Support for individuals and families faced with cost of living pressures was a centrepiece of the 2022-23 Federal Budget. Following much speculation, this Budget saw both a tax cut for low and middle income earners (by way of an increase in tax offsets), and a cash payment to social security recipients and concession card holders.
Personal income tax rates and thresholds
Although the Government did not announce any change to personal income tax rates or thresholds, it has announced an increase in the amount of the low and middle income tax offset (LMITO) and a one-off economic support payment to eligible social security recipients and concession card holders to ease the cost of living pressures.
The LMITO will be increased by $420 for the current tax year ended 30 June 2022 as a one-off cost of living tax offset. At an increased rate, the LMITO benefit will reap tax savings of up to $1,500 (see Table below) for over 10 million eligible individuals after they lodge their 2022 income tax return.
In spite of varied speculation in recent months, the Government has not extended the LMITO beyond this current income year.
Table 1: Combined tax relief for Australian tax residents
| Taxable Income ($) | Tax relief for the tax year ended 30 June 2022 ($) |
|---|---|
| 37,000 or less | Up to 675 |
| 37,001 to 48,000 | 675 to 1,500 |
| 48,001 to 90,000 | 1,500 |
| 90,001 to 126,000Â | 420 to 1,500Â |
| Over 126,000 | Nil |
For eligible pensioners, welfare recipients, veterans and eligible concession card holders, the Government has also announced a one-off income tax-exempt payment of $250 to be made in April 2022.
For completeness, we highlight in the table below the current personal income tax rates and thresholds that will remain unchanged until the commencement of the currently legislated Stage 3 of the Personal Income Tax Plan applicable from 1 July 2024.
Table 2: Income tax rates for Australian tax residents
| Â | Thresholds for tax years ended 30 June 2022 to 30 June 2024 | Thresholds from 1 July 2024 |
|---|---|---|
Rate (%) |
Income range ($) | Income range ($)Â |
| Tax free | 0 - 18,200 | 0 - 18,200 |
| 19 | 18,201 - 45,000 | 18,201 - 45,000 |
| 30 | N/A | 45,001 - 200,000 |
| 32.5 | 45,001 - 120,000 | N/A |
| 37 | 120,001 - 180,000 | N/A |
| 45 | > 180,000 | > 200,000 |
Medicare levy low-income thresholds
The Medicare levy low-income thresholds for singles, families, seniors and pensioners will increase for the 2021-22 income tax year as follows:
- Individuals $23,365 (increased from $23,226)
- Families $39,402 (increased from $39,167), with an additional $3,619 for each dependent child or student (increased from $3,597)
- Single seniors and pensioners $36,925 (increased from $36,705), and
- The family threshold for seniors and pensioners will be increased to $51,401 (increased from $51,094) plus $3,619 for each dependent child or student (increased from $3,597).
Enhanced childcare support
In last year’s Federal Budget, the Government announced that it would increase the Child Care Subsidy (CCS) available to families with more than one child aged five years and under in care, by 30 per cent to a maximum subsidy of 95 per cent of fees paid for their second and subsequent children. This increase was scheduled to commence from 1 July 2022, but in an announcement before this current Budget, the start date was brought forward by almost four months to apply from 7 March 2022. This follows on from the recent removal of the CSS annual cap of $10,560 per child per year for families earning over $190,015 (in 2021-22 terms) with effect from 10 December 2021.
Relief from the ongoing financial pressures of child care goes some way to support parents to return to the workforce or increase their hours, but as noted in PwC’s pre-Budget submission to the Government, more can be done in this space such as exempting from fringe benefits tax the provision of all childcare in any childcare facility.
Expanded home guarantee scheme
In the lead up to the Federal Budget, the Government announced that the Home Guarantee Scheme would be expanded with an additional number of guarantees and a new Regional Home Guarantee. Under the scheme, part of an eligible buyer’s home loan is guaranteed by the Government to enable a home to be purchased with a smaller deposit and without the requirement for lenders mortgage insurance.
The expanded Home Guarantee Scheme will include:
- From 1 July 2022, 35,000 guarantees each year (increased from 10,000) under the First Home Guarantee supporting eligible first homebuyers
- From 1 October 2022 to 30 June 2025, 10,000 guarantees under the Regional Home Guarantee supporting eligible home buyers to purchase or construct a new home in regional areas, and
- From 1 July 2022 to 30 June 2025, 5,000 guarantees under the Family Home Guarantee supporting eligible single parents with children to purchase a home.
Superannuation
Unsurprisingly, there were few changes announced to superannuation in this year’s Federal Budget. This follows a raft of enhancements announced in the 2021-22 Federal Budget, most of which have now been enacted, and largely take effect from 1 July 2022. For a summary of the status of last year’s Budget measures, refer to our recent Superannuation Update.
Support for retirees
The Federal Government has extended the temporary support that it has been providing to retirees in recent years by reducing superannuation minimum drawdown requirements for account-based pensions and similar products by 50 per cent for the 2022-23 income year.
This concession will support retirees’ retirement investments by ensuring they do not have to sell investment assets to fund the otherwise higher minimum drawdown requirements.
Amendments to non-arm’s length income provisions for super funds
In a pre-Budget announcement, the Government has indicated it will consult with industry regarding legislative changes to the non-arm’s length expense provisions for superannuation funds to ensure they operate as envisaged.
The non-arm’s length income provisions for superannuation funds were originally designed to prevent superannuation funds entering into non-arm’s length dealings to artificially increase concessionally taxed income. The provisions deter such activity by taxing all fund income at the top marginal tax rate.
In 2019, the provisions were expanded to also capture:
- dealings in relation to non-arm’s length expenses which decrease allowable deductions and thereby artificially increase concessionally taxed income
- non-arm’s length dealings intended to increase fund assets to circumvent the superannuation contributions caps, and
- the earnings of artificially increased assets from non-arm’s length dealings.
For example, these amendments target the purchase of a rental property at less than market value by taxing a part of the market value rent at the top marginal tax rate. However, the rules could also apply to the non arm’s length immaterial purchase of investment reporting software, with the outcome that a part of all investment income could be taxed at the top marginal tax rate.
The expansion of these rules, confirmed by the Australian Taxation Office’s interpretation in Law Companion Guideline LCR 2021/2, has led to concerns amongst industry stakeholders that the rules have unintended scope and disproportionate consequences. As such, the proposal to consult on amendments to the non-arm’s length income/expense rules will be welcomed by both APRA-regulated funds and self-managed superannuation funds (SMSFs), both of which are impacted by these provisions. Any legislative changes are expected to apply from 1 July 2022.