Every year around tax time, things can change, the government may choose to implement new schemes, cuts or hikes in your tax, and it can be difficult to keep track of what will happen.
At TaxReturn.com.au, we want to help you understand exactly what has changed for the 2022/23 tax year and have put together this handy guide to tell you the key things you need to know when it comes to tax.
What Types of Tax Are there?
The Australian Federal Government imposes taxes for most goods and services that the people avail of in the country. The agency that takes care of the taxation process is the Australian Taxation Office (ATO). As the primary revenue collector, some reports state that the ATO gathers 92% of the entire revenue of the Government.
Some of the taxes in Australia are charged from individuals, tax professionals, and businesses in the form of:
- Corporate taxes
- Tax on inheritance
- Goods and services
- Excise tax
Out of all the types mentioned above, the most important is the income tax. It is the primary source of revenue for different government activities in the country. Citizens pay the income tax, specifically those who are categorised under the “taxable group” of people.
A little bit of background here: did you know that the birth of income tax was in 1880 in Tasmania? At that time, residents of Tasmania had to pay for the taxes. The Australian Government was not in good shape, so income taxes were imposed on people in the southern regions of the country.
Many years later, income tax was levied on everyone residing all around Australia starting from 1915. Income tax included family tax benefit, personal income tax, capital gains tax, and low-income tax offset are some of the different categories involved.
To be clear, the ATO collects income tax every financial year, from 1 July to 30 June the following year. For the 2022/23 fiscal year, tax lodgement begins on 1 July 2022 and ends on 30 June 2023.
Tax Brackets and Rate of Tax for 2022/23
Here are the updated tax rates for 2022/23. Note that the following rates do not include the 2% Medicare levy.
|Tax Brackets||Tax Rates|
|$18,000 or below||No taxes|
|$18,201 to $45,000||19c for every $1 over $18,200|
|$45,001 to $120,000||$5,5092 + 32.5% for every $1 over $45,000|
|$120,001 to $180,000||$29,467 + 37% for every $1 over $120,000|
|$180,001 or more||$51,667 + 45% for every $1 over $180,000|
If you have been paying attention, the 2022/23 tax rates are the same as the previous 2021/22 fiscal year. Australian residents with incomes in the first bracket (18,200 and lower) will remain tax-free until the next 2024/25 fiscal year.
The tax rate changes are a part of the Morrison government’s tax plan. The said plan has three stages, and we are currently in the second stage, which began in 2020. Among the significant stage-two changes included the extension of the Low and Middle Income Tax Offset (LMITO) for another two years. In this stage, the 32.5% marginal bracket was raised from $37,001-$90,000 to $45,001-$120,000. Therefore, it resulted in raising the 37% tax rate from $90,000 to $120,000. The previous low-income tax offset was also increased to accommodate residents with incomes less than $45,000.
By the time we reach stage three, the 37% marginal tax bracket will be removed completely. It will also lead to lowering the 32.5% tax rate to 30%. We will see this change and more in the next financial year.
What Are the Main Tax Changes for 2022/23?
The March 2022/23 Budget previously extended and raised the Low and Middle Income Tax Offset (LMITO) from $1,080 to $1,500 for the fiscal year 2021/22. However, the LMITO will no longer be in effect soon. That means individuals qualified for this scheme will effectively face a tax increase by the end of the financial year. The good news is that a portion of the tax may still be offset by the cost-of-living measures to some extent.
On the other hand, the Low-Income Tax Offset (LITO), which applies to low-income earners (up to $66,668), will still get an offset of up to $700.
It was announced that starting the 2018/2019 income year, singles, pensioners, families, and seniors in the low-income thresholds would stay exempted from paying Medicare.
To know your Medicare levy, use this online calculator.
For 2022/23, low-income and other partial or full Medicare exemptions are available. It should be noted that a Medicare Levy Surcharge may also be applied on a progressive basis. That is if citizens do not maintain their private health insurance coverage.
But what is a Medicare Levy Surcharge (MLS)? It is a type of federal government tax collected to pay for public healthcare. Everyone benefits from Medicare, which allows even those who cannot afford to obtain services from hospitals and medical professionals. However, Medical Levy Surcharge only applies to Australians taking out private companies’ health insurance.
Almost all people with a full-time job are required to pay the Medicare Levy, which is at two per cent. As stated above, the exception is for those who do not meet the income threshold. People whose income is more than $90,000 and $180,000 for singles and couples, respectively, will have to pay the Medicare Levy Surcharge. However, they should not have any private health insurance.
Thin capitalisation rules put a strict limit on the interest deductions that multinationals can claim with reference to the “maximum allowable debt.” At the current time, Australia has three methods for working out the maximum allowable debt for the mentioned entities. Out of the three, the most common involves the “safe harbour debt amount.” In this method, an entity is allowed to gear up to 60% of the total book value of a business’ assets. This can be simplified by a debt-to-equity ratio of 1:5:1.
