On Tuesday evening, Federal Treasurer Jim Chalmers handed down the 2023-24 federal budget. A surplus of $4.2 billion is forecast in 2022-23, but an underlying cash deficit of $13.9 billion is expected in 2023-24 (and a $35.1 billion deficit for 2024-25). The budget papers note that the global economic outlook has deteriorated and is highly uncertain with persistent inflation and rising interest rates expected to slow real GDP growth from 3.25% in 2022-23 to 1.5% in 2023-24, before rising to 2.25% in 2024-25.
While inflation remains elevated at 6% for this year, it is expected to fall to 3.25% in 2023-24 and return to the RBA’s target band of 2-3% in 2024-25. The government also believes that its cost of living measures will take 0.75 of a percentage point off inflation in 2023-24.
On the revenue side, the government said it is taking action to improve the sustainability of the tax system. This includes measures to reduce the tax concessions for superannuation balances above $3 million, more timely payments of tax and superannuation and reforms to the tax settings for offshore liquefied natural gas projects.
The government’s cash reserves have been increased by higher than expected revenue, primarily from higher-than-forecast coal, gas and iron ore prices and higher income tax revenue thanks to low unemployment rates.
Over the next four years, the government is forecast to collect $143 billion more than what was predicted in the March 2022 budget. The government insists most of it will be saved — 82 per cent will be used to improve the budget bottom line.
But with deficits predicted over the next four years and millions of Australians struggling with the rising cost of living, Dr Chalmers handed down a budget that “tinkers around the edges” despite the government claiming it will build “stronger foundations for a better future”.
Below we summarise the key announcements of the budget for both individuals and small to medium business.
Nearly 12 million Australians have been promised more free visits to the doctor under a boost to Medicare designed to convince general practitioners to bulk bill their patients. The increased incentives will be paid to GPs who bulk bill children under 16, pensioners and other concession card holders.
More than 1.1m Australians will have their welfare payments boosted by $40 per fortnight from September 20, should parliament agree to the measure. Despite speculation an increase would only apply to those aged 55 and over, the raised base rate will be applied to people receiving Jobseeker, Youth Allowance, Parenting Payment (partnered), ABSTUDY, Disability Support Pension (Youth) and Special Benefit. The JobSeeker rate will permanently increase for all recipients by $40 a fortnight.
But the higher rate for older people, which previously applied to recipients over 60 who had received JobSeeker for 9 months or longer, will now apply for recipients over 55. It means people aged 55 to 59 will receive an additional $92.10 per fortnight above what they receive today.
Austudy and Youth Allowance payments will also be lifted by $40 a fortnight, overall benefiting $1.1 million people receiving income support.
Single parents with kids aged 14 and under
From September, about 57,000 single parents will receive an extra $176.90 per fortnight also lifting the age cut-off from eight to 14.
Energy bill payers
A rebadged $1.5bn package, part of a deal between the states and Commonwealth last December to bring energy prices down, will flow to more than five million eligible households and one million eligible small businesses.
Relief will be applied directly to power bills as credits rather than cash to eligible people on the pension, seniors card holders, recipients of the family tax benefit A and B. The amount you will receive will vary depending on what state you live in.
The budget has forecast rents will increase as the rental market tightens over the coming year. More than 1.1 million households receiving the maximum Commonwealth Rent Assistance are set to benefit when the government ups the rate to 15 per cent.
Prescription medicine users
Around six million people with chronic health conditions will be able to buy two months of medicine for the price of a single script. The government says concession card holders may save up to $43.80 and general patients up to $180 per year, per medicine. The $1.2bn in savings will be reinvested in community pharmacies.
First-home buyers will be able to team up with siblings and friends to create a home deposit. Australians who have not owned a property for at least 10 years, permanent residents and single legal guardians of children will gain access to the scheme for the first time.
High income earners
People earning more than $120,000 will be pleased by the decision not to wind back or change the Morrison government’s stage 3 tax cuts. Set to cost the government $20bn a year, come into effect from 1 July 2024.
The stage-three tax cut will abolish the 37 per cent tax bracket, lower the 32.5 per cent bracket to 30 per cent and raise the threshold for the top tax bracket from $180,001 to $200,001. It is expected to cost the budget $69 billion over the next four years.
Because income tax is not adjusted for inflation, more workers fall into higher tax brackets over time as their incomes rise.
In an effort to retain staff of the Australian Defence Force, a $50,000 bonus will be offered to soldiers, sailors and aviators who re-enlist for a further three years.
