Australia’s Treasurer, Mr Jim Chalmers handed down the 2023-24 Federal Budget on Tuesday, 9 May 2023.
The Treasurer announced a package of cost-of-living measures, including up to $3bn in energy bill relief (expected to reduce power bills by up to $500 for 5 million households) and $1.3bn for home energy upgrades. These measures have been designed to provide relief to some without adding inflationary pressures (which would make the Reserve Bank’s job even harder). Access to the Parenting Payment (Single) will also be extended along with increased payments for JobSeeker, Youth Allowance and rent assistance. Small businesses will also benefit from a temporary increase in the instant asset write-off threshold to $20,000 for 2023-24.
A Budget surplus of $4.2bn is forecast in 2022-23, but an underlying cash deficit of $13.9bn is expected in 2023-24 (and a $35.1bn deficit for 2024-25). The Budget papers note that the global economic outlook has deteriorated and is highly uncertain with persistent inflation and rising interest rates expected to slow real GDP growth from 3.25% in 2022-23 to 1.5% in 2023-24, before rising to 2.25% in 2024-25. While inflation remains elevated at 6% for this year, it is expected to fall to 3.25% in 2023-24 and return to the RBA’s target band of 2-3% in 2024-25. The Government also believes that its cost-of living measures will take 0.75 of a percentage point off inflation in 2023-24.
On the revenue side, the Government said it is taking action to improve the sustainability of the tax system. This includes measures to reduce the tax concessions for superannuation balances above $3m, more timely payments of tax and superannuation, and reforms to the tax settings for offshore liquefied natural gas projects.
The full Budget papers are available at www.budget.gov.au.
Key measures from the 2023-24 Federal Budget
Instant asset write-off
- $20,000 instant asset write-off for small business allowing those with aggregated annual turnover of less than $10 million to immediately deduct eligible depreciating assets costing less than $20,000.
Cyber security
- Introducing practical measures to guard small businesses against cyber threats through a $23.4 million program to help them train in-house cyber wardens.
Small Business Energy Incentive
- Almost all of NSW’s 840,000-plus small and medium businesses could be eligible for up to $20,000 in tax relief under the scheme.
Energy Bill Relief Fund
- One million small businesses nationwide will get power bill rebates through the jointly funded Energy Bill Relief Fund with NSW businesses to receive $650 in relief from July 1.
Hydrogen Headstart program
- $2 billion to support a new Hydrogen Head Start program that includes Wollongong in NSW.
Fee-free TAFE places
- 300,000 new fee-free TAFE places to train Australians in critical and emerging sectors.
Housing
- A new focus on rent relief and unlocking additional funding to build 1 million new affordable homes.
Ease of doing business
- $2 billion in initiatives to simplify the interface between businesses and government services.
Relative tax-related measures announced
Small businesses instant asset write-off threshold
- Small businesses instant asset write-off threshold to be increased to $20,000 for 2023-24 for businesses with aggregated annual turnover of less than $10m. The $20,000 threshold will apply on a per asset basis. This means the full expensing threshold of $150,000 ends on 30 June 2023.
Small Business Energy Incentive
- Businesses with annual turnover of less than $50m will be able to claim an additional 20% deduction on spending that supports electrification and more efficient use of energy. Eligible assets
or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.
Small business lodgment penalty amnesty
- Small business lodgment penalty amnesty will be provided for small businesses with aggregate turnover of less than $10m to encourage them to re-engage with the tax system. The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due between 1 December 2019 to 29 February 2022
Small business unpaid tax and super
- Additional funding from 1 July 2023 to assist the ATO to engage with taxpayers who have high-value debts over $100,000 and aged debts older than 2 years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10m, or privately owned groups or individuals controlling over $5m of net wealth.
PAYG and GST instalment uplift factor
- The Budget papers state that the GDP uplift factor for PAYG and GST instalments will be set at 6% for the 2023-24 income year. The papers state that this uplift factor is lower than the 12% that would have applied under the statutory formula.
- The 6% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2023-24 income year and fall due after the enabling legislation receives assent.
Anti-avoidance rule Pt IVA
- The Government will expand Australia’s general anti-avoidance rule (Part IVA) to capture schemes that:
- reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and
- achieve an Australian income tax benefit, but have the dominant purpose of reducing foreign (not Australian) income tax.
- Both measures will apply to income years commencing on or after 1 July 2024, regardless of whether the scheme was entered into before that date. Accordingly, there is a retrospective element to these amendments, and taxpayers should carefully assess their risk.
FBT rules for electric vehicles (EVs)
- The Budget papers state that the Government will sunset the eligibility of plug-in hybrid electric cars from the FBT exemption for eligible electric cars. This change will apply from 1 April 2025.
- Arrangements involving plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025 remain eligible for the Electric Car Discount.
- It can be noted that while the Government seems to be stating that it will implement the sunset, this measure is already enacted by the Treasury Laws Amendment (Electric Car Discount) Act 2022. The was the result of a Senate amendment put forward by Senator Pocock and the Greens. The other amendment that made it to the amending Act was that a review must be undertaken in 2025 to determine the effectiveness of the measures it contains.
MIT withholding tax concession for data centres and warehouses
- The “clean building” managed investment trust withholding tax concession will be extended to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 pm (AEST) on 9 May 2023.
Build-to-rent properties
- For eligible new build-to-rent projects where construction commences after 7:30 PM
(AEST) on 9 May 2023 (Budget night), the Government will:- increase the rate for the capital works tax deduction (depreciation) to 4% per year;
- reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%.
Superannuation
- The superannuation measures include:
- Non-arm’s length income (NALI) – the amount of non-arm’s length expenses (NALE) taxed at 45% as NALI will be limited to twice the level of a general expense from 1 July 2023 for SMSFs and small APRA funds. In addition, fund income taxable as NALI will exclude contributions to effectively exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund;
- Super account balances above $3m – the Budget confirmed the Government’s intention to apply an additional 15% tax on total superannuation balances above $3 million from 1 July 2025;
- Payday super – employers will be required to pay their employees’ super guarantee at the same time as their salary and wages from 1 July 2026;
- Pension drawdowns: no reduction in minimum – the Budget did not announce a further extension to 2023-24 of the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities.
Need some advice on how these Budget initiatives effect your specific circumstances? Make sure you are subscribed to an appropriate Accounting & Tax advisory plan to review how these Budget changes affect your business and personal tax position in this year’s June Tax Planning sessions.