The 2023-24 Federal Budget estimates a $4.2bn surplus; the first in 15 years.
The surplus was driven by a surge in the corporate and individual tax take. High commodity prices, inflation, and high employment have all pushed up corporate and individual tax receipts. But the gains can’t be relied on long term. The Budget is expected to deliver a deficit of $13.9bn in 2023-24, and a $35.1bn deficit in 2024-25.
Social initiatives dominated the Budget:
- Energy bill relief for some households and small business
- Encouraging doctors to offer bulk billing by tripling the incentive for children under 16, pensioners and other Commonwealth card holders
- Increases to commonwealth rent assistance
- Increases to JobKeeper and other income support payments
- Expanding access to the single parenting payment
The legislated stage 3 tax cuts legislated to take effect on 1 July 2024 remain in place
Stage 3 radically simplifies the tax brackets by collapsing the 32.5% and 37% rates into a single 30% rate for those earning between $45,001 and $200,000.
For small business, the instant asset write-off will enable multiple assets of up to $20,000.00 (each) to be written off in the year of purchase.
What Wasn’t in the Budget?
There was no mention of the loss carry back rules for companies, suggesting that these rules will expire on 30 June 2023, along with the temporary full expensing rules. 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.
There is no mention of the simplification of Division 7A – Division 7A captures situations where shareholders access company profits in the form of loans, payments or the forgiveness of debts. The 2016-17 Federal Budget proposed changes to reduce the compliance burden of Division 7A. These changes were initially meant to apply from 1 July 2018 but were deferred a number of times, before the Government announced that any changes would commence from the start of the income year following the date on which the changes receive Royal Assent. Aside from a Treasury discussion paper released back in October 2018, this issue remains in limbo.
The Budget also doesn’t refer to either the Skills and Training Boost or the Technology Investment Boost. These measures, announced by the previous Government, would provide a bonus deduction equal to 20% of qualifying expenditure if the legislation containing these measures is passed in its current form (Treasury Laws Amendment (2022 Measures No. 4) Bill 2022). The Technology Investment Boost is aimed at expenditure incurred between 7:30pm (ACT) on 29 March 2022 and 30 June 2023. The Skills and Training Boost is aimed at expenditure incurred between 7:30pm (ACT) on 29 March 2022 and 30 June 2024.
Below are some key takeaways from the 2023-24 Federal Budget.
Individuals & Families
Energy price pain relief
From 1 July 2023
$1.5bn has been provided over 5 years to provide targeted energy bill relief and progressing gas market reform.
The Energy Bill Relief Fund will provide targeted energy bill relief to eligible households and small business customers, which includes pensioners, Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and small business customers of electricity retailers.
In partnership with the states and territories, the plan is expected to deliver up to $500 in electricity bill relief for eligible households and up to $650 for eligible small businesses.
Funding has also been provided to the ACCC to enforce the temporary cap of $12 per gigajoule on the price of gas and to develop and implement a mandatory gas code of conduct. And, funding for Australian Energy Regulator to monitor coal and gas markets across the National Electricity Market.
The Government expects that retail electricity price increases in 2023-24 will be around 25% smaller and retail gas price increases around 16% smaller as a result of their interventions.
Household Energy Upgrades Fund
A $1.3bn Household Energy Upgrades Fund will be established to support home upgrades that improve energy performance. No, the Government is not giving out cash for upgrades but providing $1bn to the Clean Energy Finance Corporation to provide low-cost finance and mortgages in partnership with private financial institutions for home upgrades that save energy.
$300m is committed to upgrading social housing in collaboration with states and territories. And, over $36m to upgrade the energy ratings systems.
Incentive to provide Medicare bulk billing to concession card holders and children
As previously announced, the bulk billing incentive benefits for consultations for Commonwealth concession card holders and patients aged under 16 years of age will be tripled from 2022-23.
Less people to pay Medicare Levy
From 1 July 2022
The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase from 1 July 2022.
For each dependent child or student, the family income thresholds will increase by a further $3,760 instead of the previous amount of $3,619.
From 20 September 2023
The Government will increase support for people receiving working age payments including JobSeeker.
The base rate of working age and student payments will increase by $40 per fortnight from 20 September 2023. The increase applies to the JobSeeker Payment, Youth Allowance, Parenting Payment (Partnered), Austudy, ABSTUDY, Disability Support Pension (Youth), and Special Benefit.
