The Federal Treasurer, Dr Jim Chalmers, handed down the 2023–24 Federal Budget at 7:30 pm (AEST) on 9 May 2023.
The following is a summary of the key tax reforms.
Increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from 1 July 2022 as follows:
- The threshold for singles will be increased from $23,365 to $24,276.
- The family threshold will be increased from $39,402 to $40,939.
- For single seniors and pensioners, the threshold will be increased from $36,925 to $38,365.
- The family threshold for seniors and pensioners will be increased from $51,401 to $53,406.
For each dependent child or student, the family income thresholds will increase by a further
$3,760 instead of the previous amount of $3,619.
The increase in the thresholds provides cost-of-living relief by taking account of recent CPI
outcomes so that low-income individuals continue to be exempt from paying the Medicare levy.
Small business instant asset write-off
The instant asset write-off threshold for small businesses applying the simplified depreciation rules will temporarily be increased from $1,000 to $20,000 for the 2023–24 income year.
Small businesses with an aggregated turnover of less than $10 million will be able to apply an immediate write-off for low-cost depreciating assets under the simplified depreciation rules. Eligible assets include those costing less than $20,000 that are 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.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
Halving the increase in quarterly tax instalments
The Government will amend the tax law to set the GDP adjustment factor for pay as you go (‘PAYG’) and GST instalments at 6% for the 2024 income year, a reduction from 12% under the statutory formula. The reduced factor will provide cash flow support to small businesses and other PAYG instalment taxpayers.
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 aggregated annual turnover for PAYG instalments), in respect of instalments that relate to the 2024 income year and fall due after the enabling legislation receives Royal Assent.
Lodgment penalty amnesty program
A lodgment penalty amnesty program is being provided for small businesses with an aggregated 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 28 February 2022
Australia will implement BEPS Pillar 2 from 1 January 2024
The Government will implement key aspects of the Pillar Two solution to address tax challenges from digitalisation of the economy for Action 1 of OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.
A 15% global minimum tax will apply to 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.
A 15% domestic minimum tax will apply to income years starting on or after 1 January 2024.
Both the global and domestic minimum tax will be based on the OECD’s Global Anti-Base Erosion Model Rules (or GloBe rules). These rules impose a top-up tax on a resident multinational parent or subsidiary company if the group’s income is taxed below 15%
The IIR would allow Australia to apply a top-up tax on a resident multinational company, where the group’s income in another jurisdiction is being taxed below the global minimum rate of 15%. The UTPR would allow Australia to apply a top-up tax on a resident subsidiary member of a multinational group if the group’s income in another jurisdiction is being taxed below the global minimum rate of 15% and where no IIR applies.
The domestic minimum tax gives Australia first claim on top-up tax for any low-taxed domestic income. If a large multinational company’s effective Australian tax rate is below 15%, the domestic minimum tax enables Australia to collect the revenue that would
otherwise be collected via another country’s global minimum tax.
The rules apply to multinational enterprises with an annual global revenue of EUR750 million (approximately $1.2 billion) or more.
Petroleum Resources Rent Tax (PRRT)
Deductible expenditure for PRRT projects that produce liquefied natural gas (LNG) will be capped at 90% of assessable income from 1 July 2023.
The cap will limit deductible expenditure to 90% of each taxpayer’s PRRT assessable receipts in respect of each project interest in the relevant income year (applied after mandatory transfers of exploration expenditure). Unused denied deductions will be carried
forward and uplifted at the government long-term bond rate.
Projects will not be subject to the cap until 7 years after the year of first production or from 1 July 2023, whichever is later, to minimise the impacts of upfront payments on project economics. Certain classes of deductible expenditure in the PRRT are excluded from the cap. Including:
- closing-down expenditure;
- starting base expenditure; and
- resource tax expenditure.
Expenditure that is unable to be deducted due to the cap may be carried forward and uplifted at the Government long-term bond rate.
Increasing the frequency of superannuation guarantee payments
From 1 July 2026, employers will be required to pay their employees’ superannuation guarantee entitlements on the same day that they pay salary and wages.
Currently, employers are only required to pay their employees’ superannuation guarantee on a quarterly basis. By increasing the payment frequency of superannuation to align with the payment of salary and wages, this measure aims to ensure employees have greater visibility over whether their entitlements have been paid and better enable the ATO to recover unpaid superannuation.
Changes to the design of the superannuation guarantee charge will also be necessary to align with increased payment frequency.
This package will particularly benefit those in lower paid, casual and insecure work who are more likely to miss out when superannuation guarantee is paid less frequently.
Earnings for superannuation balances above $3 million taxed at 30%
From 1 July 2025, the Government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million. Individuals with a total superannuation balance of less than $3 million will be unaffected.
This reform is intended to ensure superannuation concessions are better targeted and sustainable. It will bring the headline tax rate to 30%, up from 15%, for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million. This rate remains lower than the top marginal tax rate of 45%.
Earnings relating to assets below the $3 million threshold will continue to be taxed at 15%, or 0% 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. This will ensure commensurate treatment.
The measure will not place a limit on the amount of money an individual can hold in
superannuation. The current contributions rules will continue to apply.
Accelerated deductions and reduced MIT withholding tax for new build-to-rent projects
An increased capital works deduction rate and reduced withholding on managed investment trust (MIT) payments will apply to eligible new build-to-rent projects where construction commences after 9 May 2023.
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. Currently, the capital works deduction rate of 4% per year only applies in relation to income-producing buildings used mainly for industrial activities and certain buildings providing short-term traveller accommodation.
The final withholding tax rate on fund payments from eligible MIT investments will be reduced to 15% for income from new residential build-to-rent projects. Fund payments to non-residents attributable to MIT residential housing income are currently subject to a final withholding tax rate of 30%. The reduced rate will apply to income attributable to eligible residential build-to-rent projects from 1 July 2024. The reduction was previously proposed in 2019 as part of a Labor party pre-election announcement.
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. Consultation will be undertaken on implementation details, including any minimum proportion of dwellings being offered as affordable tenancies and the length of time dwellings must be retained under single ownership.
FBT – Electric Car Discount
The Government will sunset the eligibility of plug-in hybrid electric cars for the FBT exemption for eligible electric cars. This change will apply 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 Electric Car Discount.
Note that this announcement is already reflected in the legislation. Specifically, Treasury Laws Amendment (Electric Car Discount) Act 2022 included a ‘sunset clause’ with respect to plug-in hybrid electric cars. The law applies such that a plug-in hybrid electric car ceases to be a ‘zero or low emissions vehicle’ from 1 April 2025 and, thus, ceases to be eligible for the FBT exemption from 1 April 2025, subject to transitional measures.
Expanding the general anti-avoidance rule (Part IVA)
The Government will expand the scope of the general anti-avoidance rule for income tax (Part IVA of the ITAA 1936) so that it can apply to:
- schemes that reduce 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.
This measure will apply to income years commencing on or after 1 July 2024, regardless of whether the scheme was entered into before that date.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.