The Labor Government has proposed replacing the current safe harbour debt amount. Although no significant changes to thin capitalisation rules have been imposed, taxpayers may want to keep an eye on this subject. The measure will most likely take effect to financial years on or after 1 July 2023. The amendments, however, are expected to immediately affect highly-leveraged sectors, including real estate, infrastructure, private equity, and construction.
The Tax Office shows its intent to ensure taxes are correctly lodged. New policies governing the risk assessment and tax profit treatment will take effect starting 1 July 2022. The released policy documents outline a methodology for professional service firms on how and when it is best for risk assessments. These documents include PCG 2021/4 pertaining to the allocation of professional firm profits, as well as TA 2013/3 for the purported alienation of income through discretionary trust partners.
The Government previously expressed interest in expanding eligibility, specifically for downsizer contributions. It pertains to making a one-off post-tax contribution to superannuation of up to $300,000 per individual. This contribution comes from the proceeds of selling their residential home.
A proposal was put forward during the 2022/23 Federal Budget to reduce the minimum eligibility age to 55, which is currently at 60. Ahead of this, an earlier reduction recently took effect starting 1 July 2022, which reduced the eligibility from 65 to 60.
Claiming self-education expenses gives more tax deductions. This was first announced as part of the 2021/22 Federal Budget to cover the exclusion of the first $250 of deductions. It was previously non-deductible. Thanks to the removal of the threshold, there is an additional reduction in compliance costs for people claiming such a deduction.
Make sure to claim your self-education expenses for the 2022/23 fiscal year as a work-related expense. This law will apply to the Fringe Benefits Tax year from 1 April 2023.
The Budget adds $80.3 million for the Australian Taxation Office to extend the Personal Income Tax Compliance Program. It will continue its run until 1 July 2023 and will be extended for another two years. Due to this program, tax receipts are expected to increase by $674.7 million.
With the additional funding, the ATO can modernise its guidance products as a way to engage with taxpayers and tax agents. It will help the agency to target compliance activities to lower and eventually eliminate non-compliance, such as incorrect income reporting and over-claiming of deductions.
In an employee share scheme, employees can purchase shares in the company where they work at a discounted rate. Several schemes are available to attract and retain employees. Eligibility may depend on the employer’s conditions and the employee’s performance. For example, shares may be offered as remuneration in place of raising the salary. Paying for shares may vary, including options like salary sacrifice, shares dividends, and upfront payment.
Starting 1 July 2022, the removal of cessation of employment as a taxing point for deferred tax applies. Some adjustments are made to the obligations of the employer to report to the ATO in order to reflect the change.
Taxpayers who have reached 65 years old may want to move to a smaller home. Some retirees are willing not to sell their family home, which will help release equity that may have built up over the years. The amount they get can be added to their super account. It is what this change is all about.
The downsizer contribution rules can boost super accounts. This reform is not entirely new since it was announced in the 2017/2018 Budget. It became law in December 2017.
The superannuation guarantee is a compulsory type of super that benefits employees. Employers should make contributions in the form of a percentage of the employee’s ordinary time earnings rather than as a deduction.
From 1 July 2022, the previous superannuation guarantee rate increases from 10% to 10.5% of eligible salary or wages. It will progressively increase to 12% by the 2025/26 financial year. Employers should note that this rate is imposed on the day of payment. For instance, wages starting 1 July 2022 will build up for a superannuation guarantee payment at a 10.5% rate, in spite of paying work performed in earlier weeks or months.
It should also be noted that the $450 minimum monthly wage has been removed as a requirement for super guarantee eligibility. This change applies from 1 July 2022. This means employees whose salary/wages are less than $450 can qualify for the superannuation guarantee.
The Digital Games Tax Offset is part of the Budget 2021 and the Mid-Year Economic and Fiscal Outlook 2021/22. The Government announced this additional tax offset to help firms attract digital talent to the country. A 30% refundable tax offset works for eligible businesses spending at least $500,000 per annum on qualified games expenditures. This rate immediately applies from 1 July 2022.
The Labor government picked up an unlegislated LNP Coalition Budget 2022 measure to be implemented on eligible expenditure from 29 March 2022. This measure will add a 20% deduction on taxes applied to expenses for skills, training, and digital technology. However, requirements should be met, including small businesses having an aggregated annual turnover of less than $50 million.
The small business technology investment boost includes expenditure incurred for either digitising operations or in support of existing digital operations. For example, a business buys depreciating assets like portable payment devices and cyber security systems. These tax-deductible expenses are capped at $100,000 per financial year. However, companies can deduct over $100,000 in small business expenditures under the current law.
The digital technology deduction applies to purchases from 29 March 2022 to 30 June 2023. As for the skills and training tax boost, the measure applies to expenditures incurred from 29 March 2022 to 30 June 2024.
As a taxpayer, many of these reforms may have changed how you should pay your taxes. Be sure to stay updated with any alterations that may impact your obligations. To make everything easier, have experts sort your tax return for you. Contact TaxReturn.com.au today.