Low and middle income earners
The Morrison government’s low and middle income tax offset (LMITO) was discontinued in the October budget. It was always designed to be temporary and replaced by the stage 2 tax cuts.
For many who don’t have a child, aren’t on a welfare payment and are over the age of 16, they will miss out on the so-called “centrepieces” of Labor’s budget. They are ineligible for the energy bill relief, won’t benefit from the GP incentives and won’t receive any increase to rent assistance.
A surge in young people vaping has led to the government spending $750m to combat recreational vaping. Measures include a ban on all single use and disposable vapes, a ban on the sale of vapes in convenience stores and other retail settings, targeting the black market, increasing minimum quality standards and requiring pharmaceutical-like packaging.
Small Business Energy Incentive
Small businesses with a turnover of up to $50m will be eligible for a $20,000 tax break if they invest in energy efficiency upgrades.
Those small businesses will be able to claim 20 per cent of spending that supports electrification or more efficient energy use on their taxes. The maximum that can be claimed through the ‘Small Business Energy Incentive’ will be $20,000, meaning up to $100,000 worth of spending will be eligible for the incentive.
The incentive will apply to a range of depreciating assets, as well as upgrades to existing assets. 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.
However certain exclusions will apply, such as:
- renewable electricity generation assets
- electric vehicles
- capital works, and
- assets that are not connected to the electricity grid and use fossil fuels.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. The measure is expected to help up to 3.8 million small and medium-sized businesses, at a cost of $314 million to the government over the next four years.
Instant Asset Write-Off Scheme
This Morrison government Covid stimulus measure allowed small businesses with a turnover of under $5bn to write off assets of an unlimited rate. The measure was due to expire on June 30 and in its place a new write off program for businesses with an annual turnover of less than $10m. It means that small businesses will be able to immediately write off eligible assets of less than $20,000. However, business owners will be able to deduct the cost of multiple eligible assets across the year. It’s understood this returns the write off measure back to pre-pandemic levels.
There are also restrictions on the amount small businesses can claim for a piece of new equipment, down from $150,000 to $20,000, making it impossible for companies to instantly claim the cost of new commercial vehicles as a tax deduction.
The $20,000 instant asset write-off for small businesses will continue until 30 June 2024, allowing businesses to deduct the full cost of assets up to that price that were installed or ready for use before that date.
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. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024.
Superannuation and GST/Tax Liabilities
- Clarifying the non-arm’s length income (NALI) for super funds: the amount of non-arm’s length expenses (NALE) taxed at 45% as NALI will be limited to twice the level of a general expense from 1 July 2023 for SMSFs and small APRA funds. In addition, fund income taxable as NALI will exclude contributions to effectively exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund.
- Super account balances above $3 million: the budget confirmed the government’s intention to apply an additional 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. Currently they are required to pay quarterly.
- Pension drawdowns: no reduction in minimum – the budget did not announce a further extension to 2023-24 of the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities.
- Small business lodgement penalty amnesty: will be provided for small businesses with aggregate 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 between 1 December 2019 to 29 February 2022.
- Small business unpaid tax and super: additional funding from 1 July 2023 to assist the ATO to engage with taxpayers who have high-value debts over $100,000 and aged debts older than 2 years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10 million, or privately owned groups or individuals controlling over $5 million of net wealth.
- PAYG and GST instalment uplift factor: the budget papers state that the GDP uplift factor for PAYG and GST instalments will be set at 6% for the 2023-24 income year. The papers state that this uplift factor is lower than the 12% that would have applied under the statutory formula.The 6% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2023-24 income year and fall due after the enabling legislation receives assent.
- From 1 July 2024, the Australian Taxation Office (ATO) will reduce the use of cheques for income tax refunds.
- From 1 July 2024, small businesses will be permitted to authorise their tax agent to lodge multiple Single Touch Payroll forms on their behalf.
- From 1 July 2025, small businesses will be permitted up to 4 years to amend their income tax returns (generally 2 years).
Support for small and medium businesses and start-ups
An Industry Growth Program will support small and medium business and start-ups to commercialise their ideas and grow their operations (businesses operating in the National Reconstruction Fund are a priority). The program has $392.4 million over 4 years. An additional $39.6m over 4 years will support the Single Business Service to help these businesses engage with government.
A small business wardens program through the Council of Small Business Organisations Australia (COSBOA) will support small businesses to build in-house capability to protect against cyber threats. $23.4 million has been provided over 3 years from 2023-24.
The full budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au. For an easily digestible summary of the key announcements, visit TaxBanter and download their publication here.
As always, if you need to discuss any of these updates and how they may affect your business, contact your Arabon accountant or make an appointment here.