2023 – 2024 Federal Budget Announcement

Last night’s 2023/24 Federal Budget announcement did not deliver any major surprises, but there are a number of key announcements. We have summarised the key issues below. If you need to discuss your specific circumstances, our team is ready to speak with you about your situation.

Stage 3 Tax Cuts:

The budget did not announce any changes to the legislated stage 3 tax cuts set to commence 1 July 2024. To recap – these tax cuts will see the tax rate for taxable income between $45,001 & $200,000 reduced to 30% (Previously 32.5% to 45%) with the 45% tax bracket kicking in at taxable income in excess of $200,000 (previously $180,000). Tax rates for the 2023 & 2024 financial year have remained unchanged.

Instant Asset Write-off:

Previously an unlimited amount, it was announced last night that the small business instant asset write-off will now be capped at $20,000.

This incentive affects small businesses with an aggregated annual turnover of less than $10m and will allow them to immediately claim a tax deduction for the full cost of eligible assets with purchase price of less than $20,000. It relates to assets that are first used or held ready for use between 1 July 2023 and 30 June 2024 and applies to each asset – meaning that eligible businesses can instantly write off multiple assets under the $20,000 limit in the year. Further conditions apply.

Low and Middle Income Tax Offset:

It was confirmed that the Low and Middle Income Tax Offset (LMITO) will not be extended past the financial year ended 30 June 2022. LMITO was brought in for the 2018-2019 – 2021-2022 tax years and offered up to $1,500 in income tax relief for those earning $126,000 or less.

‘Build to Rent’ Capital Works Deduction:

The capital works tax deduction rate for eligible new construction will increase from 2.5% to 4% under the ‘Build to Rent’ tax initiative to increase the supply of rental housing. Eligible construction includes projects of 50 or more apartments or dwellings that are made available for rent to the general public under minimum 3-year lease terms. The properties must be retained under single ownership for a minimum of 10 years.  This incentive will benefit property developers and residential accommodation providers.

Small Business Amnesty:

Small businesses (business entities with turnover of < $10m per annum) will be able to lodge historically late Income Tax Returns and BAS without fear of fear of fines for late lodgement, if they are lodged by 31 December 2023. Note that interest on any outstanding taxes will still apply.

We expect this will apply to:

• Tax returns for the 2019, 2020, and in some circumstances 2021 financial years
• BAS for the quarter ended 31 December 2019 through to the quarter ended 31 December 2021, inclusive.

Fringe Benefits Tax Exemption on Electric Cars:

Last year, the government introduced a fringe benefits tax exemption for eligible electric cars held and ready for use on or after 1 July 2022. The budget papers confirmed that this exemption will cease to apply for plug-in hybrid electric vehicles from 1 April 2025 (except where the use of the vehicle was exempt before that date, and there is a financially binding commitment to continue providing private use of the vehicle from that date). The exemption will continue to apply for other eligible electric vehicles, such as battery electric vehicles and hydrogen fuel cell electric vehicles. The government will review the policy again in 2025.

Small Business Energy Incentive: 20% Bonus Deduction:

This incentive will provide businesses (with an annual turnover of less than $50 million) an additional 20% deduction on spending that supports electrification and more efficient use of energy. It will apply to a range of depreciating assets, as well as upgrades to existing assets that are first used or installed ready for use between 1 July 2023 and 30 June 2024. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.

Assets included are 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.

As always, certain exclusions will apply, such as electric vehicles, renewable energy generation assets, capital works and assets that are not connected to the electricity grid and use fossil fuels. Full details of eligibility criteria are yet to be finalised.

Payments of Super during Payrun:

As announced last week, employers will now have to pay their employees superannuation at the time as they pay their wages, rather than paying them each quarter. This is due to come into effect from 1 July 2026. There is not much information available on this change at the moment, but the government has stated that they will spend the second half of 2023 consulting with industry stakeholders with a final plan to be announced in the 2024-2025 budget.

Superannuation Pension Drawdowns:

The temporary 50% reduction in the minimum annual payment for superannuation pensions that was introduced during COVID has not been extended. This means that from 1 July 2023, members will need to ensure they meet their minimum pension requirements under the new drawdown amounts. Below is a table of the COVID-introduced draw down requirements compared to the new drawdown requirements.

Super Changes for Members with Account Balances > $3M:

In February 2023, the Federal Government foreshadowed changes to the taxing treatment of income arising from Superfund member balances greater than $3M.

The Budget, whilst confirming the Government’s intention to implement the strategy, has provided no further details on the plan.

The key details as previously announced are:

• Applies to Superfund Member balances exceeding $3M
  • Members balance will cover multiple funds, and
  • is proposed to include unrealised gains and losses.
• Superfund tax is currently 15% in the accumulation phase. This will continue.
• Additional tax is to be applied at 15% on earnings on the portion of member balance that exceeds $3M

The proposal is likely to affect 80,000 people, according to Government papers.

– Ian Hogbin, James Davis, Catherine Stojcevska & Brad Sheaves

Posted 10 May 2023