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Federal Budget 2023/24

 

The new federal budget was released on 9 May 2023. Here are some highlights.

 

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Changes affecting individual taxpayers:

 

Increasing the Medicare levy low-income thresholds

The Government will increase the Medicare levy low-income thresholds for singles, families, seniors and pensioners from 1 July 2022. For example, the family threshold will be increased from $39,403 to $40,939.

 

Discontinuing the low and middle income tax offset

With no extension announced in the budget, the low and middle income tax offset is no longer available from 1 July 2022 onwards.

 

Removing fringe benefits tax exemption for plug-in hybrid electric cars

The Government will remove plug-in hybrid electric cars from the fringe benefits tax exemption for eligible electric cars. This change will be effective from 1 April 2025. Plug-in hybrid electric cars purchased and first used between 1 July 2022 and 31 March 2025 remain eligible for the exemption. This does not affect the fringe benefits tax exemption for other eligible electric cars which purchased and first used after 1 July 2022.

 

 

Changes affecting businesses:

 

$20,000 instant asset write-off

The instant asset write-off threshold will be $20,000 from 1 July 2023 to 30 June 2024 for the small businesses with an aggregated annual turnover of less than $10 million. The threshold will apply on a per-asset basis, so small businesses can instantly write off multiple assets which are first used between 1 July 2023 and 30 June 2023. Assets valued at $20,000 or more can be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% in each subsequent income year.

 

New Energy Incentive for small businesses

Businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of the cost of eligible depreciating assets that support electrification and provide more efficient energy use. Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with the maximum additional deduction of $20,000.

 

Purchases of eligible depreciating assets and upgrades to existing eligible assets will qualify for the Small Business Energy Incentive. These include assets that upgrade 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.  These assets and upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.

 

Reducing the GDP adjustment rate for tax instalments

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 income year 2024, instead of 12% under the standard statutory formula.

 

Accelerating capital works deductions for Build-To-Rent developments

For eligible new build-to-rent projects where construction commences after 9 May 2023, the Government will increase the rate for the capital works deduction to 4% per year. This will apply to build-to-rent projects consisting of at least 50 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 three years for each dwelling.

 

 

Changes affecting superannuation:

 

Amending the non-arm’s length income provisions for superannuation funds

Originally, if a superannuation fund’s expenses were lower than they would have been in an arm’s length situation, the fund’s income (including contributions) could be deemed to be non-arm’s length income and taxed at a higher rate. The Government will exempt large superannuation funds regulated by the Australian Prudential Regulation Authority from the non-arm’s length income provisions.

 

Increasing tax rate to 30% for superannuation balances above $3 million

From 1 July 2025, the Government will reduce the tax concessions available to individuals with a total superannuation balance above $3 million. Individuals with a total superannuation balance below $3 million will not be affected. The tax rate will continue to be 15% for the superannuation balances below the $3 million threshold.

 

Increasing the frequency of superannuation guarantee payments

From 1 July 2026, the Government will require employers to pay their employees’ superannuation guarantee contributions on the same day that they pay salary and wages. At the moment, employers are required to pay their employees’ superannuation guarantee quarterly. By increasing the payment frequency to align with the payment of salary and wages, this can ensure employees have greater visibility over whether their superannuation funds have been paid and enable the ATO to monitor and recover unpaid superannuation.

 

 

Other changes:

 

Extending compliance program for personal income tax

The Government will provide $89.6 million to the ATO to extend the Personal Income Tax Compliance Program for two years from 1 July 2025 and expand its scope from 1 July 2023. This extension will enable the ATO to continue a combination of proactive, preventative and corrective activities in highlighted areas of non-compliance, and to expand the scope of the program to address emerging areas of risk.

 

Four-year extension for GST compliance program

The Government will provide $588.8 million 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 obligations, including accurately accounting for and remitting GST, and correctly claiming GST refunds.

 

Expanding general anti-avoidance rule

The Government will expand the scope of the general anti-avoidance rule for income tax so that it can apply to the schemes or arrangements 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 when the scheme was entered into.

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Vincent Wan

CPA, Registered Tax Agent

May 2023