The Australian Federal Budget 2023-24 is announced on 9 May 2023. As usual, in this article, we mainly look into the details of the business and super fund tax changes given there isn’t much individual tax changes in this budget including any amendment on the controversial stage three tax cuts.

Business & employers

$20,000 small business instant asset write-off

Date	1 July 2023 to 30 June 2024

Small businesses with an aggregated turnover of under $10 million can deduct the full cost of eligible depreciating assets under $20,000 if they are used or installed between 1 July 2023, and 30 June 2024. This means they can claim a tax deduction in the same year of purchase and use. If the business is GST registered, the asset cost must be under $20,000 after subtracting GST credits; otherwise, it includes GST. The deduction applies per asset, and assets worth $20,000 or more can be placed in a depreciation pool. The suspension on re-entry into the simplified depreciation regime for small businesses opting out will continue until 30 June 2024. The temporary full expensing rules will end on 30 June 2023, so businesses should consider this cut-off date when acquiring assets.

$20,000 small business incentives for energy efficiency

Date	1 July 2023 to 30 June 2024

The Small Business Energy Incentive allows small and medium businesses with annual turnover below $50 million to receive an additional 20% deduction on eligible depreciating assets that support electrification and energy efficiency. Businesses can claim up to $20,000 as a bonus deduction, with a total expenditure cap of $100,000. The incentive applies to assets like electrified heating and cooling systems, energy-efficient fridges and induction cooktops, and the installation of batteries and heat pumps. Exclusions include electric vehicles, renewable electricity generation assets, capital works, and assets not connected to the electricity grid or reliant on fossil fuels. To qualify for the bonus deduction, eligible assets or upgrades must be first used or installed ready for use between 1 July 2023, and 30 June 2024.

Increase payment frequency of employee super

Date	1 July 2026

Starting from 1 July 2026, employers will be obligated to pay their employees’ super guarantee entitlements on the same day as their salary and wages. Currently, super guarantee payments are made quarterly. The government plans to engage in a consultation process to finalize the details of this measure, with the intention of providing more information in the 2024-25 Federal Budget.

Small business ATO compliance

From	1 July 2024

To alleviate the compliance burden on small businesses, several measures have been introduced to streamline paperwork, including:

• Starting from 1 July 2024, small businesses will have the option to authorize their tax agent to submit multiple Single Touch Payroll forms on their behalf.
• Beginning 1 July 2024, the Australian Taxation Office (ATO) will minimize the use of cheques for income tax refunds.
• Effective from 1 July 2025, small businesses will be allowed up to 4 years to make amendments to their income tax returns, which is an extension from the usual 2-year timeframe.

Lower tax instalments for small business

Date	1 July 2023 to 30 June 2024

The adjustment of GST and PAYG instalment amounts is typically done using a GDP uplift factor. However, for the 2022-23 income year, the government reduced this factor to 2% instead of the expected 10% rate. Now, for the 2023-24 income year, the government has set the uplift factor to 6% instead of the usual 12% rate. This 6% uplift rate will be applicable to small to medium enterprises that meet the eligibility criteria and use the relevant instalment methods for their 2023-24 income year instalments. The instalments will be due after the amending legislation becomes effective, with the criteria being an annual aggregated turnover of up to $10 million for GST instalments and $50 million for PAYG instalments.

Small business lodgement penalty amnesty

Date	1 June 2023 – 31 December 2023

Small businesses with an aggregated turnover below $10 million will have the opportunity to participate in a lodgement penalty amnesty program. This amnesty will waive failure-to-lodge penalties for outstanding tax statements that were originally due between 1 December 2019 and 29 February 2022, and are lodged between 1 June 2023 and 31 December 2023.

Exclude hybrid cars from FBT exemption

Date	1 April 2025

Starting from 1 April 2025, plug-in hybrid electric cars will no longer qualify for the fringe benefits tax (FBT) exemption that applies to eligible electric cars. However, arrangements made between 1 July 2022 and 31 March 2025 will remain eligible for the FBT exemption if the car was already exempted before 1 April 2025 and the employer has a legally binding commitment to continue providing private use of the car on and after this date.

Franked distributions funded by capital raisings start date shifted

Date	15 September 2022

The Government, in the 2016-17 fiscal year, announced its intention to prevent shareholders from benefiting from franking credits linked to dividends funded by capital raisings. The Budget reiterates this commitment, with a revised implementation date of 15th September 2022.

