On 25 October 2022, the new Labor Government handed down its October 2022/23 Federal Budget. It would be fair to say that this was not a typical Budget, both from a timing and content perspective

From a wealth perspective, the October 2022 Budget announcements were limited and, largely, had all been communicated prior to the formal Budget speech.

Summary

Key proposals include:

• reduce eligibility age for downsizer contributions from 60 to 55
• increase in the Commonwealth Seniors Health Card income thresholds
• one-off $4,000 credit to the Work Bonus income bank
• changes to Child Care Subsidy and Parental Leave Pay
• more favourable Centrelink assessment of home sale proceeds, and
• continued support for

Note: These changes are proposals only and may or may not be made law.

Taxation

There were no changes announced to the previously legislated personal income tax measures:

• cessation of the Low and Middle Income Tax Offset (LMITO), and
• Stage 3 tax

LMITO ceased

Date of effect: 30/6/2022

The LMITO was a maximum of:

• $1,080 for 2018/19 to 2020/21, and
• $1,500 for 2021/22.

Key points:

Clients with taxable income up to $126,000 (in 2022/23) may feel the impact of the abolished LMITO when completing their tax return, or notice increased tax payable compared to the previous financial year. You can help manage your client’s expectations by explaining to them that the additional tax payable may be due to the removal of LMITO.

Stage 3 tax cuts

Date of effect: 1/7/2024

The Stage 3 tax cuts are already legislated. From 1 July 2024, the 37% marginal tax rate is abolished and the 32.5% rate reduces to 30%. Furthermore, the threshold for the top marginal tax rate increases from $180,000 to $200,000.The table below summaries the current personal tax rates and the changes from 1 July 2024:

Note: applies to resident taxpayers and ignores Medicare levy.

Impact on cashflow

The first column in the table below outlines the additional tax payable in the current financial year due

to the abolition of LMITO. The second column outlines the tax cuts available from 1 July 2024 compared to the current financial year (without LMITO) under the Stage 3 changes.

^ Additional tax payable in 2022/23 compared to 2021/22 financial year

^^ Tax savings in 2024/25 compared to 2022/23 financial year

Example

Charlotte earns $100,000 taxable income for the current financial year. She will pay $1,200 more tax compared to the 2021/22 financial year as LMITO is abolished. However, Charlotte receives a $1,375 tax savings per annum from 1 July 2024 due to the Stage 3 tax cuts.

Digital currency not taxed as foreign currency

Date of effect: 1/7/2021

Legislation will be introduced to clarify that digital currencies, including Bitcoin, are not included in the Australian income tax treatment of foreign currency. This measure ensures digital currencies are considered CGT assets, where held as an investment. This measure will be backdated to 1 July 2021 and is focused on maintaining the current tax treatment of digital currencies.

Tax concessions for electric cars

Date of effect: 1/7/2022

Fringe benefits tax will not apply under salary packaging arrangements for battery, hydrogen fuel cell and plug-in hybrid electric cars if these have a first retail price below the luxury car threshold ($84,916 for 2022/23) for fuel-efficient cars. The car must not have been held or used before 1 July 2022. This measure does not apply to hybrid electric cars without the capacity to plug into the electrical grid.

Superannuation

Downsizer contribution age reduced from 60 to 55

Date of effect: At the earliest 1/1/2023 Currently before Parliament

The Government has reconfirmed the intention to change the eligibility age for downsizer contributions from 60 to 55. However, the legislation has not passed at time of writing.  The commencement date change will take effect on the first 1 January, 1 April, 1 July, or 1 October after the Bill receives Royal Assent.  Contributions cannot be made prior to the commencement date.

All other eligibility requirements for downsizer contributions remain unchanged.

Key points:

New contribution opportunities arise with the age reduction to 55 for downsizer contributions. However, the contribution may not be accessed if the client is below preservation age or does not meet a condition of release. It is the individual’s age at the time the contribution is made that is tested.

Downsizer contributions must be made within 90 days after settlement. This means that the date the contract of sale is exchanged or settled does not need to have been after the commencement date of the measure.

Residency requirements for SMSFs and SAFs

Date of effect: 1 July after legislation receives Royal Assent

The Government has indicated it will support the previously announced measure to relax certain residency requirements that currently apply to SMSFs and small APRA funds (SAFs) to determine eligibility for tax concessions. However, the commencement date will be deferred from the original expected commencement date of 1 July 2022 to 1 July after the legislation receives Royal Assent.

The details originally proposed, but not yet confirmed by the current Government, included:

• extending the central management and control test safe harbour from two years to five years, and
• removing the active member test, which may currently limit the ability of certain members to contribute while

Key points:

Extending the central management and control safe harbour to five years allows decisions to continue to be made while the trustees are temporarily outside of Australia for a longer period of time.

The active member test can limit the ability for members temporarily overseas to contribute to the fund. The removal of the active member test will allow all members of SMSFs and SAFs to continue to make contributions to their fund while overseas.

Trustees should consider whether it is appropriate to appoint an Enduring Power of Attorney during an absence overseas.

