The 2023 Federal Budget and YOU

Firstly, anything announced by our nation's leaders is subject to Parliament's approval of the actual legislation. The announcements are not in force unless and until the details are finalised and receive Royal Assent.

As always, try not to rely on news or advertising content for tax or financial advice, consider the underlying reason for the message and confirm with your tax professional. Even this page is general in nature and cannot be relied upon as formal tax advice.

That said, there are several attention-grabbers in this week's announcements, and we will outline here the main tax and small-business related proposals. Click the arrow next to a topic to see our highlights.

Small Business Instant Asset Write-Off

With Temporary Full Expensing ending this 30 June, we expected future business assets bought for over $1,000 to be depreciated over the length of their useful life. However, once this announcement becomes law, businesses turning over under $10 million will be able to write off multiple assets of up to $20,000 each if they are purchased and ready to use in the 1 July 2023 - 30 June 2024 year. This is great news for business owners building up to the next equipment upgrade.

Based on the criteria from the last Instant Asset Write Off (up to June 2021), the cost limit applies after any GST you can claim, but before you reduce the value for non-business use. We expect the 'identical asset' principle to apply - that is, sets of items that are basically identical are treated as one asset when applying the write-off cost limit. No buying six identical machines at $3,500 each as that would exclude them all!

The current wording of this round does not appear to include improvements to existing assets, so we will keep you updated as more details are confirmed.

Energy Efficiency Incentives

For the 2024 financial year, there will be a 20% "bonus deduction" for small and medium businesses investing in eligible assets for electrification and more efficient energy usage, such as more energy-efficient appliances, batteries, thermal storage, and heat pumps, up to a maximum spend of $100,000. We will keep you updated as the eligibility criteria are clarified.

Interestingly, the tax break on private use of employer-owned plug-in-hybrid electric vehicles will be phased out in March 2025.

Rental Property New Build Encouragement

The capital works (building depreciation) deduction on new purpose-built rental homes will increase to 4% from the current 2.5%, lightening the tax ever so slightly on the income from the investment. This is one of the Budget's strategies to increase rental and housing availability.

We look forward to hearing if this rate of deduction will apply to subsequent owners as these future builds eventually change hands, and note there is a minimum 10-year ownership rule in consideration.

ATO Compliance Programs - "Checking and Chasing"

GST -- This Budget allocates $588 million to the ATO for "promoting GST compliance", "including accurately accounting for and remitting [paying to the ATO] GST". This extends an existing project that has reportedly saved taxpayers $2.5 billion in criminally fraudulent GST refunds. With funding like that one should expect the next four years to see increased reviews and audits as the upgrades to data analytics identify more targets.

Personal Income Tax -- the ATO will keep up their scrutiny of income reporting, excessive deductions and rental property "risk areas" until 2027. This is why we ask all those questions when preparing your tax work, because we are looking ahead to questions the ATO may ask in a less friendly manner!

High Value ATO Debts -- there will be funding for ATO "engagement" of public companies, private groups and high net worth individuals who owe over $100k or from more than 2 years ago.

Serious Crimes Taskforces -- organised and serious financial criminals will stay in focus for an additional four years, so we may see more headlines giving examples of what not to do as prosecuted cases come to light.

Luckily, Chromatic clients are covered automatically by our AuditSave Group Policy to cover the costs of responding to an ATO review or audit. We are also experienced reviewers and preparers of Tax Returns and Business Activity Statements, so if you're ever unsure please contact us!

Anti-Avoidance Rules for Foreign Connections

The legislation covering schemes or arrangements designed primarily to reduce Australian tax payable will be broadened from 1 July 2024, to apply to foreign resident payments and foreign tax reduction schemes, no matter when those arrangements started.

Late Lodgement Penalty Amnesty - Catch-up Time!

If you struggled to keep up with your tax lodgements between December 2019 and February 2022, it's been announced that failure-to-lodge penalties will be waived IF you catch up by the end of this calendar year. Although tax payments may be owed and interest will likely still accrue, at up to $2,750 per lodgement for a medium sized entity, we say, take the deal while you can!

After the short-lived superannuation amnesty closed in 2020, the ATO have been far stricter on those who missed that chance, so we would not expect much lenience if you miss the December deadline on this one.

Individual Tax Rate Changes

These are not new to this Budget, nor are they yet in effect, but the merging of brackets in from 1 July 2024 would see the majority of Australians paying 30c in the dollar earned. Everyone on between $45,000 and $200,000 will get a tax break, but the higher earners will save by far the most. They will also be unaffected by the end of the Low and Middle-Income Tax Offset which has not been extended.

Small businesses in a company structure are currently taxed at 25c, so the 30c individual bracket and it's broadness will be relevant in business structuring and planning owner wages and income drawings.

See also our post here on strategies to access your company profits.

Employee Superannuation Due on Payday

Now most employers have got the hang of Single Touch Payroll, they will be required to pay superannuation guarantee amounts the same day as the employee, starting 1 July 2026. This is some time away, but for larger employers it will be a considerable shift in their cash flow patterns, moving the minimum frequency from quarterly to match the business's payroll cycle. This will be just after the gradual increases to compulsory superannuation top out at 12% the year before.

There is nothing preventing more frequent payments of super from being made voluntarily in the meantime. See our Super Deductions summary here.

Home Guarantee Scheme Expanded

There are three Home Guarantee Scheme types designed to help Australians purchase a home sooner with smaller deposits by guaranteeing part of their home loan and reducing Lenders Mortgage Insurance costs. Subject to the legislation updates, eligibility will be broadened to include single legal guardians (not just biological parents), joint applicants who are not spouses/de factos, First Home Guarantee access for previous property owners out of the market for over 10 years, and Permanent Residents, from 1 July.

Large Super Balances to be Taxed More

We've known for months this was coming, but it's been confirmed that the concessional taxation of Superannuation earnings will be dropped for balances over $3 million dollars. This value is based on all funds in which the member has a superannuation interest, including defined benefit schemes which operate and are valued a little differently from the more common account-based type.

Notably, this will be based on the market value of the underlying assets, so if your Self-Managed Super Fund's properties have gone up with the market over time, this unrealised gain will impact tax paid by the fund from 1 July 2025.

Unemployment and Inflation Projections

The unemployment figures that make the headlines usually don't take into account the workers who are underemployed (not "getting enough hours") and doesn't break down the reasons some people are not currently 'participating' in the workforce. The methods of measurement and exclusion of the underemployed can mask the true impact of shifts in the labour market -- at March 2023 there were almost twice as many underemployed as unemployed, and almost 30% of those employed were part-time.

The budget announced an increase of 0.75% over the next 15 months, which would indicate around 10,000 job losses. However, wages are expected to grow and JobSeekers under 55 will get $20 extra a week.

Hang in there, though, as inflation is not predicted to settle down to 'target' until 2024-25.

What WASN'T mentioned

Strictly speaking, the changes to individual tax rates and the end of LMITO weren't part of the announcements, but as they are so relevant, we still covered them above.

• Company loss carry-back rules, still set to end this 30 June.

• Division 7A, loans from companies to related parties have been a hot topic for a while, but no changes are confirmed for now.

• Residency Rules

• Capital Gains 50% discount, rollovers and Small Business Concessions

• Scrapping of Negative Gearing

Well friends, we hope you found something interesting in the above small glimpse into the pages and pages out of Canberra this week. As always, reach out if you need any further information.

More Information

We have sourced the above information from some of our professional membership circulations, as well as Government websites (some of which are linked above). While care is taken to select and present these points accurately, this does not constitute advice as your particular circumstances cannot be taken into account.