Key takeaways from the 2023 Australian Federal Budget

In his second budget since winning power in May last year, Treasurer Jim Chalmers boasted the first budget surplus in 15 years as strong jobs growth and high mining revenue swelled its coffers. The Treasurer announced a package of cost-of-living measures, including up to $3 bn in energy bill relief (expected to reduce power bills by up to $500 for 5 million households) and $1.3bn for home energy upgrades. With that in mind, what are the key takeaways from the 2023 Australian Federal Budget?

Let’s have a look at the Budget in more detail.

 General

• The Budget forecasts the underlying cash balance to be in surplus by $4.2 billion in 2022–23, the first surplus since 2007–08, followed by a forecast deficit of $13.9 billion in 2023–24.

• No changes were announced to the Stage 3 personal income tax cuts legislated to commence on 1st July 2024.

The third stage of legislated tax cuts is proceeding despite media speculation that Labor would scrap these tax cuts. From 1 July 2024, legislated tax thresholds will apply:

• As part of the measures introduced for small business, a temporary $20,000 threshold for the small business instant asset write-off will apply for one year, following the end of the temporary full expensing rules.

• Superannuation pensions – no reduction in the minimum drawdowns for FY2023-24 onwards.

The Budget did not announce a further extension to 2023-24 of the temporary 50% reduction in the minimum annual payment amounts for superannuation pension and annuities. The 50% reduction in the minimum pension payment which applied since 2019-20 is set to end on 30 June 2023.

Business

• The instant asset write-off threshold for small businesses applying the simplified depreciation rules will be $20,000 for the 2023–24 income year.

Small businesses (aggregated annual turnover less than $10 million) may choose to calculate capital allowances on depreciating assets under a simplified regime. Under these simplified depreciation rules, an immediate write-off applies for low-cost depreciating assets. The measure will apply a $20,000 threshold for the immediate write-off, applicable to eligible assets costing less than $20,000 first used or installed between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write-off multiple low-cost assets. The threshold had been suspended during the operation of temporary full expensing from 6 October 2020 to 30 June 2023.

Please note – assets costing $20,000 or more will continue to be placed into a small business depreciation pool under the existing rules.

• An additional 20% deduction will be available for small and medium business expenditure supporting electrification and energy efficiency.

The additional deduction will be available to businesses with aggregated annual turnover of less than $50 million. Eligible expenditure may include the cost of eligible depreciating assets, as well as upgrades to existing assets, that support electrification and more efficient use of energy. Certain exclusions will apply, including for electric vehicles, renewable electricity generation assets, capital works, and assets not connected to the electricity grid that use fossil fuels.

Examples of expenditure the measure will apply to include:

• • assets that upgrade to more efficient electrical goods (energy-efficient fridges)
  • assets that support electrification (heat pumps and electric heating or cooling systems), and
  • demand management assets (batteries or thermal energy storage).

Total eligible expenditure for the measure will be capped at $100,000, with a maximum additional deduction available of $20,000 per business.

When enacted, the measure will apply to eligible assets or upgrades first used or installed ready for use between 1 July 2023 and 30 June 2024.

• FBT exemption for eligible plug-in hybrid electric cars will end 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 exemption.

• An increased capital works deduction rate and reduced withholding on managed investment trust (MIT) payments will apply to new build-to-rent projects.

An increased capital works deduction rate will apply to eligible new build-to-rent projects where construction commences after 7:30 pm (AEST) on 9 May 2023 (budget night).

The capital works deduction rate will increase from 2.5% to 4% per year for eligible new build-to-rent projects. Taxpayers can claim a deduction for capital expenditure incurred in constructing capital works, such as income-producing buildings, under Division 43.

The measure will apply to build-to-rent projects consisting of 50 or more 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 will be required to offer a lease term of at least 3 years for each dwelling.

• The Location Offset rebate and the Qualifying Australian Production Expenditure thresholds will be increased to boost investment in film production in Australia.

The Location Offset rebate for films will be increased to 30% of Qualifying Australian Production Expenditure (QAPE) from the current 16.5% rate. The increase is intended to attract investment from large-budget screen productions and provide domestic employment and training opportunities. The minimum QAPE thresholds will be increased to $20 million for feature films (currently $15 million) and $1.5 million per hour for television series (currently $1 million). Funding for these measures have been allocated for 4 years beginning from 2024–25.

• Deductible gift recipients list to be updated.

Individuals

• Income support payment base rates will be increased by $40 per fortnight.

The increase will apply to JobSeeker Payment, Youth Allowance, Parenting Payment (Partnered), Austudy, ABSTUDY, Disability Support Pension (Youth) and Special Benefit from 20 September 2023.

• The minimum age for which older people qualify for the higher JobSeeker Payment rate will be reduced from 60 to 55 years.

This applies to those who have received the payment for 9 or more continuous months.

Eligible recipients will receive an increase in their base rate of payment of $92.10 per fortnight.

• The workforce participation incentive measures to support pensioners who want to work without impacting their pension payments will be extended for another 6 months to 31 December 2023.

