News and Insights

With many speculations about whether this Budget would bring a surplus which has not been seen in the past 15 years, the delivery of a Budget in surplus is no doubt a major win for the Labor Government.  However, the Budget also forecasts that the following year’s Budget will show a deficit.

This Budget has a big focus on reducing the pressures from the increases in the cost of living, inflation and interest rates as well as assisting those in need.  It also provides some relief designed to assist small and medium businesses  during the current difficult economic conditions.

This summary is designed to look at the key tax, business and superannuation impacts from this year’s Budget.

Individual measures

Personal tax rates

There have been no changes to the personal income tax rates or thresholds, which were previously legislated.

The former Government’s Stage 3 personal income tax plan, which implemented a 30% tax rate for those earning between $45,001 and up to $200,000 from 1 July 2024, is unchanged and will continue to be implemented from 1 July 2024.  However, the Low Middle Income Tax Offset has not been extended and will cease on 30 June 2022 for those that were eligible to claim it.

Lump sum payments and Medicare Levy

There are changes to how eligible lump sum payments in arrears are to be assessed for Medicare levy purposes from 1 July 2024.  These changes are designed so that eligible lump sum payments in arrears are excluded from the assessment and calculation of the Medicare levy and there are specific eligibility requirements to access these changes.

Superannuation

Changes to the concessional tax rate for balances above $3 million

From 1 July 2025, the concessional tax rate which applies to superannuation balances above $3 million will be increased to a tax rate of 30%, increased from the current concessional tax rate of 15%.  Further details about this change include:

1. 1. The current contribution caps for members still continues to apply;
   2. The $3 million balance will be assessed on a per member basis; and
   3. The measure will not limit the amount of money that an individual can hold in superannuation.

Amendments to the non-arm’s length income provisions

The Government will also amend the provisions relating to non-arm’s length income (NALI) that apply to expenses incurred by superannuation funds.  Currently, where either a part or all of an expense falls within the NALI provisions, the income of the superannuation fund will be assessed at that top marginal tax rate instead of the concessional tax rate of 15%.  The amendments will:

1. 1. Limit income (excluding contributions) of self-managed superannuation funds (SMSFs) and small Australian Prudential Regulation Authority (APRA) regulated funds that are taxable, as NALI to twice the level of a general expense where it is too low compared to an arm’s length arrangement
   2. Exempt large APRA regulated funds from the NALI provisions for both general and specific expenses
   3. Exempt expenditure that occurred prior to the 2018-19 income year, which was when the expense rules were inserted in the integrity measure.

Businesses

Instant asset write-off

The instant asset write-off for eligible small businesses will allow them to immediately deduct the full cost of an eligible asset costing less than $20,000, where the asset is first used, or installed ready for use, between 1 July 2023 and 30 June 2024.

This instant write-off applies on a per asset basis.

Reduction in quarterly tax instalments

The Government will amend tax legislation to adjust the GDP adjustment factor to 6% (down from 12%) that is used to calculate PAYG and GST instalments.  The reduced GDP adjustment factor will apply to eligible small businesses and individuals after the legislative changes receive Royal Assent.

Energy incentives for small businesses

Small businesses that, from 1 July 2023 to 30 June 2024, install eligible assets or upgrade assets that support electrification and more efficient use of energy will be entitled to an additional 20% deduction on those costs, which will be capped at $20,000 per business.

There will be exclusions to these measures relating to assets that are electric vehicles, renewable electricity generation assets, capital works and assets that are not connected to the electricity grid and use fossil fuels.

Lodgement penalty amnesty program

Eligible small businesses which re-engage with the ATO will be entitled to a lodgement penalty amnesty for outstanding tax statements that are lodged between 1 June 2023 and 31 December 2023 and which were previously due during the period from 1 December 2019 to 29 February 2022.

Compliance and integrity measures

Expanding Part IVA – anti-avoidance provisions

The Budget will expand and strengthen the Part IVA – general anti-avoidance provisions from 1 July 2024.  These measures will apply regardless of when the tax scheme was entered into and applies only to schemes that are captured under Part IVA.  The expansion will include schemes that:

1. 1. Reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and
   2. Achieve an Australian tax benefit where the dominant purpose was to reduce foreign income tax.

Increased frequency of superannuation payments

From 1 July 2026, employers will be required to pay superannuation contributions for their employees at the same time that they pay their employees’ their wages.

Implementation of global and domestic minimum tax

It has been announced that, on or after 1 July 2024, the Government will implement a domestic minimum tax to ensure that Australia retains taxing rights over undertaxed Australian profits, which will apply to multinational enterprises with a global €750 million (approximately $1.2 billion AUD) and will apply to Australian headquartered multinational enterprises as well as Australian subsidiaries of foreign parent companies.

These measures are in-line with Australia’s commitment and intention to implement Pillar Two of the OECD/G20 global minimum tax regime, which is to establish a global minimum tax rate of at least 15% under a global set of rules.

Other measures

FBT – electric car discount

From 1 April 2025, the Government will sunset the eligibility of plug-in hybrid electric cars for the FBT exemption for eligible electric cars.

This will not impact arrangements involving plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025, which remain eligible for the Electric Car Discount.

Accelerating capital works deductions for Build-to-Rent Developments

For eligible new build-to-rent projects where construction commences after 7:30pm (AEST) on 9 May 2023, the Government will:

1. 1. Increase the rate for the capital works tax deduction to 4% per year; and
   2. Reduce the final withholding tax rate on eligible fund payments from managed investment trust (‘MIT’) investments from 30% to 15%.

This measure applies to build-to-rent projects consisting of 50 or more apartments or dwellings that are made available for rent to the general public. Furthermore, the dwellings must be owned by a single owner for at least 10 years before being able to be sold and landlords must offer a lease term of at least three years for each dwelling.

For further information, please do not hesitate to contact Giang Tran or your Wisewould Mahony contact.