According to the measure, a distribution (dividend) paid by an entity will be considered funded by capital raising if:

• The distribution deviates from the entity’s established practice of regularly making such distributions.
• There is an issuance of equity interests in the entity.
• Considering all relevant circumstances, it is reasonable to conclude that either:
  • The primary effect of issuing any of the equity interests was to directly or indirectly fund all or part of the distribution.
  • An entity that issued or facilitated the issuance of the interests did so with the purpose of funding all or part of the distribution.

The proposed changes aim to prevent the utilization of artificial arrangements where capital is raised specifically to fund franked dividends, allowing for the distribution of franking credits. The Government is concerned that such arrangements involve manipulating the system, enabling existing shareholders to benefit from both the franking credits and the retained profits generating those credits within the company.

If implemented, direct or indirect recipients of affected dividends would not be eligible for a tax offset, and the franking credit amount would not be included in their assessable income. Additionally, these dividends would not be exempt from non-resident withholding tax.

The initial application date for the measure was set for 19th December 2016, but it has been rescheduled to 15th September 2022.

This measure is outlined in the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023, which was introduced to Parliament on 16th February 2023.

15% minimum tax for multi-national global and domestic

From	1 January 2024

The Government will implement key elements of the OECD’s Two Pillar Solution, including:

• A 15% global minimum tax for large multinational enterprises, with the Income Inclusion Rule effective from 1st January 2024 and the Undertaxed Profits Rule effective from 1st January 2025.
• A 15% domestic minimum tax, applicable from 1st January 2024.

These taxes are based on the OECD Global Anti-Base Erosion Model Rules, ensuring that large multinationals pay a minimum level of tax in each jurisdiction where they operate. Australia will have the authority to impose a top-up tax on resident multinational parent or subsidiary companies if their income is taxed below 15%. These minimum tax rules will be applicable to large multinationals with annual global revenue of EUR 750 million (approximately $1.2 billion) or more.

Tax breaks for build-to-rent developments

From	9 May 2023

In line with previous announcements, the Government is introducing attractive incentives for build-to-rent developments. For qualifying new build-to-rent projects commencing construction after 9th May 2023 at 7:30 pm AEST, the Government will:

• Increase the capital works tax deduction (depreciation) rate from 2.5% to 4% per annum.
• Reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%.

These incentives are applicable to build-to-rent projects that offer 50 or more apartments for rent to the general public. The dwellings must be held under a single ownership for a minimum of 10 years before they can be sold, and landlords must provide a minimum lease term of 3 years for each dwelling.

The reduced MIT withholding tax rate for residential build-to-rent will take effect from 1st July 2024. The Government will engage in a consultation process to determine the specific implementation details, including any required minimum proportion of affordable tenancies and the duration of single ownership retention for the dwellings.

 Increase of tobacco excise and duty from September

From	1 September 2023

Starting from 1st September 2023, the tobacco excise and excise-equivalent customs duty will undergo a 5% annual increase for a period of 3 years, in addition to regular indexing. Moreover, the duty on products subject to per kilogram excise and excise-equivalent customs duty (such as roll-your-own tobacco) will also see an increase. The “equivalisation weight” will be gradually reduced from 0.7 to 0.6 grams on 1st September each year, starting from 2023, and the new weight will be fully implemented by 1st September 2026.

This measure is anticipated to result in a revenue increase of $3.3 billion and lead to a $290 million rise in GST payments to the states and territories over a span of 5 years, starting from 2022-23.

Heavy vehicle user charge increase

From

2023 – 24

The Heavy Vehicle Road User Charge will increase by 6% per year for 3 years starting from 2023-24, resulting in a rate of 32.4 cents per litre of diesel in 2025-26. The current rate of 27.2 cents per litre will progressively rise over this period.

Tax law changes for general insurers

From	1 January 2023

The implementation of the new accounting standard, AASB17 Insurance Contracts, by the Australian Accounting Standards Board, has resulted in a misalignment between tax law and accounting standards. To address this, a legislative amendment will be introduced to allow general insurers to use audited financial reporting information based on the new standard when filing their tax returns. This will enable them to maintain consistency in their reporting practices.

Clean building MIT withholding tax concession extended

From	1 July 2025

The clean building managed investment trust (MIT) withholding tax concession will now be expanded to include eligible data centres and warehouses that meet the required energy efficiency standard. This extension applies to constructions starting after 7:30pm AEST on 9 May 2023. Additionally, the minimum energy efficiency requirements for both new and existing clean buildings will be raised to a 6-star rating from either the Green Building Council Australia or the National Australian Built Environment Rating System. The Government will engage in consultations to establish transitional arrangements for existing buildings.

