The Federal Treasurer, Dr Jim Chalmers, handed down the government’s 2023-24 Federal Budget at 7:30 pm (AEST) on 9 May 2023.
The Budget forecasts the underlying cash balance to be in surplus by $4.2 billion in 2022–23, the first surplus since 2007–08, followed by a forecast deficit of $13.9 billion in 2023–24.
Putting forward a “responsible budget” for uncertain economic times, the Treasurer has described the tax measures as “modest, but meaningful”, including changes to the Petroleum Resources Rent Tax and confirmation of a 1 January 2024 implementation of the BEPS Pillar Two global minimum tax rules.
A range of measures provide cost-of-living relief to individuals such as increased and expanded JobSeeker payments and better access to affordable housing. No changes were announced to the Stage 3 personal income tax cuts legislated to commence in 2023–24.
As part of the measures introduced for small business, a temporary $20,000 threshold for the small business instant asset write-off will apply for one year, following the end of the temporary full expensing rules.
Several tax measures of the former Coalition government have also been amended or dropped, including the patent box tax incentive measures.
- Increased rate for income support payments
- Expanded eligibility for higher Jobseeker Payment rate
- Workforce participation incentive measures extended
- Improved support for single parents
- Increasing the supply of social and affordable housing and making it easier to buy a home
- Increased support for Commonwealth rent assistance recipients
- Medicare low-income thresholds for 2022–23
- Exempting lump sum payments in arrears from the Medicare levy
- Small business depreciation — instant asset write-off threshold of $20,000 for 2023–24
- Increased deductions for small and medium business expenditure on electrification and energy efficiency
- FBT exemption for eligible plug-in hybrid electric cars to end
- Accelerated deductions and reduced MIT withholding tax for new build-to-rent projects
- Clean building MIT withholding tax concession to be extended
- Franked distributions funded by capital raisings — start date postponed
- Patent box measures not to proceed
- Delay of biodiversity stewardship certificates
- Increased Location Offset incentive to boost film industry
- Reducing tax concessions for superannuation balances exceeding $3 million
- Employers to be required to pay super guarantee on payday
- Non-arm’s length income (NALI) amendments
- Australia will implement key aspects of the Pillar Two solution of the OECD/G20 BEPS Project, meaning certain large multinationals will be subject to a 15% minimum tax in the jurisdictions in which they operate
- The scope of the general anti-avoidance rules in Pt IVA of ITAA 1936 will be expanded from 1 July 2024
- Funding will be provided to the ATO over 4 years to lower the tax-related administrative burden for small and medium businesses, cut paperwork and reduce time small businesses spend doing taxes
- Reduction in GDP adjustment factor for pay as you go and GST instalments
- Funding to improve the administration of student loans
- Additional funding will be provided to address the growth of businesses’ tax and superannuation liabilities, and a temporary lodgment penalty amnesty program will be provided to small businesses
- The Personal Income Tax Compliance Program will be extended for 2 years from 1 July 2025 and its scope expanded from 1 July 2023M
GST and other indirect taxes
- Funding for GST compliance will be extended for a further 4 years to address emerging risks to GST revenue
- The Heavy Vehicle Road User Charge rate will increase 6% per year from 2023–24 to 2025–26
- Indirect Tax Concession Scheme: diplomatic and consular concessions extended
Read more below for a more detailed summary of the above highlights
Income support payment base rates will be increased by $40 per fortnight which will apply to JobSeeker Payment, Youth Allowance, Parenting Payment (Partnered), Austudy, ABSTUDY, Disability Support Pension (Youth) and Special Benefit from 20 September 2023.
Sources: Budget Paper No 2, p 199; Budget Factsheet — Stronger foundations for a better future, p 17.
The minimum age for which older people qualify for the higher JobSeeker Payment rate will be reduced from 60 to 55 years. Eligible recipients will receive an increase in their base rate of payment of $92.10 per fortnight.
Sources: Budget Paper No 2, p 199; Budget Factsheet — Stronger foundations for a better future, p 17.
The workforce participation incentive measures to support pensioners who want to enter the workforce, or work more hours, without impacting their pension payments will be extended for another 6 months to 31 December 2023.
Source: Budget Paper No 2, p 201
Eligibility for Parenting Payment (Single) will be extended to support single principal carers with a youngest child under 14 years of age.
The existing eligibility provides support to single principal carers with a child aged under 8 years of age.
Source: Budget Paper No 2, p 202.
