10 May 2023

In his first May budget, Treasurer, Jim Chalmers, focused on environmental and social agendas, with little in the way of tax changes.

In a time of high inflation, interest rates and employment and expected world economic slowdown, the government was not expected to announce budget measures to stimulate the economy.

The good news is that the budget did not announce any reversal of the 2024/25 individual tax cuts and continue to honour their commitment. However, there is still another 12 months and another budget to be handed down before the tax cuts come into effect.

There were a few tax announcements focusing on housing incentives, global taxation, energy efficiency, small and medium businesses and tax integrity.

Housing incentive

To address the housing shortage, investors will be encouraged to build more intensive rental accommodation by allowing the cost of construction to be written off over 25 years instead of the current 40 years. The development must involve 50 or more dwellings/apartments, rented to the general public, leases must be for at least three years and the dwelling ownership must be retained under a single owner for at least ten years.

To encourage foreign investors through managed investment trusts to invest in these developments the withholding tax rate will reduce from 30% to 15%.

Small business

For small businesses of less than $10M, the $20,000 instant asset write-off will continue until 30 June 2024 for assets first used or installed ready for use between 1 July 2023 and 30 June 2024. In addition, the five year opt out rule continues to be suspended until 30 June 2024 for small business wishing to re-enter the simplified depreciation regime.

From 1 July 2025, small businesses will be permitted up to four years to amend their income tax returns rather than the current two years.

A lodgement penalty amnesty program for small businesses who fail to lodge penalties, is being introduced for outstanding tax statements relating to the periods 1 December 2019 to 29 February 2022 if they are lodged between 1 June 2023 to 31 December 2023.

Small and medium businesses

A one-off bonus 20% deduction to encourage businesses to invest in energy efficient upgrades will apply to total eligible asset purchases up to $100,000 for businesses with a turnover of under $50 million. The bonus will apply to eligible assets first used or installed ready for use between 1 July 2023 and 30 June 2024. Exclusions will include certain electrical vehicles, renewable electricity generation assets, capital works and other assets not connected to the electricity grid and use fossil fuels.

From 1 July 2024, there will be enhanced support for small to medium sized businesses and start-ups through an industry growth program to assist to commercialise their ideas and grow their operations. Businesses operating in the priority areas of the National Reconstruction fund will be targeted.

The government announced a reduction of the GDP adjustment factor from 12% to 6%, for pay as you go (PAYG) and GST Instalments for the 2023-24 income year. This applies to small businesses and other pay as you go instalment taxpayers with a turnover of up to $10M for GST instalments and $50M for PAYG instalments.

Tax Integrity measures

The tax act integrity provision under Part IVA will be amended to include schemes that reduce Australian tax by utilising the lower withholding tax rates on income paid to foreign residents. The measure will also include schemes that achieve an Australian tax benefit even where the dominant purpose was to reduce foreign income tax.

Whilst little detail is provided, at this stage, one wonders if the intent of this announcement follows the recent full federal court decision in Guardian1 where a trustee chose to distribute income to a corporate beneficiary and in the next year the company paid the franked dividend to a non-resident beneficiary of the shareholder trust. The subsequent payment of the fully franked dividend was not subject to withholding tax whereas if the trustee had distributed the income in the previous year directly to the non-resident, then the trustee would have been subject to withholding tax.

The budget also includes increased and extended funding to the ATO:

• To continue the GST compliance program for a further four years.

• To expand the scope and continue the personal income tax compliance program over two years.

• For Serious Financial Crime Task Force and Serious Organised Crime Program over four years.

• For improving engagement with taxpayers to ensure timely payment of tax and superannuation liabilities.

Large multinational enterprises 15% minimum tax

A 15% global minimum tax for large multinational enterprises will be introduced for income tax years starting after 1 January 2024. The measure will allow Australia to apply a top up tax on any low taxed domestic income or where the entity is a resident and the group’s overseas income is taxed below 15%. Entities affected are large multinationals with annual global revenue of EUR750 Million (approximately $AUS 1.2 billion).

Self-managed super funds and small APRA funds

The current catastrophic tax outcome for these funds, if they breach the general expenses non-arm’s length income requirements, will be significantly modified to reflect a reasonable outcome. The measure will limit the income of the fund from being taxed at the top marginal rate, under the breach, to an upper limit of two times the deduction and will also exclude contributions from NALI.

In summary, the Federal Budget focused on environmental and social agendas rather than tax changes, which was expected given the current economic climate. The budget did, however, announce several tax measures aimed at encouraging investment in rental housing, energy efficiency, and small and medium-sized businesses. Overall, the budget strikes a balance between encouraging investment and ensuring tax compliance, whilst acknowledging the current economic climate and need to address social and environmental issues.

Check out the full coverage from the Federal Budget 2023/24 here.

The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex Group Limited.