On 29 March 2022, the government handed down its 2022 Budget – its last before the federal election is expected to be called. While the Treasurer forecast an improving underlying cash balance of $103.6bn over 5 years to 2025-26, a record deficit of $79.8bn is still expected for 2021-22. The government has also predicted net debt will increase from $714.9bn in 2022-23 to $864.7bn in 2025-26. Since it is essentially an election budget, the government has attempted to quell perceived unrest in voters by providing cost of living support.
With all the media coverage of the 2022 budget, you will no doubt have heard about the “cash splash” spending spree that the government has gone on to win votes in the upcoming federal election. But what’s really there for individual taxpayers to combat the cost-of-living increases caused by inflation? Our accountants in Melbourne have broken it down for you below.
Firstly, the $420 for individuals to help with the cost of living is not actually a cash payment. Rather, it is an increase in the low- and middle-income tax offset (LMITO) for the 2021-22 income year only. For eligible individuals who lodge their tax returns, the maximum LMITO they can receive for the 2021-22 year is $1,500 (up from the current rate of $1,080).
For taxpayers with a taxable income up to $37,000, the LMITO for the 2021-22 year will be $675 after the increase. Those with a taxable income of between $37,001 and $90,000 will receive a LMITO of between $675 and the maximum rate of $1,500. Taxpayers with a taxable income above $90,000 will have the LMITO reduced by 3 cents for every dollar they earn above that amount. Those who earn more than $126,000 will not be entitled to the increase in LMITO in line with the current rules.
Secondly, what was not announced in the budget is perhaps more important than what was announced. The government declined to announce the extension of the LMITO beyond the current legislated lifespan of the 2021-22 income year. This means that for the 2022-23 income year, those who earn below $126,000 will actually see their share of tax go up.
While the low-income tax offset (LITO) will continue to apply through to the 2022-23 income years, it will be at a lower rate than the LMITO, and individuals who were eligible for both offsets may be in for a tax shock in the 2022-23 income year. For example, an individual who has a taxable income of $37,000 and is eligible for both LMITO and LITO would be entitled to a maximum offset of $1,375 for the 2021-22 income year, but will only be entitled to the maximum LITO offset in the 2022-23 income year. To understand this in greater depth, it’s recommended you seek guidance from a tax accountant in Melbourne.
To recap, the maximum LITO rate is $700 for those individuals who have a taxable income of up to $37,500. It is then reduced by 5 cents for every dollar earned above $37,500 up to $45,000. At $45,000 the maximum LITO will be $325. It will then reduce by 1.5 cents for every dollar above that until $66,667 is reached. Those who earn $66,668 and above are not entitled to the LITO.
Finally, for those who are not working and are on an eligible welfare payment, the government announced in the budget a small $250 one-off payment in April 2022 to help with the cost of living. The payment will be tax-exempt and will be available to those on the age pension, disability support pension, parenting payment, carer payment/allowance, youth allowance, Austudy/Abstudy and Jobseeker, to name a few. It will also be available to pensioner concession card holders and Commonwealth senior health card holders.
If you would like to find out more about how the 2022 budget will affect you or your family, Alexander Bright can provide a detailed analysis based on your individual circumstances. The budget also contained sweeteners for small businesses and other superannuation measures which may be of interest. Contact our individual and business accountants in Melbourne today to find out more.
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