A number of housing measures will be introduced to increase support for social and affordable housing and improve access for home buyers, including:
- increasing the Government-guaranteed liability cap of the National Housing and Finance Investment Corporation (NHFIC) by $2.0 billion to $7.5 billion to enable NHFIC to increase its support for social and affordable housing through loans from the Affordable
- Housing Bond Aggregator
- amending NHFIC’s Investment Mandate to require NHFIC to take reasonable steps to allocate a minimum of 1,200 homes to be delivered in each state and territory within 5 years of the Housing Australia Future Fund commencing operation
- 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
- allow Australian permanent residents to access the Scheme
- redirecting interest earnings on unallocated NHFIC funds to support more social and affordable housing and delivery of housing priorities.
This measure expands on the Labor government’s 2022–23 Budget measure titled “Safer and More Affordable Housing”.
Source: Budget Paper No 2, p 212.
The maximum rates of the Commonwealth Rent Assistance (CRA) allowances will be increased by 15% to help address rental affordability challenges for CRA recipients.
Source: Budget Paper No 2, p 200.
The CPI indexed Medicare levy low-income threshold amounts for singles, families, and seniors and pensioners for the 2022–23 year of income have been announced. The new thresholds are:
Medicare levy low income threshold (at or below which no Medicare levy payable)
|Class of people
|Senior Australians and eligible pensioners
|Threshold increment for each additional dependent child/student
Eligible lump sum payments in arrears will be exempt 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, eg as compensation for underpaid wages.
Source: Budget Paper No 2, p 22.
The instant asset write-off threshold for small businesses applying the simplified depreciation rules will be $20,000 for the 2023–24 income year. Small businesses (aggregated annual turnover less than $10 million) may choose to calculate capital allowances on depreciating assets under a simplified regime.
The measure will apply a $20,000 threshold for the immediate write-off, applicable to eligible assets costing less than $20,000 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.
Source: Budget Paper No 2, pp 27–28.
An additional 20% deduction will be available for small and medium business expenditure supporting electrification and energy efficiency. The additional deduction will be available to businesses with aggregated annual turnover of less than $50 million.
Eligible expenditure may include the cost of eligible depreciating assets, as well as upgrades to existing assets, that support electrification and more efficient use of energy. Certain exclusions will apply, including for electric vehicles, renewable electricity generation assets, capital works, and assets not connected to the electricity grid that use fossil fuels.
Total eligible expenditure for the measure will be capped at $100,000, with a maximum additional deduction available of $20,000 per business. When enacted, the measure will apply to eligible assets or upgrades first used or installed ready for use between 1 July 2023 and 30 June 2024.
Sources: Budget Paper No 2, p 28; and Treasurer's press release Small Business Energy Incentive”, 30 April 2023
The FBT exemption for eligible plug-in hybrid electric cars will end from 1 April 2025. Arrangements involving plug-in hybrid electric cars entered between 1 July 2022 and 31 March 2025 remain eligible for the exemption. This measure was originally introduced in the Treasury Laws Amendment (Electric Car Discount) Act 2022.
Source: Budget Paper No 2, p 25.
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 7:30 pm (AEST) on 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, under Div 43 of ITAA 1997. 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 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.
Sources: Budget Paper No 2, pp 19–20; and Minister for Housing's press release “Billions to boost social and affordable rental homes”, 28 April 2023.
The clean building managed investment trust (MIT) withholding tax concession will be extended from 1 July 2025 to eligible data centres and warehouses, where construction commences after 7:30 pm (AEST) on 9 May 2023.
A final withholding tax rate of 10% applies to fund payments from eligible clean building MITs that are made to non-residents in information exchange countries. An eligible clean building MIT refers to a withholding MIT that holds one or more clean buildings. A clean building MIT cannot derive assessable income from any taxable Australian property other than its clean buildings and assets “reasonable incidental to” those clean buildings.
Eligibility for the concession will be extended to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 pm (AEST) on 9 May 2023. Consultation will be undertaken on transitional arrangements for existing buildings. The measure will apply from 1 July 2025 when enacted.
Franked distributions funded by capital raisings — start date postponed.
The start date of a measure to prevent franked distributions funded by certain capital raisings announced in the 2016–17 Mid-Year Economic and Fiscal Outlook (MYEFO) has been postponed to 15 September 2022.
Certain distributions funded by capital raisings made on or after 15 September 2022 will be prevented from being frankable. The measure ensures such arrangements cannot be put in place to release franking credits that would otherwise remain unused where they do not significantly change the financial position of the entity. The Bill is currently before the Senate.
Patent box measures not to proceed
The patent box regime announced in the Coalition government’s 2021–22 Budget, and expanded in the 2022–23 Budget, will not proceed. The patent box regime proposed to tax certain corporate income at an effective tax rate of 17%. The patent box measures were to apply to medical and biotechnology, agricultural and low emission innovation.
Source: Budget Paper No 2, p14, p 163, p 165.
