The Federal Budget for 2023-2024 was announced on 9 May 2023. With the Government flushed with increased tax revenues in an otherwise strong economy with low unemployment, budget commentary has focused largely on expenditure restraint given the resulting high inflationary environment.
With most tax measures having been previously announced, there were few surprises on the budget night. Following are the key highlights:
Business measures
Small business instant asset write-off: reset to a $20,000 threshold.
With the generous temporary full expensing scheme ceasing on 30 June 2023, the Government will increase the instant asset write-off threshold from $1,000 to $20,000 for financial year 1 July 2023 to 30 June 2024.
Small businesses – those with aggregated annual turnover of less than $10 million – will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per-asset basis, so small businesses can instantly write off multiple assets.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
Small Business Energy Incentive: 20% bonus deduction
Originally announced by the Treasurer on 30 April 2023, the Budget papers confirmed that a new Small Business Energy Incentive will provide businesses with annual turnover of less than $50 million an additional 20% deduction on spending that supports electrification and more efficient use of energy.
The Small Business Energy Incentive will apply to a range of depreciating assets, as well as upgrades to existing assets. These will include assets that are upgraded to more efficient electrical goods such as energy-efficient fridges, assets that support electrification such as heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage.
Certain exclusions will apply and include:
- electric vehicles;
- renewable electricity generation assets;
- capital works; and
- assets that are not connected to the electricity grid and use fossil fuels.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction of $20,000 per business.
Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.
Expanding and extending compliance programs
The Government will provide funding to the ATO over four years from 1 July 2023 to continue a range of activities that promote GST compliance.
These activities will ensure businesses meet their tax obligations, including accurately accounting for and remitting GST, and correctly claiming GST refunds. Funding through this extension will also help the ATO develop more sophisticated analytical tools to combat emerging risks to the GST system.
The Government will also provide funding from 1 July 2023 over four years to assist the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities.
The additional funding will facilitate ATO engagement with taxpayers who have high-value debts over $100,000 and aged debts older than two years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10 million, or privately owned groups or individuals controlling over $5 million of net wealth.
Expanding Part IVA General Anti-Avoidance Rules
The Government will improve the integrity of the tax system by expanding the scope of the general anti-avoidance rule for income tax so that it can apply to:
- schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and
- schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.
This measure will apply to income years commencing on or after 1 July 2024, regardless of whether the scheme was entered into before that date.
Cash flow support for Small Businesses
The Government will amend the tax law to set the GDP adjustment factor for pay as you go (PAYG) and GST instalments at 6% for the 2023–24 income year, a reduction from 12% under the statutory formula.
The reduced factor will provide cash flow support to small businesses and other PAYG instalment taxpayers.
The 6% GDP adjustment rate will apply to small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregate turnover for PAYG instalments), in respect of instalments that relate to the 2023–2024 income year and fall due after the enabling legislation receives Royal Assent.
Improving Build-To-Rent Development Incentives
To expand Australia’s housing supply and encourage investment and construction in the build-to-rent sector, the Government has announced several measures.
For eligible new build-to-rent projects where construction commences after 7:30 PM (AEST) on 9 May 2023, the Government will:
- increase the rate for the capital works tax deduction (depreciation) to 4% per year (increase from the current rate of 2.5%).
- reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%.
This measure will apply to build-to-rent projects consisting of 50 or more apartments or dwellings made available for rent to the general public. The dwellings must be retained under single ownership for at least 10 years before being able to be sold and landlords must offer a lease term of at least 3 years for each dwelling.
The reduced managed investment trust withholding tax rate for residential build-to-rent will apply from 1 July 2024. Consultation will be undertaken on implementation details, including any minimum proportion of dwellings being offered as affordable tenancies and the length of time dwellings must be retained under single ownership.
Personal tax Measures
Personal tax rates unchanged for 2023–24
The Budget did not announce any changes to the Stage 3 personal income tax changes, which are set to commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of the Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Extending the Personal Income Tax Compliance Program
The Government has provided additional funding to the ATO over 2 years to extend the Personal Income Tax Compliance Program. This extension will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, and to expand the scope of the program to address emerging areas of risk, such as deductions relating to short-term rental properties to ensure they are genuinely available to rent.
Superannuation Measures
Super to be paid on payday from 1 July 2026; more action to catch non-payers.
The Government confirmed their intention to require all employers to pay their employees’ super guarantee amounts at the same time as their salary and wages are paid from 1 July 2026.
The ATO will receive additional resourcing funds (some $40.2 million) to help them detect unpaid super payments earlier. It is estimated that $3.4 billion worth of super was unpaid in 2019–2020.
The Government will also set enhanced targets for the ATO for the recovery of payments.
The proposed 1 July 2026 start date for payday super is intended to provide sufficient time for employers, superannuation funds, payroll providers and other parts of the superannuation system to prepare for the change.
Super tax changes for account balances above $3 million confirmed, but no further details.
The Government confirmed its intention to implement superannuation tax changes for individuals with account balances above $3 million from 1 July 2025, including in relation to defined benefit schemes.
However, the Budget Papers did not reveal any further details other than to note its estimate that the measure will increase receipts by $950 million, and increase payments by $47.6 million, over the five years commencing from 2022–2023.
Under the proposed changes that were announced on 28 February 2023, individuals with total superannuation balances (TSBs) over $3 million at the end of a financial year will be subject to an additional tax of 15% on earnings from 1 July 2025. Earnings will be calculated with reference to the difference in TSB at the start and end of the financial year, adjusting for withdrawals and contributions. This means that the proposed additional 15% earnings tax on an individual’s balance above $3 million will operate on an accrual basis and include any notional (unrealised) gains and losses.
Currently, fund earnings from superannuation in the accumulation phase are taxed at up to 15%. This 15% tax rate will continue for total superannuation balances below $3 million but individuals will pay an extra 15% for balances above that amount (around 80,000 people).
Clarifying Non-Arm’s Length Income (NALI)
In response to industry consultation, the Government will amend the non-arm’s length income (NALI) provisions which apply to expenditure incurred by superannuation funds.
Broadly, income is where it is derived from a scheme in which the parties are not dealing with each other at arm’s length and is more than the superannuation fund might have been expected to derive if the parties had been dealing with each other at arm’s length.
The amended rules will limit the income of self-managed superannuation funds and small Australian Prudential Regulation Authority (APRA) regulated funds that are taxable as NALI to twice the level of a general expense. Additionally, fund income taxable as NALI will exclude contributions.
The Government will also:
- exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund.
- exempt expenditure that occurred prior to the 2018-19 income year.
If you would like to learn more about the 2023-24 Federal Budget, please contact Calibre Business Advisory on (02) 9261 2177. Our dedicated team will be more than happy to assist.