Highlights of the 2023-24 Federal Budget
Last night Treasurer Jim Chalmers handed down the 2023-24 Federal Budget. Our team have pored through the detail and extracted the highlights & key takeaways which are summarised for you below.
There were no big surprises from what was previously announced.
For our clients that like to understand the detail, we have put together a longer form PDF document, which you can access via the link at the end of this blog.
We will be releasing additional content outlining further detail of the instant asset write-off rules given we are fast approaching the cut-off date of 30 June 2023 for the temporary expensing rules.
Our highlights of the 23/24 Federal Budget
Business & Employers
The instant asset write-off threshold for small businesses applying the simplified depreciation rules will be $20,000 for the 2023–24 income year. We will be exploring this one in further detail in our next blog to help you understand the impact of this as we approach the cut-off date of 30 June 2023 for the temporary full expensing provisions.
An additional 20% deduction will be available for small and medium businesses with turnover less than $50M incurring expenditure up to $100,000 to support electrification and energy efficiency.
While the full detail of what qualifies for the incentive is not yet available, it is expected to apply to a range of depreciating assets and upgrades to existing assets such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.
Some exclusions will apply including electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.
Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus deduction
Employers will be required to pay their employees’ superannuation guarantee entitlements at the same time as they pay their salary and wages from 1 July 2026. Currently super guarantee is required to be paid quarterly. This change will require planning and adjustments to business processes and cash flow management, so thankfully there will be time to make adjustments before 1 July 2026.
Reduction in GDP adjustment factor for Pay As You Go (PAYG) and GST instalments. Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift.
In 2022-23, the Government reduced this uplift factor to 2% instead of the 10% rate that would have applied. And now for 2023-24, the Government has set the uplift factor to 6% instead of the 12% rate that would have applied.
For eligible new build-to-rent projects where construction commences after 7:30pm AEST on 9 May 2023, the Government will:
Increase the rate for the capital works tax deduction (depreciation) from 2.5% to 4% p.a.
Reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%.
The measure applies to build-to-rent projects where 50 or more apartments are made available to rent to the general public.
Additional funding will be provided to address the growth of businesses’ tax and superannuation liabilities, and a temporary lodgment penalty amnesty program will be provided to small businesses with outstanding lodgments.
Funding will be provided to the ATO over 4 years to lower the tax-related administrative burden for small and medium businesses, cut paperwork and reduce time small businesses spend doing taxes.
Superannuation
30% tax on Superannuation earnings for individuals with total superannuation balances in excess of $3 million from 1 July 2025.
As previously announced, an additional tax of 15% on earnings will apply to individuals with a total superannuation balance over $3 million at the end of a financial year from 1 July 2025. The definition of total superannuation balance (TSB) for the new tax uses the current definition and includes amounts in retirement phase pensions.
The calculation for the tax aims to capture growth in TSB over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.
The non-arm’s length income (NALI) provisions will be amended to provide greater certainty to taxpayers.
The non-arms length income (NALI) rules prevent superannuation trustees artificially increasing the balance of the fund, and accessing preferential tax treatment on the higher amount, by failing to recognise expenses incurred by the fund provided by a related party at a reduced rate. For example, a family member is a qualified accountant and does all of your SMSF’s accounting work for free OR the SMSF does not pay for expenditure relating to a renovation of a property owned by the Fund that a relative does work for.
There has been great uncertainty as to how this would apply and the Budget now confirms this cap to twice the level of a general expense. For example, a $2,000 expense shortfall in a single year could result in tax of $1,800.
What wasn’t in the budget?
The Budget did not announce any changes to the Stage 3 personal income tax changes, which are set to commence from 1 July 2024, as previously legislated. From 1 July 2024, there will be one big tax bracket between $45,000 and $200,000 with the 32.5% and 37% brackets reducing to 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less. The government is facing a lot of pressure on these changes due to the projected costs to the forward budget estimates so there are no guarantees that these will remain come 1 July 2024.
No mention of the loss carry back rules for companies, suggesting that these rules will expire on 30 June 2023. The loss carry back rules allow eligible companies to apply tax losses against taxable profits made in certain previous income years, rather than carrying them forward to future years.
The Budget also doesn't refer to either the Skills and Training Boost or the Technology Investment Boost which still has not passed into legislation. These measures, announced by the previous Government, would provide a bonus deduction equal to 20% of qualifying Technology and Training expenditure. The Technology Investment Boost is aimed at expenditure incurred between 29 March 2022 and 30 June 2023 whilst the Skills and Training Boost is aimed at expenditure incurred between 29 March 2022 and 30 June 2024. It remains unclear whether these initiatives will become legislation.
Want to dig into more detail from the budget?
Click here to download our comprehensive PDF document which covers all of the major talking points from the budget.