The commencement of the issue of biodiversity stewardship certificates under the Agriculture Biodiversity Stewardship Market scheme, the sale of which would be treated as primary production income, will be delayed from 1 July 2022 to 1 July 2024.
Source: Budget Paper No 2, p 77.
The Location Offset rebate for films will be increased to 30% of Qualifying Australian Production Expenditure (QAPE) from the current 16.5% rate. The increase is intended to attract investment from large-budget screen productions and provide domestic employment and training opportunities. The minimum QAPE thresholds will be increased to $20 million for feature films (currently $15 million) and $1.5 million per hour for television series (currently $1 million). Funding for these measures have been allocated for 4 years beginning from 2024–25.
Source: Budget Paper No 2, p 182.
Superannuation earnings tax concessions will be reduced for individuals with total superannuation balances in excess of $3 million.
From 1 July 2025, earnings on balances exceeding $3 million will incur a higher concessional tax rate of 30% (up from 15%) for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million. The change does not impose a limit on the size of superannuation account balances in the accumulation phase and it applies to future earnings, ie it is not retrospective.
Earnings relating to assets below the $3 million threshold will continue to be taxed at 15%, or zero 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.
Sources: Budget Paper No 2, p 15; Budget Factsheet — Stronger foundations for a better future, p 63; Treasurer's press release “Superannuation tax breaks”, 28 February 2023.
Employers will be required to pay their employees’ superannuation guarantee (SG) entitlements at the same time as they pay their salary and wages from 1 July 2026.
Employers are currently required to make SG contributions for an employee on a quarterly basis to avoid incurring a superannuation guarantee charge.
The proposed commencement date of 1 July 2026 is intended to provide employers, superannuation funds, payroll providers and other stakeholders sufficient time to prepare for the change.
Changes to the design of the superannuation guarantee charge will also be required to align with the increased payment frequency. The government will consult with relevant stakeholders on the design of these changes, with the final framework to be considered as part of the 2024–25 Budget.
In addition, funding will be provided to the ATO to, among other things, improve data matching capabilities to identify and act on cases of SG underpayment.
Sources: Budget Paper No 2, p 26; Budget Factsheet — Stronger foundations for a better future, p 62; Assistant Treasurer's press release "Introducing payday super”, 2 May 2023.
The non-arm’s length income (NALI) measure announced by the Coalition government in 2022 will be amended to provide greater certainty to taxpayers.
The Coalition government announced on 22 March 2022 that the non-arm’s length expense provisions would be amended to ensure they operated as intended from 1 July 2022.
On 24 January 2023, Treasury released a consultation paper on the following potential amendments to the NALI provisions:
- self-managed superannuation funds (SMSFs) and small APRA funds would be subject to a factor-based approach which would set an upper limit on the amount of fund income taxable as NALI due to a general expenses breach. The maximum amount of fund income taxable at the highest marginal rate would be 5 times the level of the general expenditure breach, calculated as the difference between the amount that would have been charged as an arm’s length expense and the amount that was actually charged to the fund. Where the product of 5 times the breach is greater than all fund income, all fund income will be taxed at the highest marginal rate, and
- large APRA-regulated funds would be exempted from the NALI provisions for general expenses of the fund.
To provide greater certainty to taxpayers, the NALI provisions which apply to expenditure incurred by superannuation funds will be amended by:
- limiting income of SMSFs and small APRA regulated funds that are taxable as NALI to twice the level of a general expense.
- Additionally, fund income taxable as NALI will exclude contributions
- exempting large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund, and
- exempting expenditure that occurred prior to the 2018–19 income year.
Source: Budget Paper No 2, pp 13–14
Australia 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% overseas.
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.
Sources: Budget Paper No 2, pp 20–21; Budget Factsheet — Stronger foundations for a better future, p 63.
The scope of the general anti-avoidance rules in Pt IVA of ITAA 1936 will be expanded to capture schemes that result in reduced Australian tax via lower withholding tax rates on income paid to foreign residents. The reach of this regime will also extend to schemes with a dominant purpose to reduce foreign income tax, so long as it achieves an Australian income tax benefit. The changes will apply to income years starting on or after 1 July 2024, regardless of whether the scheme was entered into before 1 July 2024.
Pt IVA generally applies to schemes entered into with the sole or dominant purpose of obtaining a tax benefit. A “scheme” means any agreement, arrangement, understanding, promise or undertaking — whether express or implied and whether legally enforceable or not — and any scheme, plan, proposal, course of action or course of conduct (s 177A of ITAA 1936). If Pt IVA applies to a scheme, the ATO may cancel the tax benefit, make compensating adjustments and impose substantial penalties.
Source: Budget Paper No 2, p 29.
