2023-24 FEDERAL BUDGET

A summary of the key items released in last night’s Federal Budget

Treasurer Jim Chalmers has handed down the Labour Government’s Second Budget on 9 May 2023, and announced a forecast budget surplus for the current year of $4.2 billion and then continued deficits over the following four years – $13.9 billion in 2023-24; $35.1 billion in 2024-25; $36.6 billion in 2025-26; and $28.5 billion in 2026-27.

Inflation has peaked and is moderating as global price shocks and supply constraints ease. Inflation is expected to fall to 3.25% in 2023/24. The economy’s real GDP (inflation adjusted) is now forecast to be 3.25% in the current year; 1.5% in 2023-24; 2.25% in 2024-25; 2.75% in 2025-26 and 2026-27.

The unemployment rate is projected to remain low by historical standards, rising modestly to 4.25% in 2023-24; 4.5% in 2024-25; 4.5% in 2025-26 and 4.25% in 2026-27. Wages growth is forecast to pick up further to 4% in 2023-24; 3.25% in 2024-25; 3.25% in 2025-26 and 3.5% in 2026-27.

Gross federal government debt is forecast for the 2023-24 year at $923 billion (35.8% of GDP) and will increase over the following three years – $958 billion (36.3% of GDP) in 2024-25; $1,015 billion (36.5% of GDP) in 2025-26; $1,067 billion (36.5% of GDP) in 2026-27.

The key revenue measures announced comprise:

  • No extension to temporary full expensing deduction which will end on 30 June 2023;
  • Temporarily increase instant asset write off threshold to $20,000 for small businesses;
  • 20% additional tax deduction for spending that support electrification and more efficient use of energy;
  • A global minimum tax of 15% on multinational enterprises; and
  • Reduced withholding tax rates for fund payments from MIT’s that hold build-to-rent properties.

It is important to remember that what follows is a series of proposals that must be passed by Federal Parliament before they become law.

PERSONAL TAX MEASURES

Personal Income Tax Rates
There have been no changes to the income tax rates for resident individuals announced. The income tax rates for resident individuals will continue as follows for both the current 2022-23 financial year and the 2023-24 year:
 
  Taxable Incomes (T.I.)  Rate   Tax Payable
   Up to $18,200  0%   $Nil
   $18,201 to $45,000  19%   $Nil + 19% over $18,200
   $45,001 to $120,000    32.5%   $5,092 + 32.5% over $45,000
   $120,001 to $180,000   37%   $29,467 + 37% over $120,000
   $180,001 and above  45%   $51,667 + 45% over $180,000
 
There was also no announcement in respect of the previously legislated (Stage 3) resident individual income tax rates to apply from 1 July 2024, so they remain as follows:
 
  Taxable Incomes (T.I.)  Rate   Tax Payable
   Up to $18,200  0%   $Nil
   $18,201 to $45,000  19%   $Nil + 19% over $18,200
   $45,001 to $200,000    30%   $5,092 + 30% over $45,000
   $200,001 and above  45%   $51,592 + 45% over $200,000

Exempting Lump Sum Payments in Arrears from the Medicare Levy

The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024.

 

This measure will ensure low-income taxpayers do not pay higher amounts of the Medicare levy as a result of receiving an eligible lump sum payment, e.g. as compensation for underpaid wages.

Low & Middle Income Tax Offset

The Government has confirmed that it will not extend the low and middle income tax offset beyond 2021–22.

Increasing Medicare Levy Low-Income Thresholds

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from 1 July 2022.

 


Low income threshold
New Threshold from
1 July 2022
Threshold
as at
30 June 2022
  Singles$24,276$23,365
  Families$40,939$39,402
  Single seniors and pensioners$38,365$36,925
  Family – Seniors and pensioners$53,406$51,401
  Threshold increment for each additional dependent child/student$3,760$3,619

The Medicare Levy will remain at 2%.

