Now that the dust has settled on last week’s Federal Budget announcements, we’re able to take a clearer look at how the measures on offer will benefit small businesses in Australia. While tax cuts and technology investment boosts will help, they won’t be a long term fix, writes Mark Chapman, Director of Tax Communications at H&R Block.
The Treasurer, Mr Josh Frydenberg, handed down the Federal Budget for 2022-23 last Tuesday night.
In an election year, the focus of Budget was inevitably on pleasing the electorate, with large amounts spent on lower and middle income earners, pensioners and welfare recipients and a 50 per cent reduction in fuel duty, all geared towards capturing the votes of ‘Middle Australia’.
What’s in the federal budget for your small business
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.
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.
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, 29 March 2022 and 30 June 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 (i.e. the return to 30 June 2023).
Skills and Training Boost
In addition, there will be a similar tax break for small business 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.
Expanded low and middle income tax offset
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 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 $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 $126,000, 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.
Fuel excise duty cut
Finally, the Government announced a reduction in the excise duty rate that applies to petrol and diesel by 50 per cent, 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 that no further oil price shocks occur in the meantime to eat away at that cut!
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Now read this:
Making the most of the digital tech tax break for business: Budget 2022