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2023 Federal Budget

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Insights From MCA Accountants

2023 Federal Budget

NOT YET LEGISLATED

It is important to note that any announcements made by the Government are not guaranteed to become Law. These announcements must pass Parliament first, and the Government may need to alter their announced changes to get through Parliament.

Do not make firm decisions until these have passed Parliament and have become Law.

BUDGET POSITION

For the first time in 15 years, the budget is expected to be in surplus by the end of this financial year. Given the impacts of COVID recently and the structural deficit inside the budget for the decade or so prior – this is a significant moment.

With projected debt around that 1 Trillion dollar mark, having a surplus is important. Unfortunately, it won’t last long as this budget projects deficits in the future. Opponents will argue that this is a golden chance to get our finances in order gone begging.

This year’s unexpected surplus is due to an unexpected jump in tax revenue (due to increased prices in natural resources and higher individual income tax receipts due to low unemployment). With this extra money, the Government has decided to spend it instead of bank it and pay down our debt – hence the deficits in the future. In last year’s budget, projected spending was 2023-24: $641.7bn, 2024-25: $662.3bn, 2025-26: $687.0bn. In this budget, the projected spending figures are: 2023-24: $682.1bn (+40.4bn), 2024-25: $706.3bn (+44bn), 2025-26: $737.5bn (+50.5bn).

It is a “Labor Budget” – higher taxes and higher spending – with an extra $134.9bn being spent over the next 3 years compared to what was anticipated by the previous Government. That’s not to say this is bad, each person will have their own position as to whether more or less taxes and spending are good for the country.

No Government since the Howard years has been brave enough to introduce major reform with increased taxes or a new type of tax (pretty much all other changes since have been tax cuts), but a major change is needed with economists of all persuasions agreeing that something needs to be done to fix the debt and deficit issue we have. Time will tell whether the current Government is up to that task, and if not, is the opposition capable?

THE NITTY-GRITTY

Below we have outlined the main items from the budget, with the obvious focus on tax, welfare, and business:

There were no changes to personal taxes in this budget, which means:

  • The “stage 3” tax cuts are still due to start on 1 July 2024; and
  • The $1500 extra low-to-middle income rebate (introduced at the start of COVID) has not been reinstated – so please keep in mind that your tax refund will probably be lower this year compared to the last couple of years.

The “Personal Income Tax Compliance Program” (i.e. increased audit activity) will be extended, with it’s scope increased.

It is beleived that there is an $8bn (per year) shortfall of tax being paid by individuals – mainly due to overclaiming expenses. This will continue to be a focal point of the Government.

Note: We can offer “audit insurance” to our clients that covers the cost of complying with ATO audits, should you feel you are at risk of ATO attention.

Sadly, this isn’t just provided for by default, but the Government will increase the threshold at which the Medicare levy applies, in line with inflation.

We note that this is pretty much the only threshold increasing with inflation, as the age-old problem of all tax thresholds sitting stagnant continues and “bracket creep” seems destined to continue (where you pay a higher rate of tax just because your wages keep up with inflation, due to tax brackets not increasing in line with inflation).

The thresholds for the 2023 financial year will be increased to:

  • A single individual with no dependants: $24,276;
  • Family: $40,939;
  • Seniors and pensioners (single): $38,365;
  • Seniors and pensioners (family): $53,406; and
  • Additional per child: $3,760

People on certain Centrelink payments will receive an extra $40 per fortnight, and those on rent assistance will receive an extra 15% of rent assistance payments.

The impacted Centrelink payments are:

  • JobSeeker;
  • Youth Allowance;
  • Austudy;
  • Abstudy;
  • Parenting Payment (Partnered);
  • Disability Support Pension (Youth); and
  • Special Benefit Payment.

We note that the age pension isn’t on this list, but we understand it will be increasing also.

In recognition of the challenges older Australians have in finding a job, the Government currently pays a higher JobSeeker rate to those over 60 years old and unemployed long term (9 months or more). The eligibility age for this will drop to 55.

The parenting payment (single) will be extended to support single carers with a child under 14 years. Currently the age limit is 8.

The limit that Centrelink pensioners can earn before their payments are affected will continue until 31 December 2023. This measure was initially introduced in Labor’s mid-year budget 6 months ago but was set to end on 30 June 2023.

The threshold will be $11,800 which pensioners can earn before payments are reduced.

To help offset the rising costs of power (and help reduce talk about a broken election promise), the Government will hand out money to eligible people to help cover these rising costs.

Certain Centrelink recipients and small businesses will be eligible for payments (with no real details readily available as yet).

The current full expensing of asset purchases available to most businesses will end (as currently) legislated on 30 June 2023.

The Government allow small businesses to write off asset purchases of less than $20,000 from 1 July 2023 to 30 June 2024. A small business in this context is one with a turnover of less than $10mil.

This means that businesses with a turnover of more than $10mil need to go back to detailing asset purchases of $300 or more so we can add them to a depreciation schedule.

Businesses with a turnover of less than $50mil will be eligible for a bonus 20% tax deduction for certain costs that support electrification and more efficient use of energy. It is anticipated that this will apply between 1 July 2023 and 30 June 2024.

