The 2023-24 Budget was released by the Federal Government on Tuesday, 9 May 2023. The 2023 Federal Budget’s tagline of “Responsible spending in the face of an uncertain global economy,” focuses on a $14.6 billion cost-of-living package. Treasurer Jim Chalmers described the budget as a balancing act between relief, repair, and restraint, in his second budget announcement. While The Budget includes various tax measures, most have been previously announced and haven’t changed.
Stage 3 tax cuts
The Australian Government did not introduce any changes to the personal tax rates in the recent budget announcement. The Stage 3 personal income tax reductions, which were previously enacted, will start on 1 July 2024. Starting on this date, the tax bracket of $45,000 to $200,000 will experience a decrease in the marginal tax rate from 32.5% to 30%. The 37% tax bracket will be eliminated entirely at this time.
Medicare levy thresholds
The Australian Government has increased the Medicare levy thresholds for all categories starting from the 2022-23 income year and beyond.
Medicare levy exemption
Starting from 1 July 2024, low-income taxpayers who are eligible for the current lump sum payment in arrears tax offset will also be exempt from the Medicare levy for eligible lump sum payments in arrears.
First home buyers
Starting from July 1, the Home Guarantee Scheme will be broadened to permit any two individuals, including siblings and friends, to buy a qualifying home with a 5% deposit. Non-first home buyers who have not owned a property for 10 years will be eligible for the program.
Supporting Small Business
Small Business Energy Incentive
The government is introducing a new way to help small and medium businesses save money on their energy bills called the Small Business Energy Incentive. The incentive will provide $310 million in tax relief to up to 3.8 million businesses to help them invest in things like electrifying their heating and cooling systems, installing batteries, and upgrading to more energy-efficient equipment. Businesses with an annual turnover of less than $50 million can get a bonus tax deduction of 20% on eligible assets supporting electrification and energy efficiency from 1 July 2023 until 30 June 2024. The maximum bonus deduction is $20,000 per business, and up to $100,000 of total expenditure is eligible. This is on top of $62.6 million in energy efficiency grants for small and medium businesses announced in the October Budget.
Small business instant asset write-off
Small businesses with an annual turnover of less than $10 million can immediately deduct the full cost of eligible assets worth less than $20,000, from their taxable income. This is aimed to provide cash flow support of $290 million to up to 3.8 million small businesses from 1 July 2023 to 30 June 2024.
Improving small business cash flow
Around 2.1 million eligible small businesses will be eligible to reduce the amount of tax they have to pay each quarter for GST and income tax in 2023-24. Instead of the usual 12% increase, it will only increase by 6%. By doing this, the government hopes to balance the need for small businesses to manage their tax liabilities while also providing them with much-needed cash flow relief.
$23.4 million will be set aside for small businesses to help business owners protect themselves from cyber-attacks. It’s recognized that cyber-attacks are damaging small business, which affects the jobs it provides in the community. To help with this problem, the government is training people in small businesses to be “cyber wardens” who will be responsible for preventing cyber-attacks. The training will be provided by the Council of Small Business Organisations Australia.
Industry growth program
To help small businesses develop new ideas and grow, the Federal government will introduce a new scheme called the Industry Growth Program. This program aims to give $392.4 million to small and medium-sized businesses and startups to help business owners create new products and grow.
Small business lodgment penalty amnesty
Small businesses in Australia with a total income of less than $10 million will have the opportunity to clear their overdue tax statements without incurring any penalties for failing to lodge them. The amnesty period will run from 1 June 2023 to 31 December 2023 and will cover tax statements that were originally due between 1 December 2019 to 29 February 2022. This will provide small businesses with some relief and an opportunity to get their tax affairs in order without facing any additional financial burdens.
PAYG and GST installment uplift factor
The GDP uplift factor is a formula used to adjust the tax installment payments for businesses based on the expected growth of the economy. Normally set at 12% more in tax installments, the government will reduce the uplift factor to 6% for the 2023-24 income year. Eligible businesses will have to pay less tax installments than they would have under the normal 12% uplift factor. The change will apply to installments due after the new legislation is passed.
Business Taxation Measures
The Australian Government plans to raise the rate of capital works tax deduction (depreciation) to 4% annually and lower the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15% for qualified new build-to-rent projects with construction beginning after 7:30 PM (AEST) on 9 May 2023.
FBT rules for electric vehicles
The Australian Government has announced that starting from April 1, 2025, plug-in hybrid electric vehicles will be excluded from the FBT exemption for electric cars. Arrangements entered into between 1 July 2022 and 31 March 2025 can remain eligible for the FBT exemption as long as the exemption applied to the car before 1 April 2025 and the employer has a financially binding commitment to continue providing private use of the car on and after this date.
The Australian Government has proposed amendments to the Petroleum Resource Rent Tax (PRRT) legislation, which includes changes to the definitions of “exploration” and “mining, quarrying and prospecting rights” in light of the Shell Energy Holdings Australia case. The amendments also aim to limit deductions to 90% of assessable receipts in certain situations.
BEPS Two Pillar Solution start dates
The Australian Government has announced two significant measures to tackle base erosion and profit shifting through the Two-Pillar Solution. The first measure is the implementation of a 15% global minimum tax rate for large multinational enterprises, starting from the income years on or after 1 January 2024, and the application of Income Inclusion Rule (IIR) to these companies. For income years starting on or after 1 January 2025, the Undertaxed Profits Rule (UTPR) will also apply. The second measure is the introduction of a 15% domestic minimum tax, applicable for income years starting on or after 1 January 2024.
The Australian Government made an announcement on 2 May 2023, stating that employers will be obligated to pay their employees’ superannuation simultaneously with their salary and wages starting from July 1, 2026. The starting date allows ample time for employers, super funds, and other relevant parties to get ready for the transition. This measure has not been legislated yet.
Non-arm’s length income (NALI)
The Australian Government has made changes to the non-arm’s length expenses (NALE) tax rules for self-managed superannuation funds (SMSFs) and small APRA funds. From 1 July 2023, only non-arm’s length expenses that are double the level of general expenses will be taxed at the higher rate of 45%, instead of the previous multiple of five. Contributions made to large APRA regulated funds will be excluded from the NALI provisions, which means they will be effectively exempted from the NALI provisions for both general and specific expenses of the fund.
Super account balances above $3m
The Australian Government has decided to proceed with its plan to levy an additional 15% tax on total superannuation balances exceeding $3 million, even for defined benefit schemes, starting from 1 July 2025, despite opposition from industry. No further information has been released, so it is expected that the proposed changes will apply in the same manner as previously stated, where unrealized gains will be subject to the extra tax.
Pension drawdowns: no reduction in minimum The temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities was not extended.