Tax treatment of exploration and mining, quarrying and prospecting rights

From	Expenditure incurred from 21 August 2013

As previously stated, the Government plans to make changes to the Petroleum Resource Rent Tax (PRRT) to provide clarity on the definition of ‘exploration for petroleum’. The amendment will specify that exploration activities are limited to the process of discovering and identifying the existence, extent, and characteristics of petroleum resources. It will exclude activities and feasibility studies focused on assessing the commercial viability of extracting the resource. This clarification aims to provide a clear distinction between exploration and activities related to commercial recovery, ensuring appropriate taxation within the petroleum sector.

Also, from 7:30pm AEST, 9 May 2023, the tax treatment of depreciation deductions for mining, quarrying, and prospecting rights will be revised. The clarification ensures that deductions will only begin when these rights are actively used, rather than when they are simply held. This measure aims to align the tax treatment with the actual utilization of the rights, ensuring a fair and accurate depreciation calculation for mining, quarrying, and prospecting activities.

Bringing forward tax on natural gas

Date	Consultation later 2023

The Government will introduce amendments to the Petroleum Resource Rent Tax (PRRT) targeting deductions and implementing integrity measures for the offshore LNG industry. Consultation on these changes will take place in 2023. It is expected that this measure will result in a revenue increase of $2.4 billion over a five-year period starting from 2022-23. Additionally, the Australian Taxation Office (ATO) will receive $4.4 million in funding to administer and ensure compliance with these amendments.

Development of Hydrogen industry

From

2023-24

Over $2bn will accelerate Australia’s hydrogen industry, drive clean energy sectors, and enable global hydrogen supply chains. The Hydrogen Headstart program will support renewable hydrogen investment, while the Guarantee of Origin scheme, funded with $38.2m, will certify renewable energy and track emissions, including hydrogen.

Critical technology industry support

From

2022-23

$116m over 5 years will foster critical technology development, including integrating quantum and AI into businesses. Initiatives include a Challenge Program for quantum projects, expanding the National AI Centre, establishing the Australian Centre for Quantum Growth, and aiding SMEs in adopting AI. Additionally, the Powering Australia Industry Growth Centre will contribute to advanced technology and skills for the Australian Made Battery Plan.

Child care workforce support

From

2022-23

The Early Childhood Education and Care (ECEC) sector will receive support through measures including subsidizing services with $34.4 million over 5 years, providing financial assistance of $33.1 million for teacher education practicums, and allocating $4.8 million for practicum exchanges for ECEC workers.

15% pay increase for Aged Care Workers

From

2022-23

$515 million over 5 years will fund the outcome of the Aged Care Work Value Case, raising award wages by 15% for various aged care workers from 30 June 2023. The increase will be offset by temporarily reducing the residential aged care provision ratio.

‘Patent Box’ regime scrapped

From

2022-23

The Patent Box regime, which offered a concessional tax rate of 17% on patent-derived income for R&D conducted in Australia, has been completely scrapped. Originally intended for medical, biotech, agriculture, and emissions industries, it is no longer in effect.

Streamlining excise administration for fuel and alcohol

From	1 July 2024

The implementation of the fuel and alcohol excise compliance streamlining measure from the 2022-23 March Budget has been rescheduled to commence on 1 July 2024.

Film industry location offset

From

2022-23

In order to encourage investment from major screen productions and create more employment and training opportunities, the Location Offset rebate rate will be raised to 30%. Additionally, the minimum Qualifying Australian Production Expenditure thresholds will be increased to $20 million for feature films and $1.5 million per hour for television series.

Superannuation & investors

Non-arms length income rules clarification

From	Expenditure that occurred after the 2018-19

The non-arms length income (NALI) rules aim to prevent artificial inflation of superannuation fund balances and accessing preferential tax treatment by not recognizing expenses provided by a related party at a reduced rate. Proposed amendments suggest capping NALI taxable income to twice the level of a general expense. Contributions will be excluded from NALI taxable income, and expenditure before the 2018-19 income year will be exempt. Large APRA regulated funds would be exempt from NALI provisions for both general and specific expenses, based on Treasury consultation recommendations. Awaited legislation will clarify details.

30% tax on super earnings above $3m

From	1 July 2025

From 1 July 2025, individuals with a total superannuation balance exceeding $3 million will face an additional 15% tax on earnings. The tax calculation considers contributions, withdrawals, and both realized and unrealized gains, with negative earnings carried forward. Defined benefit scheme interests will be valued and taxed similarly to other interests. Individuals can choose to pay the tax personally or from their superannuation fund, and those with multiple accounts can designate the paying fund. This measure is expected to raise tax receipts by $950 million and payments by $47.6 million over a 5-year period starting from 2022-23.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.