SMSF annual audit requirements

Date of effect: Measure will not proceed

The Government will not proceed with the former Government’s proposal to allow SMSFs with a good record keeping and compliance history to move from having an audit on an annual basis to a three-year cycle. SMSFs will continue to require annual audits.

Social Security

Improvements to Parental Leave Pay

Extending the period of paid Parental Leave Pay

Date of effect: 1/7/2024

The Government will increase the number of weeks of paid Parental Leave Pay (PLP) by two weeks each 1 July, until it reaches a total of 26 weeks.

The following table illustrates the progressive increase in the number of weeks of PLP:

*Includes 2 weeks Dad and Partner Pay.

Currently, PLP includes a continuous payment of up to 12 weeks and an additional six weeks of flexible leave, which must be used within two years of the child’s birth or adoption. PLP is a taxable payment of

$812.45 per week (based on the national minimum wage).

Increased flexibility for Parental Leave Pay

Date of effect: 1/7/2023

The Government will introduce the following measures to increase PLP flexibility:

• PLP can be taken in blocks between periods of paid work
• partners will have better access to PLP at the same time as any employer-funded parental leave
• to incentivise both parents to access PLP, there will be ‘use it or lose it’ portion for each parent, and
• sole parents can access the full 26

Increasing eligibility to paid Parental Leave Pay

Date of effect: 1/7/2023

A new family income test will be introduced for PLP. An individual will be able to qualify for PLP if either:

• their individual income is less than $156,647 or less (the current test), or
• their family income is less than $350,000.

The reference year for the income test is the financial year before the earlier of:

• the date of birth of adoption, or
• the date you lodge your

In addition, either parent can be the primary claimant and both parents can take weeks of leave at the same time. Under the current rules, the birth parent or initial primary carer of an adopted child must be the primary claimant and then transfer PLP to the other parent if they want to share it.

Key points:

Clients with a newborn or newly adopted child should consider entitlement to PLP. The increased number of weeks and flexibility will assist the primary carer with returning to work.

Child Care Subsidy

Date of effect: 1/7/2023 Currently before parliament

Child Care Subsidy (CCS) assists families with the cost of child care. The following measures will generally increase the amount of subsidy and reduce the cost of child care:

• the maximum child care subsidy percentage will increase to 90% for those with family income of $80,000 or less (currently 85% where family income is $72,466 or less)
• the CSS is no longer payable for family income of at least $530,000 (currently $356,756), and
• extend the increased subsidy to outside school hours

The amount of subsidised child care that can be accessed per fortnight applies to each child and depends on:

• family income (determines a family’s CCS percentage)
• an hourly cap rate based on the type of approved child care used and the child’s age
• the hours of activity the parents do, and
• the number of children in the family’s

Key points:

Higher subsidies will reduce the cost of child care for eligible families. The Government estimates that:

• 96% of families will be better off under the CCS changes, and
• a family on the median combined income of $120,000 with one child in early childhood education will save $1,780 in the first year of

The cost of medications under the Pharmaceutical Benefits Scheme reduced

Date of effect: 1/1/2023

The maximum general co-payment for prescriptions under the Pharmaceutical Benefits Scheme (PBS) will reduce to $30 per script (down from $42.50) for general patients.

Under the PBS, the Government subsidises the cost of PBS medicines and individuals make a co-payment towards the cost. In some cases, individuals may pay more than the co-payment. The scheme is generally available to all Australian residents who hold a current Medicare card.

Once an individual or their family pays a certain amount on PBS medicines (known as the PBS Safety Net threshold) the co-payment for PBS medicines is reduced ($6.80 per script for general patients).

Key points:

It is estimated that someone taking one medication a month could save up to $150 pa (two medications

= $300 and three medications = $450 pa).

Reducing the co-payment to $30 per script does not assist concession card holders (they currently pay

$6.80 per script and then free once the PBS safety net is attained).

Increasing the rate of the DVA Totally and Permanently Incapacitated Payment

Date of effect: 1/1/2023

The annual rate of DVA’s Totally and Permanently Incapacitated Payments will be increased by $1,000. This includes the Special Rate of Disability Compensation Payment, Temporary Special Rate Payment and the Special Rate Disability Pension.

Deeming rates frozen for further 2 years

Date of effect: 1/7/2022

Deeming rates are frozen at their current levels until 30 June 2024. Deeming rates are currently 0.25% (lower rate) and 2.25% (higher rate).

Key points:

Despite increasing interest rates, Centrelink clients won’t be impacted by increasing deeming rates.

Add $4,000 to the Work Bonus income bank for eligible pensioners

Date of effect: At the earliest on 1/12/2022 Currently before Parliament

A one-off $4,000 income credit will be added to the Work Bonus income bank of those at least pension age and in receipt of an Age Pension, Disability Support Pension or Carer Payment. Under the Work Bonus, the first $300 of fortnightly income from work is not assessed under the pension income test.  Any unused part of the $300 fortnightly Work Bonus accrues in the Work Bonus income bank and can be used to offset future income from work.

Currently, the Work Bonus income bank is capped at $7,800. This will temporarily be increased to $11,800 until 30 June 2023. Effective 1 July 2023, any amount in the Work Bonus income bank that exceeds $7,800 will be removed and no longer available to offset future income from work.

