2023-24 Budget Report
The 2023-24 Federal Budget was handed down on 9 May. It contains changes to business and personal taxation, superannuation, social security entitlements, as well as the cost of living relief. Following are some of the headline measures, many of which are subject to enabling legislation.

Business

Less generous depreciation

Temporary full expensing (TFE) will cease and be replaced by a $20,000 instant asset write-off (IAWO) from 1 July 2023.

Under this change, small businesses (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 is first used or installed ready for use between 1 July 2023 and 30 June 2024. Assets valued at $20,000 or more (which cannot be immediately deducted) will be placed into a small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

For larger businesses, the write-off threshold is cut to $1,000.

TFE, which allows eligible businesses with a turnover of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, is however still available up to 30 June 2023.

Small Business Energy Incentive: 20% bonus deduction

This incentive will provide businesses with an annual turnover of less than $50 million and an additional 20% deduction on spending that supports electrification and more efficient use of energy.

It applies to a range of depreciating assets, as well as upgrades to existing assets. These will 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.

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 lodgement penalty amnesty

A lodgment penalty amnesty program will be provided for small businesses with aggregate 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 from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.

Extension of anti-avoidance rules

From 1 July 2024, the scope of the general anti-avoidance provisions in Pt IVA of the ITAA 1936 will be expanded so that they can apply to (a) schemes that reduce the tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents. Part IVA already applies to schemes that produce a tax benefit by not having any withholding tax liability in respect of an amount paid to a foreign resident; and (b) schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.

Patent box proposals scrapped

The following patent box changes announced in the two previous Budgets will not be proceeding:

• the introduction of concessional tax treatment for eligible corporate income associated with new patents in the medical and biotechnology sectors
• extension of the patent box income measures to provide the same concessional tax treatment for corporate taxpayers who: commercialise their eligible patents linked to certain agricultural and veterinary chemical products; or commercialise their patented technologies, which have the potential to lower emissions.

Build-to-rent properties: building allowance up; MIT withholding rate down

Aimed at increasing the supply of housing for eligible new build-to-rent projects where construction commences after 7:30 PM (AEST) on 9 May 2023 (Budget night), new laws will:

• increase the rate for the capital works tax deduction (depreciation) to 4% per year. his measure will apply to build-to-rent projects consisting of 50 or more apartments or dwellings made available for rent to the general 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
• reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%. This will apply from 1 July 2024.

FBT and electric vehicles: sunset for plug-in hybrids

The new legislation 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.

To recap, in the October 2022 Federal Budget, the government announced that it would exempt from FBT the private use, or availability for use, of cars to current employees that are zero or low emissions vehicles with a value at first retail sale below the luxury car tax threshold for fuel-efficient vehicles. This is aimed at encouraging a greater take up of electric cars by Australian road users to reduce Australia’s carbon emissions from the transport sector by making electric cars more affordable. The new law applies to fringe benefits provided on or after 1 July 2022 for cars that are eligible for zero or low emissions vehicles that are first held and used on or after 1 July 2022

Changes to PRRT

The Budget confirms the major changes to the Petroleum Resource Rent Tax (PRRT) as it applies to the LNG industry.

The government is proposing a cap on the use of deductions from 1 July 2023. The cap will limit deductible expenditure to the value of 90% of each taxpayer’s PRRT assessable receipts in respect of each project interest in the relevant income year and apply after mandatory transfers of exploration expenditure. The amounts that are unable to be deducted because of the cap will be carried forward and uplifted at the Government long-term bond rate.

The cap will only apply to PRRT projects that produce LNG. Projects would not be subject to the cap until seven years after the year of first production or from 1 July 2023, whichever is later.

Individuals

No change to the Stage 3 tax cuts

The government did not propose any changes to the legislated Stage 3 tax cuts whereby 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. The 37% tax bracket will be entirely abolished at this time.