Extending the Personal Income Tax Compliance Program

The government will provide $89.6m to the ATO and $1.2m to Treasury to extend the Personal Income Tax Compliance Program. This will enable the ATO to continue to focus on key areas of non-compliance, and 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

Earnings for Superannuation Balances Above $3 Million Taxed At 30%

From 1 July 2025, individuals with a total superannuation balance across all superannuation accounts in excess of $3 million will be subject to an additional 15% tax.  This tax will be levied on the share of earnings corresponding to the proportion of the individual’s total superannuation balance that exceeds $3 million.

Earnings are proposed to be calculated as the movement in an individual’s total superannuation balance, after adding back withdrawals made during the year, and excluding contributions received during the year. Earnings by definition are different to the taxable income of the fund, and may include unrealised market value movements. If earnings are negative in a particular year, this can be carried forward to reduce future earnings.

This additional tax is intended to be calculated by the ATO, and an initial assessment will be notified to the individual. The individual is expected to be able to either pay the assessment directly, or authorise their superannuation fund to pay the amount via a release authority.

Individuals with a total superannuation balance of less than $3 million will not be affected.

Increasing Payment Frequency of Superannuation Guarantee Contributions
From 1 July 2026, employers will be required to pay their employees’ superannuation guarantee (SG) at the same time as their salary and wages. Currently, employers are only required to pay their employees’ SG on a quarterly basis.
ATO Resourcing to Tackle SGC Non-compliance

The ATO will receive additional resourcing to help it detect unpaid superannuation guarantee payments earlier and the Government will set enhanced targets for the ATO for the recovery of payments.

The ATO estimates $3.4 billion worth of super guarantee contributions was not paid in the 2019–20 year.

BUSINESS AND CORPORATE TAX MEASURES

Instant Asset Write Off

Small businesses with aggregated turnover of less than $10 million will be eligible for a temporary increase in the instant asset write-off threshold to $20,000 for the 2023-24 year. This measure applies to eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.

There is no extension to temporary full expensing which will end on 30 June 2023. Currently, under the temporary full expensing, all businesses with an annual aggregated turnover of less than $5 billion will be able to deduct the full cost of eligible depreciable assets acquired from 7.30pm AEDT on 6 October 2020 and first used or installed by 30 June 2023.

Small Business Energy Incentive

Small and medium businesses with an aggregated annual turnover of less than $50 million will be able to access an additional 20% deduction on investments related to electrification and more efficient use of energy.

Up to $100,000 of total expenditure will be eligible for this tax incentive, with the maximum additional deduction being $20,000.

Eligible investments may include:

  • heating and cooling systems;
  • upgrading to more efficient fridges and induction cooktops; and
  • installing batteries and heat pumps.

This incentive applies to eligible assets or upgrades that are first used or installed ready for use between 1 July 2023 and 30 June 2024.

Extending the Clean Building Managed Investment Trust (MIT) Withholding Tax Concession to Data Centres And Warehouses

The Government will extend the clean building MIT withholding tax concession to data centres and warehouses that meet the relevant energy efficiency standard.

Under the existing law, a clean building MIT is entitled to a concessional rate of 10% withholding tax on fund payments.

An MIT is a clean building MIT if it holds only energy efficient commercial buildings, and it does not derive assessable income from any taxable Australian property other than from the clean buildings or assets that are reasonably incidental to those buildings.

A “clean building” means the building that is a commercial building (such as an office building, hotel, shopping centre etc) and it meets at least 5 Star Green Star rating as certified by the Green Building Council of Australia or a 5.5 star energy rating as accredited by the National Australian Built Environment Rating System.

This new measure will also raise the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating from the Green Building Council Australia or a 6-star rating under the National Australian Built Environment Rating System.

This measure will apply from 1 July 2025.

Build-To-Rent Developments

The Government will offer incentives to increase the supply of rental housing by changing arrangements for investments in build-to-rent housing. The incentives will:

  1. increase the rate for capital works tax deduction to 4% p.a. for eligible new build-to-rent projects where construction commences after 9 May 2023; and
  2. reduce the withholding tax rate for MIT investments from 30% to 15% for eligible fund payments from MIT that invest in build-to-rent properties.