The government will provide $21.8 million over 4 years from 2023–24 (and $1.4 million per year ongoing) to the ATO to lower the tax related administrative burden for small and medium businesses.
- $12.8 million over 3 years from 2023–24 to trial an expansion of the ATO independent review process to businesses with aggregated turnover between $10 million and $50 million subject to an ATO audit. The trial will commence on 1 July 2024 and run for 18 months
- $9.0 million over 4 years from 2023–24 (and $1.4 million per year ongoing) for 5 new tax clinics from 1 January 2025 to improve access to tax advice and assistance for 2.3 million businesses. Eligibility for funding will be extended to TAFE institutions to improve access to tax clinic services in regional areas.
The measure also delivers reforms to cut paperwork and reduce the time small businesses spend doing taxes:
- from 1 July 2024, small businesses will be permitted to authorise their tax agent to lodge multiple Single Touch Payroll forms on their behalf, reducing paperwork for small businesses
- from 1 July 2024, small businesses will benefit from faster, safer and cheaper income tax refunds by reducing the use of cheques
- from 1 July 2025, small businesses will be permitted up to 4 years to amend their income tax returns, reducing the burden of making revisions.
Source: Budget Paper No 2, p 210.
The GDP adjustment factor for pay as you go (PAYG) and GST instalments will be set at 6% for the 2023–24 income year, a reduction from 12% under the statutory formula.
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 annual aggregate 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.
Source: Budget Paper No 2, p 27.
From 2022–23 funding of $87.8 million over 5 years (including $53.1 million in capital funding, and $2.0 million per year ongoing) will be provided to improve the administration of student loans and enhance the security and privacy of data holdings.
The funding will include:
- $42.2 million over 4 years from 2023–24 for the Department of Employment and Workplace Relations to implement a new digital solution to support the efficient and effective administration of the VET Student Loans program
- $36.9 million over 5 years from 2022–23 (and $2 million per year ongoing) for the Department of Education to optimise the Tertiary Collection of Student Information system to improve data quality, analytic support and the security of tertiary student loan records
- $8.7 million over 2 years from 2023–24 for the Commonwealth Ombudsman and the Department of Employment and Workplace Relations to extend the VET FEE-HELP student redress measures by one year to 31 December 2023.
Additionally, from 2022–23, the government will forgo $5.4 million in receipts over 5 years (and $15.5 million over 2 years to 2033–34) to support students affected by a delay in the transfer of some historical tertiary education loan records to the ATO. This will mean waiving the following debts for affected loans, as determined at the date of transfer to the ATO:
- historical indexation, as well as indexation that will be applied on 1 June 2023 on loans issued prior to 1 July 2022 under the Higher Education Loan Program, the VET Student Loans program, the Trade Support Loans program and on loans issued in 2017 and 2018 under the VET FEE-HELP program, and
- outstanding debt for VET FEE-HELP loans issued from 2009 to 2016.
Source: Budget Paper No 2, pp 87–88.
Funding will be provided over 4 years from 1 July 2023 to enable the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities.
The additional funding will facilitate ATO engagement 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.
A lodgment penalty amnesty program is being 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 during the period from 1 December 2019 to 29 February 2022.
Source: Budget Paper No 2, pp 29–30.
The Personal Income Tax Compliance Program will be extended for 2 years from 1 July 2025 and its scope expanded from 1 July 2023.
This extension will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, and to expand the scope of the program to address emerging areas of risk, such as deductions relating to short-term rental properties to ensure they are genuinely available to rent.
Source: Budget Paper No 2, p 16.
GST and other Indirect Tax
Nearly $600 million will be allocated, over an additional 4 years, to GST compliance. This is estimated to generate additional GST receipts of $3.8 billion and the same amount again in other taxes over the 5 years from 2022-23.
This funding extension will support the development of more sophisticated analytical tools to address emerging risks to GST revenue.
Source: Budget Paper No 2, p 19.
The Heavy Vehicle Road User Charge rate will be increased from 27.2 cents per litre of diesel fuel, by 6% per year for 3 years, to 32.4 cents. The first year of the increase will be the 2023–24 income year.
Source: Budget Paper No 2, p 175.
Refunds of indirect tax (including GST, fuel and alcohol taxes) have been extended under the Indirect Tax Concession Scheme (ITCS). New access to refunds has been provided for construction and renovation arrangements for North Macedonia and Latvia relating to their current and future diplomatic missions and consular posts. Saudi Arabia will also have ITCS access upgraded for its Embassy and current and future Consulate-General.
These concessions are provided in accordance with Australia’s international obligations in relation to diplomatic missions and consular posts and will establish reciprocal entitlements for Australian diplomatic missions in these countries.
Source: Budget Paper No 2, p 21.