On the face of it, lowering the 32.5% to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper- middle-income earners. But it will actually be a much bigger win for higher-income earners in dollar terms. For example, an individual who earns:

• $75,000 will be better off by $750 per year compared to now
• $125,000 will be better off by $2,225
• $200,000 will be better off by $9,075.

The changes are as follows:

2022-23 Thresholds          2022-23 Tax rates                                          

Up to $18,200                           Nil

$18,201 – $45,000                    19%

$45,0001 – $120,000              13.2%

$120,000 – $180,000              37%

$180,000 and over                   45%

2024-25 Thresholds            204-25 Tax rates   

Up to $18,200                            Nil

$18,201 –  $45,000                   19%

$45,001 – $200,000                 30%

$200,001 and over                    45%

 

Low-and middle-income tax offset (LMITO) not extended

This tax offset ceased from 1 July 2022. The LMITO was introduced by the former Coalition government in 2018. It was only meant to be paid out once but was twice extended due to the pandemic. This offset was not extended on Budget night, and no replacement tax relief was offered to low- and middle-income earners.

Consequently, low-income earners may face an increased tax liability of up to $1,500 when upcoming 2022/23 tax returns are lodged.

Superannuation

The 15% additional tax on superannuation “earnings” for individuals with account balances above $3 million from 1 July 2025 has been confirmed. This will be in addition to the current superannuation income tax rate of 15%, applying to the whole of fund earnings. No further details were provided in the Budget papers.

This is an extra tax impost for individuals, though it is forecast to impact less than 0.5% of people with a superannuation account. The tax can be paid by the superannuation fund or the individual. The $3 million threshold is not indexed.

 

Super Guarantee payable on payday from 1 July 2026

This will require all employers to pay their employees’ super guarantee at the same time as their salary and wages (e.g. weekly or fortnightly etc., instead of every three months) from 1 July 2026.

This may impact employer cash flow. From an employee standpoint, however, it will increase the transparency of SG payments and also boost retirement savings. For example, the Treasurer says that a 25-year-old median income earner currently receiving their super quarterly and wages fortnightly could be around $6,000, or 1.5% better off at retirement.

 

No reduction to the minimum drawdown for super pensions for 2023/24

The temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities will not be extended into 2023/24.

Pension recipients will need to drawdown minimums of 50% more than applies this financial year. Minimum payments are determined by the age of the beneficiary and the value of the account balance as of 1 July each year. Failure to meet the minimum drawdown amounts may mean that the pension will be treated as having ceased at the start of that income year for tax purposes.

 

NALI changes – proposed multiple reduced

The government is proposing to amend the non-arm’s length income (NALI) provisions that apply to certain expenses incurred by superannuation funds. Specifically relevant to SMSF trustees, the government is proposing to limit the level of a fund’s income that is

potentially taxable as NALI to twice the level of an impacted ‘general’ expense.

The government had previously proposed that the maximum amount of income, subject to the highest marginal rate, would be five times the level of the general expenditure breach. A reduction to a multiple of two (instead of five) is welcome.

Social security and cost of living

Boost to Centrelink payments

A base-rate increase of $40 per fortnight for about 1.1 million Australians on support payments, including JobSeeker, Austudy and Youth Allowance.

Jobseeker increased

A JobSeeker payment increase of $92.10 per fortnight will kick in for about 52,000 people aged over 55 who have been on the allowance for nine or more straight months. This currently applies only to those aged over 60.

Power bill rebates

$500 energy rebates for 5.5 million households and 1 million businesses. Relief will be targeted to pensioners, Commonwealth Seniors Health Card holders, and households receiving income support, including Family Tax Benefit A and B. Income limits apply.

Sole parents

Sole parents will be able to receive the single parenting payment until their youngest child turns 14 – up from the current age of eight.

Rent assistance

15% increase to the rate of Commonwealth. Rent Assistance, providing up to an additional $31 a fortnight for about 1.1 million eligible households.