The following table outlines the impact on clients (assuming no change to their client scenario):

*Assumes a nil balance in the Work Bonus income bank before this change.

Key points:

For income tested clients (eligible for the Work Bonus), those earning:

• more than $300 pf may see a temporary increase in entitlements
• less than $300 pf may consider temporarily taking on additional paid work without impacting their Centrelink

Increase the income thresholds for the Commonwealth Seniors Health Card

Date of effect: Commences seven days after legislation is passed and has received Royal Assent. Currently before Parliament

The Commonwealth Seniors Health Card (CSHC) income thresholds are set to increase in accordance with the following table:

The increase for each child is unchanged at $639.60.

Benefits of the CSHC include:

• cheaper medicine under the Pharmaceutical Benefits Scheme
• refund for medical costs when the Medicare Safety Net is reached
• bulk billed doctor visits at the clinic’s discretion
• one-off Economic Support Payments as determined by Federal Government
• certain State, Territory and Local Government concessions such as utility bills, property and water rates, public transport and motor vehicle registration. These concessions can vary based on the State or

Key points:

Self-funded retirees who don’t hold the CSHC should review their eligibility under the new income limits. Those that become eligible can start taking advantage of all the benefits associated with the card.

Changes to the exemption of the home sale proceeds for Social Security

Date of effect: At the earliest on 1/1/2023 Currently before Parliament

The portion of the home sale proceeds intended to be used to purchase, build, rebuild, repair or renovate a new principal home:

• will be exempt from the assets test for up to 24 months; and
• if held in a financial asset, deemed at the lower deeming rate under the income test. The client will continue to be a homeowner during the exemption   The following table compares the current and new assessment:

If special circumstances exist, Centrelink may exempt the home sale proceeds for an additional 12 months.

The new rules will apply to eligible sale proceeds, even where a property was sold before the commencement date.

Key points:

Centrelink clients transitioning between homes will have greater flexibility and potentially a reduced impact on their entitlements. Those clients that have already sold their home should consider whether the new rules can apply to their situation.

With the lower deeming rate applying, reconsider the benefit of any strategy that parked the sale proceeds in a non-financial asset to reduce the impact of deeming, such as temporarily parking the sale proceeds in a spouse’s super account that is less than pension age but has access to their super funds.

Assistance to buy a home

Regional First Home Buyer Guarantee Scheme

Date of effect: 1 October 2022 – 30 June 2023

The Regional First Home Buyer Guarantee Scheme is part of the Home Guarantee Scheme and will provide support for 10,000 first home buyers to purchase a home in regional Australia per financial year until 30 June 2026. This measure was part of the Government’s Federal election announcements.

The Government will guarantee up to 15% of the eligible purchase price. Individuals will need to have a deposit of at least 5%, which when combined with the Government guarantee, would allow mortgage insurance to be avoided. Eligibility to participate in the scheme includes that the person must:

• live outside a capital city
• have been living in the region for at least 12 months
• be aged at least 18, an Australian citizen and a first home buyer
• live in the property purchased
• have taxable income of up to $125,000 pa (single) or $200,000 pa (couples), and
• have lived in the regional area or adjacent regional area in the preceding 12 month period prior to executing the loan (only one member of a couple needs to meet this requirement).

Property price thresholds will also apply based on the region in which the property is located.

The scheme applies to existing properties as well as house and land packages, off-the-plan apartments and land purchased with contract to build.

Help to Buy Scheme

Date of effect: 2022/23

The Government has proposed to introduce the Help to Buy scheme, which is a shared equity scheme. Support will be available for up to 10,000 people each year.  Limited detail was provided in the budget, the following information is based on pre-election announcement.  The scheme will provide equity support to eligible homebuyers for up to 40% of the purchase price of a new home, and up to 30% for an existing home. Homebuyers must have at least a 2% deposit and will avoid Lenders Mortgage Insurance. Eligibility for the Help to Buy Scheme includes that the person must:

• be an Australian citizen
• be aged at least 18
• earn less than the annual income cap, which is $90,000 for a single person and $120,000 for couples
• not own other property or land anywhere in the world
• live in the purchased home as the main residence, and
• pay all associated purchase costs, including all fees and duties, as well as all ongoing property costs.

After the initial purchase, the homeowner can purchase additional interests in the property from the Government (minimum of 5%).

Key points:

It is important for clients to understand that where a homebuyer’s income exceeds the annual income cap for two consecutive years, this will trigger a requirement to either fully or partially repay the Government’s contribution. It is not currently clear how this will be determined and the way in which a partial liability to repay would be calculated, particularly considering a person’s capacity to pay. Care should be taken to understand how payment receipts such as bonuses, taxable termination payments, taxable social security payments as well as the assessable component of a withdrawal under the First Home Super Saver Scheme could impact this requirement.

Important information

This 2022 Federal Budget Summary was prepared by Calibre Private Wealth Advisers and is current as at 25^th October 2022. Any advice in this Federal Budget Summary has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs. Any tax estimates provided in this publication are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.