In addition, eligibility for the existing higher single JobSeeker Payment rate for recipients aged 60 years and over will be extended to recipients aged 55 years and over who are on the payment for 9 or more continuous months.
Single parent payment increase
From 20 September 2023
As previously announced, the age cut-off for the Parenting Payment (Single) will increase from 8 to 14.
From 20 September 2023, (subject to the passage of legislation), single parents will no longer have to transfer to JobSeeker when their youngest child turns eight. Instead, they will continue to receive the higher support, with a current base rate of $922.10 per fortnight until their youngest child turns 14.
As a result, eligible single parents currently on JobSeeker will receive an increase to payments of $176.90 per fortnight.
Single parents moving to Parenting Payment (Single) will also benefit from more generous earning arrangements compared to JobSeeker. Eligible single parents with one child will be able to earn an extra $569.10 per fortnight, plus an extra $24.60 per additional child, before their payment stops.
Increased rent assistance
The maximum rates of the Commonwealth Rent Assistance (CRA) allowances will increase by 15% from 2022-23.
Superannuation & Investors
Clarifying the non-arms length income rules for super funds
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, your brother is a qualified accountant and does all of your SMSF’s accounting work for free (that he would normally charge $5k for).
Currently, where expenses incurred by the fund are not at arm’s length and below market rates, any income derived could be deemed to be non-arm’s length income and taxed at the top marginal tax rate. Expenses are divided into two categories, general and specific. General expenses relate to all of the income of the fund, for example accounting and audit fees. Specific expenses relate to a specific asset such as maintenance expenses on a property owned by an SMSF.
A Treasury consultation paper released in January 2023 recommended amendments to the way NALI is dealt with. The consultation recommended capping the amount of fund income taxable as NALI to 5 times the amount of the breach. The Budget confirms this cap to twice the level of a general expense.
In addition, fund income taxable as NALI will exclude contributions.
Expenditure that occurred prior to the 2018-19 income year will be exempt.
And, as per the consultation, large APRA regulated funds will be exempted from the NALI provisions for both general and specific expenses of the fund.
Confirmed 30% tax on super earnings above $3m
From 1 July 2025
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.
Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests.
Individuals will have the choice of paying the tax personally or from their superannuation fund and those with multiple accounts can nominate which fund will pay the tax.
This measure is estimated to increase tax receipts by $950m and increase payments by $47.6m over the 5 years from 2022-23.
Business & Employers
$20,000 Small business instant asset write-off
From 1 July 2023 to 30 June 2024
Small businesses, with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.
“Immediately deductible” means a tax deduction for the asset can be claimed in the same income year that the asset was purchased and used (or installed ready for use).
If the business is registered for GST, the cost of the asset needs to be less than $20,000 after subtracting the GST credits that can be claimed for the asset. If the business is not registered for GST, it is $20,000 including GST.
The write-off applies per asset, so a small business can deduct the cost of multiple assets.
The rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that falls within the scope of the capital works rules is not expected to qualify.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2024. This will be particularly relevant to small business entities that chose to leave the simplified depreciation system in order to opt-out of applying the temporary full expensing rules to one or more specific assets.
This announcement effectively confirms that the temporary full expensing rules, which have provided an immediate deduction for the full cost of assets acquired from 6 October 2020, will come to an end on 30 June 2023. Small business entities that are considering acquiring depreciating assets with a cost of $20,000 or more and business entities with aggregated turnover of $10 million or more should keep this cut-off date in mind as 30 June 2023 approaches.
$20,000 small business incentives for energy efficiency
From 1 July 2023 to 30 June 2024
As previously announced, the Small Business Energy Incentive provides an additional deduction of 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy.
Up to $100,000 of total expenditure will be eligible, with a maximum bonus deduction of $20,000.
The incentive is available to small and medium businesses with aggregated annual turnover of less than $50 million.
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.
‘Payday’ super – increasing payment frequency of employee super
From 1 July 2026
As previously announced, from 1 July 2026, employers will be required to pay their employees’ super guarantee (SG) entitlements on the same day that they pay salary and wages.
Currently, SG is paid quarterly.
The Government will undertake a consultation process with the aim of providing details of the final design of the measure in the 2024-25 Federal Budget.
Hybrid cars are excluded from FBT exemption for electric cars
From 1 April 2025
As previously announced, plug-in hybrid electric cars will be excluded from the fringe benefits tax (FBT) exemption for eligible electric cars from 1 April 2025.
