2023-24 Federal Budget Review

On the 9th of May 2023, Treasurer Jim Chalmers presented the 2023-24 Federal Budget, his second budget following the October 2022 budget. The budget includes several measures aimed at easing the cost of living. One of the key announcements is a package worth up to $3 billion to provide relief on energy bills. This initiative is expected to reduce power bills by up to $500 for approximately 5 million households. Additionally, $1.3 billion has been allocated for home energy upgrades. These measures have been carefully designed to provide relief without adding inflationary pressures, thus supporting the efforts of the Reserve Bank.

The budget also includes extensions and increases in certain social welfare payments. Access to the Parenting Payment (Single) will be extended, and payments for JobSeeker, Youth Allowance, and rent assistance will see an increase. Small businesses will benefit from a temporary increase in the instant asset write-off threshold, which has been raised to $20,000 for the 2023-24 financial year.

In terms of the budget’s financial outlook, a surplus of $4.2 billion is forecast for 2022-23, but an underlying cash deficit of $13.9 billion is expected in 2023-24, with a projected deficit of $35.1 billion for 2024-25. The budget papers highlight a deteriorating and highly uncertain global economic outlook, with expectations of persistent inflation and rising interest rates leading to a slowdown in real GDP growth. The projected growth rate is estimated to decline from 3.25% in 2022-23 to 1.5% in 2023-24, before rising to 2.25% in 2024-25.

Although inflation is expected to remain high at 6% for the current year, it is predicted to decrease to 3.25% in 2023-24 and return to the Reserve Bank of Australia’s target range of 2-3% in 2024-25. The government believes that its cost-of-living measures will contribute to a 0.75 percentage point reduction in inflation for 2023-24.

On the revenue side, the government has implemented measures to enhance the sustainability of the tax system. These measures include reducing tax concessions for superannuation balances exceeding $3 million, implementing more timely tax and superannuation payments, and introducing reforms to tax settings for offshore liquefied natural gas projects.

Key Takeaways

  • Budget Surplus Expected – For the 2022-23 financial year, a $4.2 Billion surplus is projected.
  • Small Business Asset Write-off – One-year Small Business instant asset write-off for assets up to $20K.
  •  Small Business Energy Incentive – One-year Small Business Energy Incentive to switch to efficient energy sources.
  • Household Energy Upgrade Fund – Household Energy Upgrade fund worth $1.3 Billion for home upgrades which save energy.
  • Boost to cyber skills – $23.4 million “Cyber Wardens” program to boost cyber skills in small businesses.
  • Minimum tax for multinationals – 15% global minimum tax and a domestic minimum tax from 1 January 2024 for multinational groups with global turnover of $1.2 billion or more.
  • Superannuation tax – Future earnings on super balances over $3 Million will be taxed at an additional 15% from 1 July 2025.
  • Changes to Super Guarantee contributions – Employers will be required to pay compulsory super guarantee contributions on payday rather than quarterly (from 1 July 2026).
  • Additional welfare support – Relief targeting at vulnerable members of the community including JobSeeker recipients and Commonwealth Rent Assistance.
  • Increased bulk-billing incentive – An increase of $35 Billion bulk-billing incentive for over 5 for GPs.
  • Aged care workers wage increase – $11.3 Billion wage increase for aged care workers

Tax Measures

  • Small businesses instant asset write-off threshold – increased to $20,000 for 2023-24 for businesses with aggregated annual turnover of less than $10 million.
  • Small Business Energy Incentive – Businesses with annual turnover of less than $50 million will be able to claim an additional 20% deduction on spending that supports electrification and more efficient use of energy.
  • Small business lodgement penalty amnesty – Provided for small businesses with aggregate turnover of less than $10 million to encourage them to re-engage with the tax system.
  • Small business unpaid tax and super – Additional funding from 1 July 2023 to assist the ATO to engage with taxpayers who have high-value debts over $100,000 and aged debts older than 2 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.
  • PAYG and GST instalment uplift factor – 6% for 2022-23 (being lower than the 12% rate that would otherwise have applied under the statutory formula).
  • Part IVA – Scope of the general anti-avoidance rules to be expanded to catch two additional types of schemes from 1 July 2024, regardless of whether the scheme was entered into before that date.
  • FBT rules for electric vehicles (EVs) – Eligibility of plug-in hybrid electric cars will sunset from 1 April 2025 from the FBT exemption for eligible electric cars.
  • Managed investment trust (MIT) withholding tax concession for data centres and warehouses – The “clean building” managed investment trust withholding tax concession will be extended to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 pm AEST on 9 May 2023.
  • Build-to-rent properties – For eligible new build-to-rent projects where construction commences after 7:30 PM AEST on 9 May 2023, the Government will:
  1. increase the rate for the capital works tax deduction (depreciation) to 4% per year
  2. reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%
  • Base Erosion and Profit Shifting (BEPS) Two Pillar Solution – Announced start dates are:
  1. 15% global minimum tax for large multinational enterprises with the Income Inclusion Rule (IIR) will apply to income years starting on or after 1 January 2024 and the Undertaxed Profits Rule (UTPR) applying to income years starting on or after 1 January 2025
  2. 15% domestic minimum tax will apply to income years starting on or after 1 January 2024
  • Petroleum Resource Rent Tax (PRRT) – LNG and gas transfer pricing – the Government has proposed to cap the use of deductions from 1 July 2023 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. Projects would not be subject to the cap until Federal Budget 2023-24 Summary of tax and superannuation measures 7 seven years after the year of first production or from 1 July 2023, whichever is later. The cap will not apply to certain classes of deductible expenditure in the PRRT
  • PRRT – meaning of “exploration” and “mining, quarrying and prospecting rights” – Amended in response to Shell Energy Holdings Australia case, applicable to all expenditure incurred from 21 August 2013. Will also restore the policy intent of the law and apply in respect of all mining, quarrying and prospecting rights (MQPRs) acquired or started to be used after 7:30 pm AEST on 9 May 2023.

Superannuation Measures

  • Non-arm’s length income (NALI) – Amount of non-arm’s length expenses (NALE) taxed at 45% as NALI will be limited to twice the level of a general expense from 1 July 2023 for SMSFs and small APRA funds. In addition, fund income taxable as NALI will exclude contributions to effectively exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund.
  • Super account balances above $3 million – The Budget confirmed the Government’s intention to apply an additional 15% tax on total superannuation balances above $3 million from 1 July 2025.
  • Payday super – Employers will be required to pay their employees’ super guarantee at the same time as their salary and wages from 1 July 2026.
  • Pension drawdowns – The Budget did not announce a further extension to 2023-24 of the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities.

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