October 2022 - Federal Budget Analysis

A week ago, the new federal government handed down its first 2022 post-pandemic mini-budget. Although it wasn’t the most ambitious budget, given post-pandemic economic stresses, it addressed some key points that will help us move forward. Rounded Co-founder Nicholas Beames looks at how it will impact freelancers and sole traders.

Describing it as a “responsible budget that is right for the times,” the Treasurer delivered a budget that recognised Australians and companies for being “practical and pragmatic” toward the challenges faced in recent years.

The Federal Budget, dubbed “responsible, affordable and sustainable”, included a raft of measures that did their best to balance inflationary pressure with the needs of Australian businesses, whatever their size.

Here, we share the key points relevant to Australia’s sole traders, contractors and small business operators.

Now is the time to up-skill

There is a new focus on skills and training with 1.4 billion in funding being allocated. 480,000 fee-free TAFE and community-based vocational education places over four years have been made available along with 20,000 more university places.

“These places are dedicated to students under-represented in higher education, including First Nations peoples, those who are the first in their family to study at university, and students from rural and remote Australia,” the documents state.

“The places are for courses in areas of skills shortage, including teaching, nursing and engineering.”

The funding is designed to bolster Australia’s workforce for the nation’s upcoming skills requirements, Education Minister Jason Clare said in a statement.

Tax returns under additional scrutiny

The COVID pandemic cost us all a fortune and it’s going to be down to us to help balance the books and payback what was borrowed.

That means the new government needs to do bring in as much cash as possible. One of its strategies is increasing funding to the Australian Taxation Office to beef up its compliance programs, including those directed at the shadow economy and income tax deductions.

The additional funding comes at a time when the tax office is already resuming its pre-COVID enforcement activities, including collecting small business debts and issuing director penalty notices.

The ATO will see funding for its Tax Avoidance Taskforce increased by approximately $200 million per year over four years, effective July 1, 2022. The task force will be extended by another 12 months to July 2025.

The government expects the measure to increase receipts by $2.8 billion and payments by $1.1 billion over the forward estimates.

At the same time, the ATO will also be given additional resources to extend its Personal Income Taxation Compliance Program for another two years, from July 1, 2023.

The $80.3 million extension is expected to deliver $674.4 million in increased receipts to the government, as well as increased payments of $80.3 million, over four years.

This compliance program focuses on taxpayers who over claim deductions and incorrectly report income.

For those with properly kept records, being audited should not present a problem. But for those trying to get away with exaggerated claims or lack of supporting documentation, expect the ATO to come knocking.

Additional resources

If you’re unsure what you can or can’t claim on tax you can check out our Ultimate Guide to Freelancer Taxes:

We strongly recommend you talk to an accountant or tax professional for advice specific to your personal circumstances but here are a couple of very general tips applicable to all freelancers:

Keep that receipt.

When it comes to claiming expenses, keeping receipts is a must. Remember the ATO happily accepts electronic versions of receipts (including photos of hard copies) so if you have the right tools (see below) you can make record keeping a lot less arduous and ditch the shoebox of receipts and spreadsheets.

Keep it separate.

Opening a dedicated bank account for all your freelance business makes it far easier to stay on top of business admin and will save countless hours trying to sift through personal transactions to find the business ones. This is especially important at tax time and if you ever apply for a business loan.

Take advantage of software.

Consider accounting software, like Rounded, to stay on top of expenses, bills, and outgoing invoices. Rounded will help you keep on top of your finances, meaning you have more time to spend building your business and servicing your clients.

Wrap Up

As expected this budget didn’t upset the status quo too much. The government has some hard decisions to make but they chose to leave those for a later date.

As far as freelancers are concerned not much has changed. The focus on skills will be a huge benefit to some and the government will hope it helps to alleviate labour shortages in industries experiencing the most acute shortages.

The Tax Avoidance Taskforce will no doubt be single minded and efficient about finding those who are trying to avoid paying their fair share of taxes - so properly kept, comprehensive financial records are essential as the audit wave is coming.

Cover Photo by Towfiqu barbhuiya on Unsplash

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