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.
Tax breaks for build-to-rent developments
As previously announced, the Government is actively sweetening the deal for build-to-rent developments.
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. 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.
The reduced MIT withholding tax rate for residential build-to-rent will apply from 1 July 2024. The Government will work through a consultation process to determine implementation details, including any minimum proportion of dwellings being offered as affordable tenancies and the length of time dwellings must be retained under single ownership.
Government & Regulators
Extending Part IVA anti-avoidance rules
From 1 July 2024
Part IVA is the general anti-avoidance provision that the ATO can use to attack arrangements that are entered into in order to obtain tax benefits.
The scope of Part IVA will be extended so that it can apply to:
- Schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents
- 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 whether the scheme was entered into before that date.
Small business ATO compliance
Among the programs to reduce the compliance burden on small business is a series of initiatives to cut paperwork. These include:
- 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, the ATO will reduce the use of cheques for income tax refunds.
- From 1 July 2025, small businesses will be permitted up to 4 years to amend their income tax returns (generally 2 years).
Personal income tax compliance and rental property owners under scrutiny
From 1 July 2025
The ATO will receive $89.6m and Treasury $1.2m over two years to extend the personal income tax compliance program for two years and to expand it to target emerging issues such as deductions relating to short-term rental properties to ensure they are genuinely available to rent.
Lowering tax and super liabilities
From 1 July 2023
The ATO and Treasury will be funded to address the growth in tax and superannuation liabilities. The focus is on:
- High-value debts over $100,000
- Aged debts older than two years where those taxpayers are either:
- Public and multinational groups with an aggregated turnover of greater than $10 million, or
- Privately owned groups or individuals controlling over $5 million of net wealth.
Small business lodgment penalty amnesty
Small businesses with an aggregated turnover of less than $10m, will be able to access a lodgment penalty amnesty program. 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.
Support for SMEs and start-ups
An Industry Growth Program will support SMEs and start-ups to commercialise their ideas and grow their operations (businesses operating in the National Reconstruction Fund are a priority). The program has $392.4 million over 4 years.
An additional $39.6m over 4 years will support the Single Business Service to help SMEs engage with Government.
A small business wardens program through the Council of Small Business Organisations Australia (COSBOA) will support small businesses to build in-house capability to protect against cyber threats. $23.4 million has been provided over 3 years from 2023-24.
Reintroduction of work hour cap on international student visa holders
From 1 July 2023
During the pandemic, the cap on the number of hours an international student visa holder could work was removed.
From 1 July 2023 a work cap of 48 hours per fortnight will be reinstated. International students working in the aged care sector will be exempt from the cap until 21 December 2023.
In surplus… for now
The surplus was driven by a surge in the corporate and individual tax take. High commodity prices, inflation, and high employment have all pushed up corporate and individual tax receipts. But the gains can’t be relied on long term. The Budget is expected to deliver a deficit of $13.9 billion in 2023-24, and a $35.1bn deficit in 2024-25.
Inflation to drop to 3.25%
While remaining persistently high for longer than anticipated, inflation is expected to fall from 6% to 3.25% in 2023-24.
The $3bn energy relief partnership with the states and territories and the temporary price cap on gas and black coal, are estimated to lower inflation by 0.75% in 2023-24.
Debt still an issue
Gross debt to GDP is expected to peak lower and earlier at 36.5% of GDP in 2025-26. While $154bn less than the March 2022 expectations, it is an eye watering $1.015 trillion. Net debt rises steadily to 24.1% of GDP to $702.9bn in 2026-27. And, this is assuming the Government can deliver on its anticipated savings reigning in the National Disability Insurance Scheme from a growth rate of 14% to 8%.
Growth slow down
Growth is expected to slow. Real GDP growth is expected to slow to 1.5% in 2023-24, before rising to 2.25% in 2024-25.
Unemployment remains low
The unemployment rate is projected to remain low by historical standards, rising modestly to 4.25% in 2023–24 and 4.5% per cent in 2024-25.
Notable Budget savings include:
- Tax on super balances above $3m
- Compliance programs matched to the ‘payday’ super guarantee changes
- Reforms to how liquid natural gas projects are taxed
- Implementing a global minimum tax and a domestic minimum tax
All up, the Government expects $13.7bn in improvements related to tax receipt measures.