sooner each year, with approximately 12 fewer scripts for concessional patients and 2 fewer scripts for general patients in a calendar year. On reaching the PBS Safety Net, concessional patients receive their PBS medicines at no cost for the rest of the calendar year and general patients receive their PBS medicines at the concessional co-payment rate which is currently $6.80 per prescription. This measure supports individuals and families who have a high demand for prescription medicines due to their health needs. It is estimated that around 2.4 million Australians will benefit from this change. The change to the Safety Net thresholds will take effect from 1 July 2022.

Other

Affordable Housing and Home Ownership

The Government will increase the number of guarantees under the Home Guarantee Scheme to 50,000 per year for 3 years from 2022-23 and then 35,000 a year ongoing to support homebuyers to purchase a home with a lower deposit. The guarantees will be allocated to provide:

• 35,000 guarantees per year ongoing for the First Home Guarantee (formerly the First Home Loan Deposit Scheme)
• 5,000 places per year to 30 June 2025 for the Family Home Guarantee
• 10,000 places per year to 30 June 2025 for a new Regional Home Guarantee that will support eligible citizens and permanent residents who have not owned a home for 5 years to purchase a new home in a regional location with a minimum 5 per cent deposit.

This will come at a cost of $8.6 million over 4 years from 2022-23 and $138.7 million over 7 years from 2026-27, with $20.5 million per year ongoing from 2033-34.

The Government will also increase the Government guaranteed liability cap of the National Housing and Finance Investment Corporation (NHFIC) by $2.0 billion to $5.5 billion to enable NHFIC to support increased loans through the Affordable Housing Aggregator, which increases support for affordable housing.

This measure builds on the 2021-22 MYEFO measure titled Supporting the Delivery of More Affordable Housing and the 2021-22 Budget measure titled Housing Package.

Building the Long-Term Viability of the Financial Counselling Sector

The Government will provide $10.5 million over 4 years from 2021-22 to develop a voluntary industry funding model which will help meet the shortfall in general financial counselling services, including $1.5 million in seed funding to establish a new not-for-profit body to implement the scheme. The measure will also fund a range of initiatives to support the financial counselling sector, including improving data capture in the financial counselling sector to better understand drivers and demand for financial services, supporting a virtual placement model for financial counselling students, and expanding the online chat and booking functionality of the National Debt Helpline.

Philanthropy – updates to specifically listed deductible gift recipients

The Government will amend the tax law to specifically list the following organisations as deductible gift recipients (DGRs) for donations made within the specified dates:

• Melbourne Business School Ltd from 1 July 2022
• Advance Global Australians Ltd from 1 July 2022 to 30 June 2027
• Leaders Institute South Australia Inc from 1 July 2022 to 30 June 2027
• St Patrick’s Cathedral Melbourne Restoration Fund from 1 July 2022 to 30 June 2027
• Up to 28 entities related to community foundations affiliated with the peak body Community Foundations Australia from 1 July 2022 to 30 June 2027.

The Government will also extend the listing of Sydney Chevra Kadisha as a DGR for 2 years from 1 July 2022 to 30 June 2024.

Advance Global Australians Ltd will not be listed until it is registered with the Australian Charities and Not-for-profits Commission.

Community foundation-related entities will not be listed unless their governing rules do not permit a use of funds beyond that permitted for entities endorsed under the DGR categories in the tax law. Entities will also need to demonstrate that they will maintain minimum annual distributions, consistent with the current requirements for ancillary funds.

The specific listing of Mt Eliza Graduate School of Business and Government Ltd will be removed at the request of the organisation.

Taxpayers may claim an income tax deduction for donations of $2 or more to DGRs.

Addressing Cost of Living Pressures – temporary reduction in fuel excise

Global oil prices have risen significantly since the Russian invasion of Ukraine. The Government will help reduce the burden of higher fuel prices at home by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel for 6 months. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50 per cent for 6 months. The Government is responding in a temporary, targeted and responsible way to reduce cost of living pressures experienced by Australian households and small businesses.

The measure will commence from 12.01am on 30 March 2022 and will remain in place for 6 months, ending at 11.59pm on 28 September 2022. Under the measure, existing policy settings for fuel excise and excise-equivalent customs duty, including indexation in August, will continue but on the basis of the halved rates. At the conclusion of the 6 month period the excise and excise-equivalent customs duty rates will then revert to previous rates, including indexation that would have occurred on those rates during the 6 month period.

The rate of excise and excise-equivalent customs duty currently applying to petrol and diesel is 44.2 cents per litre. This measure will halve the rate on petrol and diesel to 22.1 cents per litre from 30 March 2022, with the price faced by consumers expected to be reduced by a larger magnitude given GST will be levied on the lower excise rate.

The Australian Competition and Consumer Commission will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on to Australians.

This targeted measure to provide temporary relief from fuel price pressures will be legislated to end on 28 September 2022.