Under this measure, pensioners can earn up to $11,800 before their pension is reduced.

• Eligibility for Parenting Payment (Single) will be extended to support single principal carers with a youngest child under 14 years of age.

The existing eligibility provides support to single principal carers with a child aged under 8 years of age.

Improved support for single parents will provide wellbeing benefits particularly for single mothers, who are overwhelmingly the recipients of this payment, and their children. This measure recognises that caring responsibilities can act as a barrier to employment while also recognising that connections with the labour force are likely to improve economic outcomes throughout a carer’s lifetime.

• Housing measures will be introduced to increase support for social and affordable housing and improve access for home buyers.

• The maximum rates of the Commonwealth Rent Assistance (CRA) allowances will be increased by 15% to help address rental affordability challenges for CRA recipients.

• CPI indexed Medicare levy low-income threshold amounts for singles, families, and seniors and pensioners for the 2022–23 year announced.

The new thresholds are:

• Eligible lump sum payments in arrears will be exempt 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, for example, as compensation for underpaid wages.

Eligibility requirements will ensure that relief is targeted to taxpayers who are genuinely low-income and should be eligible for a reduced Medicare levy. To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the 2 most recent years to which the lump sum accrues.

Multinationals

• Australia will implement key aspects of the Pillar Two solution of the OECD/G20 BEPS Project, meaning certain large multinationals will be subject to a 15% minimum tax in the jurisdictions in which they operate.

• The scope of the general anti-avoidance rules in Pt IVA of ITAA 1936 will be expanded from 1 July 2024.

Superannuation

• Superannuation earnings tax concessions will be reduced for individuals with total superannuation balances in excess of $3 million from 1 July 2025.

From 1 July 2025, earnings on balances exceeding $3 million will incur a higher concessional tax rate of 30% (up from 15%) for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million.

The change does not impose a limit on the size of superannuation account balances.

Earnings relating to assets below the $3 million threshold will continue to be taxed at 15%, or zero if held in a retirement pension account.

Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests.

• Employers will be required to pay their employees’ superannuation guarantee (SG) entitlements at the same time as they pay their salary and wages from 1 July 2026.

Employers are currently required to make SG contributions for an employee on a quarterly basis to avoid incurring a superannuation guarantee charge.

From 1 July 2026, employers are required to make super guarantee payments on the same day they pay employees. Referred to as ‘payday’ super, this measure aims to make it easier for businesses to manage their payrolls and reduce their accounting liabilities.

As part of this measure, the Government is also improving data matching capabilities to identify and act on cases of SG underpayment by employers.

This measure benefits lower paid, casual, and insecure workers who are more likely to miss out when super is paid less frequently.

The proposed commencement date of 1 July 2026 is intended to provide employers, superannuation funds, payroll providers and other stakeholders sufficient time to prepare for the change.

Tax Administration

• 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.

The government will provide $21.8 million over 4 years from 2023–24 (and $1.4 million per year ongoing) to the ATO to lower the tax-related administrative burden for small and medium businesses.

• Reduction in GDP adjustment factor for pay as you go and GST instalments.

The GDP adjustment factor for pay as you go (PAYG) and GST instalments will be set at 6% for the 2023–24 income year, a reduction from 12% under the statutory formula.

The 6% GDP adjustment rate will apply to small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregate turnover for PAYG instalments) in respect of instalments that relate to the 2023–24 income year and fall due after the enabling legislation receives assent.

• Funding to improve the administration of student loans.

• Additional funding will be provided to address the growth of businesses’ tax and superannuation liabilities, and a temporary lodgement penalty amnesty program will be provided to small businesses.

Funding will be provided over 4 years from 1 July 2023 to enable the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities.

The additional funding will facilitate ATO engagement with taxpayers who have high-value debts over $100,000 and aged debts older than 2 years.

A lodgement penalty amnesty program is being 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.

• The Personal Income Tax Compliance Program will be extended for 2 years from 1 July 2025 and its scope expanded from 1 July 2023.

This extension will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, and to expand the scope of the program to address emerging areas of risk, such as deductions relating to short-term rental properties to ensure they are genuinely available to rent.

GST & Other Indirect Taxes

• Funding for GST compliance will be extended for a further 4 years to address emerging risks to GST revenue.

Nearly $600 million will be allocated, over an additional 4 years, to GST compliance. This is estimated to generate additional GST receipts of $3.8 billion and the same amount again in other taxes over the 5 years from 2022-23.

This funding extension will support the development of more sophisticated analytical tools to address emerging risks to GST revenue.

• The Heavy Vehicle Road User Charge rate will increase 6% per year from 2023–24 to 2025–26.

• Tobacco excise and excise-equivalent customs duty will be increased by 5% per year for 3 years from 1 September 2023, in addition to ordinary indexation.

Those are the Key takeaways from the 2023 Australian Federal Budget. If you need clarification on any of the content above? Feel free to contact us for further information. 

We will be having a webinar next week discussing what the budget means for you. You can register here and see our previously recorded webinars, such as tax planning, or small business strategies over on the webinar page.