On 9 May 2023, Treasurer Jim Chalmers delivered the 2023-24 Federal Budget (Budget) on behalf of the Labor Government. The Budget outlines key measures to address the cost-of-living relief, strengthen Medicare, grow the economy, broaden opportunities, and strengthen the budget. KHQ’s Tax & Structuring team outlines the key tax measures included in the Budget and their implications for Australian businesses and taxpayers.
Praise the Treasurer?
The Treasurer has announced the first (though only temporary) surplus to the Australian budget in 15 years. The surplus is predominantly the result of increasing commodity prices, high taxable profits across multiple sectors and low unemployment levels. Nonetheless as interest rates and household expenses continue to rise the Budget has been delivered in a time of economic stress particularly for vulnerable Australians.
Key Tax Changes in the Budget
The tax industry has been calling for a multitude of important reform of Australia’s tax system. The Budget however fell significantly short of any of the much-needed substantial reform. Owing to the current economic conditions, the Budget focused primarily on cost-of-living relief, encouraging the switch to renewable energy and support for Medicare.
Nevertheless, key tax measures taxpayers should be aware of include:
- Broadening the anti-avoidance provisions in Part IVA: The expanded scope of the anti-avoidance provisions will now include schemes designed to reduce Australian withholding tax liabilities. Additionally schemes that achieve a tax benefit regardless of whether the dominant purpose was to reduce foreign income tax will also be included. This will apply from 1 July 2024 and should be an important consideration for all foreign investors and multinationals.
- Reduction in superannuation concessions: Confirmation of the previously announced measures to tax superannuation balances above $3 million at 30%. The new tax treatment will apply from 1 July 2025.Whilst this measure does not limit the amount an individual can hold in superannuation, Taxpayers with balances above this amount should consider whether alternative structures, such as companies or family trusts, may be more suitable investment vehicles going forward. Our tax and structuring team have expertise in these types of restructures, and we encourage you to reach out to discuss your options.
- Changes to when superannuation is paid: From 1 July 2026, employers must pay employee’s superannuation contributions at the same time as they pay wages, rather than quarterly. Businesses should be aware of possible cashflow problems when this change comes into effect and should begin planning for this now.
- Amendment to non-arm’s length income (NALI) provisions: The NALI provisions, which apply to general expenditure incurred by superannuation funds (including SMSFs) and SMALL APRA funds, will be amended to two times the level of a general expense rather than five times the level. Contributions will be excluded from total income when calculating taxable income as NALI.
- Temporary Small Business Instant Asset Write-Off: As many small businesses will be aware the current Temporary Full Expensing will cease on 30 June 2023 and will revert to $1,000. However small businesses with an annual aggregated turnover of less than $10 million may be able to claim an immediate deduction for depreciating assets up to $20,000 (per asset). This temporary increase to the instant asset write-off threshold applies for assets first used or installed ready for use between 1 July 2023 and 30 June 2024.
- Small Business Energy Incentive: In a “green” move the Budget included an announcement that businesses with an aggregated annual turnover of less than $50 million will be eligible for an energy incentive. The incentive provides an additional 20% tax deduction for the cost of eligible depreciating assets. Up to $100,000 of expenditure may be eligible for this incentive meaning a potential tax deduction of $20,000 for an eligible business, meaning a tax saving of $5,000 for a company on a 25% tax rate. Eligible assets must be first used, installed ready for use or upgraded between 1 July 2023 and 30 June 2024. Eligible assets may include electrifying heating and cooling systems.
- Failure to lodge amnesty: For small businesses with an aggregate annual turnover of less than $10 million, failure-to-lodge-penalties for outstanding tax statements originally due between 1 December 2019 to 29 February 2022, will be remitted if they are lodged between 1 June 2023 to 31 December 2023. Small businesses in this position are encouraged to take this opportunity to re-engage with the tax system. and be mindful of the review the dates the measure applies to.
- GST compliance program extended: The ATO will be provided with $588.8 million over four years to continue its efforts in recouping GST debts. The program is expected to result in $3.8 billion of revenue over the next five financial years. This is a timely reminder for businesses to review how they account and remit GST and, where required, seek professional advice.
- Build To Rent (BTR) projects concessions: Projects commenced after Budget night (7.30pm 9 May 2023) will be able to access increased capital works deductions of 4% (up from 2.5%). This will apply to buildings with 50 apartments/dwellings, with leases of a minimum term of 3 years and single ownership for 10 years. Foreign investors will also be eligible for a reduction in withholding tax from 30% to 15% on eligible residential BTR projects from 1 July 2024.
- Implementation of minimum tax rate: The Government will implement the OECD’s recommendation of a global minimum and domestic minimum tax rate of 15% for large multinational enterprises (groups with global accounting revenue of $1.2 billion or more) from 1 July 2024
The Budget also notes that the ATO will be provided with additional funding to recoup debts. We have noted significant debt recovery actions by the ATO in the recent 12 months and in particular where such debts relate to Director Penalty Notices (DPNs). The powers of the Commissioner to recoup funds are broad and debt notices should be treated seriously. Where DPNs are received consider seeking professional advice to determine if you have any means of objecting to the notices.
This article was written by Sophie Barber (Lawyer), Laura Spencer (Senior Associate), Harry Giannakidis (Principal Solicitor), and Jack Stuk (Principal Solicitor).
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