Australia’s October Federal Budget 2022-23

Australia’s October Federal Budget 2022-23

An updated budget for the FY2022-23 was handed down by the treasurer, Dr. Jim Chalmers on the evening of 25 October 2022.

What to look forward to?

No changes in tax and superannuation will affect small and medium-sized business entities. However, annual inflation has climbed to a high level causing rising interest rates and labour costs. Electricity prices are set to increase by 56 percent over the next 18 months and gas prices by 44 percent according to the budget.

For individuals’ cost of living, there are changes reducing the cost of childcare and education.

For over 4 years from 2022-23, the government is investing $4.7 billion to fund early childhood education and care to make it more affordable for families.

From July 2023, Child Care Subsidy rates will increase from 85% to 90% for eligible families earning less than $530,000. Families will continue to receive the usual subsidy rates of up to 95% for any additional children in care aged 5 and under.

Greater access to paid parental leave by increasing the current 20 weeks to 26 weeks of leave by July 2026.  This has a ‘use it or lose it’ portion reserved for each parent and eligibility has expanded to include families with up to $350,000 income. This will encourage both parents to take parental leave. The modifications also improve flexibility among parents to take leave in between daily work schedules. It will provide parents with more time to spend with their children and share equal caring responsibilities.

The Government will allow more people to make downsizer contributions to their superannuation by dropping the age from 60 down to 55 years of age. This measure will have an effect from the start of the first quarter after the Royal Assent. The downsizer contribution will have people make a one-off contribution of up to $300,000 per person from the proceeds of selling their home. Each of the couples can contribute and the contributions do not count towards non-concessional contribution caps.

Based on the negative economic expectations discussed by the Government after releasing its Budget, it appears highly likely that significant tax increases will occur in 2023 or future Budgets.

The ATO has released draft Tax Rulings based on S100A of the Tax Act that restrict Trusts from making distributions to adult children or family members unless the cash amount of the distribution is paid to the beneficiary.

You may be restricted in the amounts your Family Trust can allocate to adult children or parents when compared with prior years.

Prior to 30 June, accountants will have to assist all Trustees with the following:

  1.      Reconsider the default beneficiaries in a Trust.
  2.      Consider the purpose recited in a Trust.
  3.      Consider the terms of a Trustee exercising their discretion.

Additionally, the government will likely rely on increased ATO audits and reviews to boost tax revenue.

New ATO Ruling Affects “Professionals” and Profit Allocations.

A new ATO guidance (PCG 2021/4) totally changes the way that professional firm profits can be allocated (or split) among a family group from 1 July 2022 onwards. As a result, most professionals will end up paying larger amounts of tax from the 2023 financial year onwards.

The ATO anticipates a professional and their family group to pay tax at a combined average rate of 35% or higher to stay in what they call the “Green Zone” and not be audited.

More Tax to Pay in 2023.

Businesses need to plan for higher tax payments from 2023 onwards. The ATO requires business owners to document annually their assessment of their profit allocations along with PCG 2021/4.

We believe it is ESSENTIAL for business owners to plan for the next 18 months by preparing monthly Profit and Cash flow Forecasts. We can help you with this essential work. Let us know.