New build-to-rent projects that satisfy the following criteria will be eligible for the above incentives:

  1. construction commenced after 9 May 2023;
  2. consist of 50 or more apartments or dwellings made available for rent to the general public;
  3. dwellings must be retained under single ownership for at least 10 years before being able to be sold; and
  4. landlords must offer a lease term of at least 3 years for each dwelling.

This measure will apply from 1 July 2024.

Global Minimum Tax and Domestic Minimum Tax

The Government will implement key aspects of Pillar Two of the OECD/G20 Two-Pillar Solution which are designed to ensure that large multinationals with annual global revenue of EUR750 million (approx. A$1.2 billion) pay an effective minimum level of tax on the income arising in each jurisdiction where they operate.

The global minimum tax rules will allow Australia to apply a top up tax on a resident multinational parent or subsidiary company where the group’s income is taxed below 15%.

Where the tax paid by a large multinational in a jurisdiction does not reach the 15% global minimum effective tax rate, the rules will determine an amount of top up tax. That amount is collected through either:

  • The Domestic Minimum Tax which will allow Australia to collect any top up tax on Australian profits, where the effective rate is below 15%;
  • The Income Inclusion Rule which will allow Australia to collect any top up tax on the undertaxed profits of an Australian entity’s foreign subsidiaries located in jurisdictions where no domestic minimum tax is in place; and
  • The Undertaxed Profits Rule which will allow Australia to collect a proportion of any top up tax on a foreign headquartered multinational if it has income in a jurisdiction which is being taxed below the global minimum rate of 15% and no Income Inclusion Rule applies. In that case, the share of top-up tax Australia will collect will be based on the proportion of the large multinational group’s employees and value of tangible assets in Australia relative to other countries.

The Domestic Minimum Tax and the Income Inclusion Rule will apply for income years commencing on or after 1 January 2024 while the Untaxed Profits Rule will apply for years of income starting on or after 1 January 2025.

Electric Car Discount

The electric car discount provides an FBT exemption for an eligible zero or low emissions vehicles, first held and used on or after 1 July 2022.

From 1 April 2025, plug-in hybrid electric cars will no longer be eligible for the FBT exemption. The FBT exemption remains available to arrangements involving plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025.

Patent Box Measures will Not Proceed

The Government will not proceed with three separate patent box measures announced by the former Government in the 2021–22 and 2022–23 March Budgets.

TAX ADMINISTRATION MEASURES

Lodgement Penalty Amnesty Program

A lodgement penalty amnesty program will be provided for small businesses with an aggregated turnover of less than $10 million 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 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 28 February 2022.

Halving the Adjustment Factor Increase Applied to Quarterly Tax Instalments

The Government will reduce the GDP adjustment factor for pay as you go (‘PAYG’) and GST instalments from 12% to 6% for the 2023-24 income year.

The reduced GDP adjustment rate will apply to small to medium enterprises with aggregated turnover up to:

  • $10 million for GST instalments; and
  • $50 million for PAYG instalments.

OTHER MEASURES

Expanding the General Anti-Avoidance Rule in the Income Tax Law

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 applies to 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, 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.

Driving Collaboration with Small Business to Reduce Compliance

The Government will provide additional funding to the ATO to lower the tax administration burden for small businesses. This measure includes:

  • From 1 July 2024 – an 18 month trial of an expansion of the ATO independent review process to small business with aggregated turnover between $10 million and $50 million who are subject to ATO audit. The trial will run from 1 July 2024 to 31 December 2025;
  • From 1 January 2025 – five new tax clinics to improve access to tax advice and assistance for small businesses;
  • From 1 July 2024 – small businesses will be permitted to authorise their tax agent to lodge multiple Single Touch Payroll forms on their behalf;
  • From 1 July 2024 – small businesses will benefit from faster income tax refunds by reducing the use of cheques; and
  • From 1 July 2025 – small businesses will be permitted up to four years to amend their income tax returns.

Disclaimer

The material contained in this newsletter is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this newsletter without taking appropriate professional advice.

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UHY Haines Norton · 11/1 York Street · Sydney, NSW 2000 · Australia