With the uncertain economic outlook, higher interest rates and cost-of-living burdens, Treasurer Jim Chalmers has handed down his second Budget on 9 May. The Treasurer has flagged the need for ongoing spending restraint, both to repair the budget and to ensure inflation continues to ease.
This blog summarises the initiatives contained in the 2023/24 Federal Budget announced on 9 May 2023.
Federal budget 2023 initiatives that may affect you
Small business depreciation benefits
The Government will improve cash flow and reduce compliance costs for small businesses by temporarily increasing the instant asset write-off threshold to $20,000, from 1 July 2023 until 30 June 2024. This was a temporary increased to $150,000 during the Covid years to assist business spending. Small businesses, with aggregated annual turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use 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 assets.
Superannuation – $3m tax cap
The Government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million, from 1 July 2025. It will raise the tax rate to 30 per cent, up from 15 per cent, for earnings corresponding to the proportion of the superannuation balance that is greater than $3 million. This rate of course remains lower than the top marginal tax rate of 45 per cent. Earnings relating to assets below the $3 million threshold will continue to be taxed at 15 per cent or nil 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.
The additional tax on earnings imposed by this measure will impact around 80,000 individuals. These measures will not place a limit on the amount of money an individual can hold in superannuation. The current contributions rules continue to apply.
From 1 July 2026, employers will be required to pay their employees’ super entitlements on the same day that they pay salary and wages. Currently, employers are only required to pay their employees’ super on a quarterly basis. By increasing the payment frequency of superannuation to align with the payment of salary and wages, this measure will both ensure employees have greater visibility over whether their entitlements have been paid and better enable the ATO to recover unpaid superannuation. Increased frequency of payment will also support better retirement outcomes.
Business projected tax instalments to reduce
The Government will amend the tax law to set the GDP adjustment factor for pay as you go (PAYG) and GST instalments at 6 per cent for the 2023–24 income year – a reduction from 12 per cent. The reduced factor will provide cash flow support to small businesses and other PAYG instalment taxpayers.
Business GST Compliance
The Government will provide $588.8 million to the ATO over 4 years from 1 July 2023 to continue a range of activities that promote GST compliance to recuperate incorrect GST claims. We are expecting this will raise many ATO reviews in the coming years.
Business energy incentives
The Government will support small and medium businesses to save on energy bills through incentivising the electrification of assets and improvements to energy efficiency. Small and medium businesses, with aggregated annual turnover of less than $50 million, will be able to deduct an additional 20 per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy.
Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000. A range of depreciating assets, as well as upgrades to existing assets, will be eligible for the Small Business Energy Incentive. These will include 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.
The Government will increase the Temporary Skilled Migration Income Threshold from the current rate of $53,900 to $70,000 from 1 July 2023.
For the 2023–24 permanent Migration Program, the Government will return the planning level to the longer-term level of 190,000 places and will allocate 137,100 places to the Skill stream, helping address Australia’s longer term skill needs.
We expect this to further affect the current rental crises and shortage in housing supply.
Medicare levy – benefits to low-income families
The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024. This measure will ensure low-income taxpayers do not pay higher amounts of the Medicare levy as a result of receiving an eligible lump sum payment, for example as compensation for underpaid wages.
The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from 1 July 2022. The increase in 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. 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.
More affordable housing
The Government will introduce a number of housing measures to increase support for social and affordable housing across the country and improve access for home buyers. They plan to expand the eligibility of the Home Guarantee Scheme to:
- Allow any 2 eligible people to be joint applicants for a guarantee beyond spouses and de facto partners;
- Allow non-first home buyers who have not owned a property in Australia for at least 10 years to access the First Home Guarantee and Regional Home Guarantee;
- Allow a single legal guardian of children to access the Family Home Guarantee; and
- Allow Australian permanent residents to access the Scheme.
Electric vehicle benefits scrapped
The Government will sunset the eligibility of plug-in hybrid electric cars from the fringe benefits tax 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. Benefits relating to full electric vehicles are to be retained.
As with the October budget issued by Treasurer Jim Chalmers, there is not much to get excited about here. The Labour government has made a conscious decision to not splurge any cash to buy votes, but rather is investing money into improving data integrity, tax systems to recuperate foregone revenue, improving the welfare systems and improving immigration systems to aid in the current labour shortage. Overall, it’s a responsible budget which is imperative given that the government is aiming at curve tailing spending to limit inflation.