Focus on cost of living provides some short term personal tax relief

BudgetTax

30 March 2022

Josh Frydenberg delivered the election year Federal Budget 2022-23 on 29 March 2022. Whilst no new general tax cuts were announced, he did announce significant one-off tax offsets or payments to low and middle income earners, pensioners, and welfare recipients with a stated aim of addressing “cost of living pressures”.

Perhaps the highlight of the Budget announcements on a personal tax front was the Government’s announcement that it will extend the Low and Middle Tax Offset (LMITO) for a further year and enhance it for all those eligible with a one-off $420 “cost of living tax offset”.

The LMITO is available to resident individuals with annual income not exceeding $126,000. For the 2021/22 income year, eligible LMITO recipients will receive up to $1,500 for a single household or up to $3,000 for dual income household. The government says that around ten million low and middle income earners will receive the benefit of the one-off $420 cost of living tax offset through this measure at a projected tax receipt cost to the country of $4.1 billion.

Various eligible pensioners, welfare recipients, veterans and concession card holders will also receive a one-off tax exempt payment of $250. It will be automatically paid in April 2022, at a cost to the country of $1.5 billion.

The general individual personal tax rates for 2022/23 will remain unchanged from 2021/22 and for residents will be as follows:

Taxable Income ($)

Tax Payable ($) (excluding Medicare Levy)

0 - 18,200
NIL
18,201 - 45,000
NIL + 19% of excess of 18,200
45,001 - 120,000
5,092 + 32.5% of excess over 45,000
120,001 - 180,000
29,467 + 37% of excess over 120,000
180,000 +
51,667 + 45% of excess over 180,000

However, the better news for other individual Australian taxpayers is that previously legislated Stage 3 tax changes are still set to commence from 1 July 2024. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one large tax bracket between $45,000 and $200,000. The 37% tax bracket will then be entirely abolished.

Higher income earners will benefit most from these future slated tax cuts. For instance, from 1 July 2024, an individual earning $100,000 will pay $1,375 less tax. An individual earning $200,000 will pay $9,075 less tax.

There were also a few other tax-related measures announced in the Budget that may make some positive difference to the budgeting or saving plans of Australian households. These include:

  • The Government will reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel for six months by 50% effective from Budget night. The Government says this will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents. The Treasurer stated a family with two cars who fill up once a week would save around $40 a week or $700 over the next six months.

  • Some minor increases in the Medicare Levy low income thresholds for the 2021/22 income year.

  • The temporary 50% reduction in the minimum payment amounts for superannuation pensions and annuities extended by a further year to 2023, which is relevant to self-funded retirees.

Check out the full coveragefrom the Federal Budget 2022-23, which will continue to develop throughout the week as new insights and video content are published.

Author: Alex Duonis

Alex joined Findex in 2007 to provide a comprehensive range of tax consulting services to clients and internally within Findex. During this time he has advised a mix of clients ranging from SME business operators, ASX listed entities, high net worth individuals, government bodies, and charities.