2023-24 Federal Budget: Highlights

On Tuesday the 9^th of May, the Labor Government handed down the 2023-24 federal budget. The main themes of this budget were stated to:

• provide temporary and targeted cost of living relief;
• strengthen Medicare;
• focus on investments and measures that relate to renewable energy, with the goal of making Australia a renewable energy superpower.

The key highlights from the budget include.

• $20,000 instant asset write off – The Government has announced it will temporarily increase the instant asset threshold from $1,000 to $20,000 from 1 July 2023 to 30 June 2024 for small businesses.
• Energy Price Relief – The Government proposes to provide $1.5 billion over two years from 2023/24 to establish the Energy Bill Relief Fund to provide targeted energy bill relief to eligible households and small business customers.
• Medicare levy exemption – From 1 July 2024 eligible lump sum payments will be exempt from the Medicare Levy for low-income taxpayers who satisfy the eligibility requirements.
• Small business energy incentives - Deduction of an additional 20% of the cost of eligible depreciating assets that support the electrification and more efficient use of energy.
• Fringe benefits tax (FBT) -  Amendments to the Electric Car Discount.
• The budget now forecasts a surplus of $4.2 billion with a cash deficit of $13.9 billion for 2022/23.
• Inflation is expected to remain at 6% for 2023-24 but is expected to fall to 3.25% in 2023-24 before returning to the target band of 2-3% in 2024-25.
• Unemployment is expected to rise to 4.25% in 2023-24 and then to 4.5% in 2024-25.

For more information on the budget announcements please read below.

Small Businesses

• $20,000 instant asset write off – While the temporary full expensing measures will cease from 30 June 2023, the Government has announced it will temporarily increase the instant asset threshold from $1,000 to $20,000 from 1 July 2023 to 30 June 2024 for small businesses with an aggregated turnover of less than $10m. Additionally, the measures preventing small business entities from re-entering the simplified depreciation regime for 5 years if they opt out will continue to be suspended until 30 June 2024.
• Small business energy incentive – Small and medium businesses with an aggregated turnover of less than $50m will be able to deduct an additional 20% of the cost of eligible depreciating assets that support the electrification and more efficient use of energy. Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with a maximum bonus deduction of $20,000. Eligible assets and upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.

Business

• Increase to Road User Charge – The current Road User Charge of 27.2 cents per litre for diesel will increase over 3 years to 32.4 cents per litre by 2025-26, leading to a reduction in fuel tax credit entitlements.
• Build-To-Rent Developments - For eligible new build-to-rent projects where construction commences after 7.30PM AEST on 9 May 2023 the Government proposes to:
  • Increase the rate for the capital works tax deduction to 4% per year (ordinarily 2.5%);
  • Reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%, to apply from 1 July 2024.
• PAYG and GST instalment uplift factor – The GDP uplift factor will be set at 6% (rather than 12% as would otherwise apply) for instalments with respect to the 2023-24 income year.
• Fringe Benefit Tax (FBT) – amendment to the Electric Car Discount – From 1 July 2025 the Government is proposing to sunset the eligibility of plug-in hybrid electric vehicles from the FBT exemption for eligible electric cars.
• Expanding the general anti-avoidance rule (Part IVA) – From 1 July 2024 the Government proposes to expand the scope of the general anti-avoidance rule in Part IVA so that it can apply to:
  • Schemes that reduce the tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and
  • Schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.

Large Businesses

• Implementation of a global minimum tax and a domestic minimum tax - The Government proposes to implement key aspects of the Pillar Two of the OECD/G20 Two-Pillar Solution to address the tax challenges arising from digitalisation of the economy.  These rules are intended to apply to large multinationals with annual global revenue of EU750 million (approximately AUD$1.2billion).  This will include:
  • a 15% global minimum tax rate for large multinational enterprises with the Income Inclusion Rule (IIR) applying 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; and
  • a 15% domestic minimum tax will apply to income years starting on or after 1 January 2024.
• Reforming the Petroleum Resource Rent Tax - From 1 July 2023, the Government will be capping the deductions to 90% of assessable PRRT income.

Individuals

• Medicare levy exemption – From 1 July 2024 eligible lump sum payments (such as compensation for underpaid wages) will be exempt from the Medicare Levy for low-income taxpayers who satisfy the eligibility requirements including the requirements for the lump sum payment in arrears tax offset.
• Personal tax rates – There were no announcements in respect to changes in personal tax rates.  As such it is expected that the stage 3 tax cuts will commence from 1 July 2024 as previously legislated.

Agriculture

• Increasing concessional tax treatment for carbon abatement and biodiversity stewardship income – The Government has announced that it intends to delay the start date of the biodiversity certification component of the 2022/23 March Budget measures titled Primary Producers – increasing concessional tax treatment for carbon abatement and biodiversity stewardship income from 1 July 2022 to 1 July 2024.
• The Government is proposing to provide an additional $1billion over 4 years from 2023/24 (and $268.1m per year ongoing) to strengthen Australia’s biosecurity system. To assist in funding these initiatives the Government proposes to add a biosecurity protection levy on Australian producers of agricultural, forestry and fishery products from 1 July 2024, set at a rate equivalent to 10 per cent of the 2020–21 industry-led agricultural levies, which is estimated to increase receipts by $153.0 million over 3 years from 2024–25. The levy is intended to recognise the benefits that primary producers derive from Australia’s biosecurity system, including detection, identification and response associated with invasive pests and diseases, maximising trade opportunities, and enhancing access to premium overseas markets.

Superannuation

• Increased taxation on super account balances above $3m – the Government has confirmed its intention to apply an extra 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.

Additional Highlights

• Energy Price Relief – The Government proposes to provide $1.5m over two years from 2023/24 to establish the Energy Bill Relief Fund to 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. It is intended that this plan will provide up to $500 in electricity bill relief for eligible households and up to $650 for eligible small businesses.
• Cyber security - The Government is proposing to provide $101.6m over 5 years from 2022/23  (and $11.8m per year ongoing) to support and uplift cyber security in Australia. This includes $23.4m over 3 years from 2023/24 to the Department of the Treasury for a small business cyber wardens program delivered by the Council of Small Business Organisations Australia, to support small businesses to build in-house capacity to protect against cyber threats.

Please note that the budget measures announced above will only take effect once they become law. To know more about how this budget will affect your financial position, please reach out to your Boyce Advisor.