The bonus deduction will be capped at $20,000 per business (i.e. $100,000 of expenditure).

While there isn’t much detail on exactly what expenditure is and isn’t included, it appears that the following examples are an indication of its scope:

  • Energy efficient electrical goods (e.g. energy efficient fridges);
  • Conversions of heating from gas to electricity; and
  • Batteries and other forms of energy storage.

The recently announced FBT exemption for fuel-efficient cars will only continue to apply to electric vehicles from 1 April 2025, with the exemption ending for plug-in hybrids at that point in time.

Importantly, plug-in hybrids that were purchased and eligible before 1 April 2025 will continue to receive the FBT exemption – so if you have brought one recently due to this exemption being available, you are safe.

Small businesses will be given the opportunity to bring their tax and activity statements up to date without penalty from 1 June 2023 to 31 December 2023.

While we understand that interest will still apply on any debts, being able to avoid late lodgment fines can save a significant amount on money.

As a warning, history suggests that following an amnesty the ATO is far less forgiving and this is where a real risk of audit is created – so for any small businesses out there with outstanding lodgments, we highly recommend taking advantage of this amnesty.

As previously announced, the Government plans to double the tax rate on superannuation balances over $3mil (30% tax instead of 15%).

Details are very scarce at this point, but one detail in this that is overlooked is that the Government plans to tax “unrealised” income, in addition to realised income – which means paying tax when your assets go up in value, not when you sell them. There are three issues with this:

  1. How does a super fund pay this tax when it hasn’t sold the asset?
  2. When an asset subsequently decreases in value, there is a risk of the super fund not recouping that “loss” as a tax deduction.
  3. It is a fundamentally different way of calculating “income” from what we do in all other aspects of tax.

We note that this is in a “consultation” phase, and the final set of rules may be different.

In what is going to be a big change, employers will be required to pay superannuation to employees at the same time that they pay wages. Currently, superannuation is paid quarterly (or monthly if required by an employment award), so paying potentially weekly will be a big change.

If you are unsure why this is a big change, it’s because of the red tape the Government has in place around superannuation payments. It’s not a matter of just transferring $x to your superannuation fund – it has to be reported to a clearing house, with direct debit arrangements in place, and other reporting requirements. Doing it weekly will add an administrative burden on employers that realistically, they may not have the time to do.

Let’s hope the Government isn’t blind to this and rethinks the red tape behind superannuation to help lower the burden of this on employers.

To go with the move to “pay-day super” (which is designed to reduce the amount of unpaid super), the Government will also provide more funding to the ATO to allow it to chase existing unpaid super.

We note that we are already seeing a crackdown on this, with the ATO able to easily match expected contributions with actual payments, so we expect this type of activity will greatly increase in the coming months.

The Home Guarantee Scheme allows eligible people to have the Government guarantee guarantee 15% of the purchase price of a home, in effect allowing a purchaser to have a 5% deposit and not incur lenders mortgage insurance.

Access to this scheme will be increased to allow:

  • any 2 eligible people who jointly apply (currently only available to spouses);
  • non-first home buyers, as long as they haven’t owned a property in Australia for 10 years; and
  • a single legal guardian of childen access to the scheme.

The rate at which taxpayers can claim building depreciation (known as “capital works”) will increase from 2.5% to 4% for build-to-rent projects.

The definition of a build-to-rent project appears to be undefined as yet (going through a consultation phase), but it appears that the property will need to be owned for at least 10 years, with a minimum 3-year lease provided.

One would question whether the benefits (i.e. the extra 1.5% tax deduction) are enough to offset the stringent requirements around ownership and lease terms for this policy to be effective.

Other changes include:

  • Lump-Sum payments in arrears will be exempt from the Medicare Levy from 1 July 2024, where that person is a low-income earner;
  • Funding will be provided to the ATO to lower the tax-related administrative burden for small businesses – but history suggests that this will be wasted money;
  • Some indexation on student loans will be reduced (mainly those affected by delays in transferring historical loans across to the ATO);
  • The 50% cut to minimum pension drawdown requirements (superannuation pensions) has not been retained, so these will go back to pre-COVID levels;
  • The “Non-Arms Length Income” (NALI) rules that apply to superannuation funds will be altered to make them clearer. Currently, there is a risk that all of the income of a superannuation fund is taxed at 45% should the super fund incur an expense that wasn’t charged at market rates. These will hopefully make the rules more in line with common sense;
  • Tighter rules around multinational businesses that seek to lower their tax base in Australia;
  • Changes to the Petroleum Resource Rent Tax to have producers of liquified natural gas pay more tax;
  • Changes to the withholding tax requirements of MIT’s (Managed Investment Trusts);
  • Distributions funded by capital raisings will not be able to be franked dividends from 15 September 2022;
  • The “Patent Box” regime announced a few years ago by the previous Government will not proceed;
  • Taxes on Tobacco will increase 5% per year from 1 September 2023, on top of ordinary indexation; and
  • The Heavy Vehicle Road User Charge will increase by 6% per year for 3 years, raising the tax from 27.2 cents per litre to 32.4 cents per litre.
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