Tax and Superannuation in the Federal Budget 2023-2024

The Australian government has made several changes to tax and superannuation regulations that will affect small business entities. Here are some of the key points to keep in mind:

Temporary Full Expensing and Instant Asset Write-Off

The government will not extend the Temporary Full Expensing measure beyond 1 July 2023, which means that if eligible businesses planned to make significant investments in their machinery and equipment, now is the best time to do that.

On the other hand, the government will reintroduce and temporarily increase the instant asset write-off threshold for the 2024 financial year to $20,000 (from $1,000 previously).

PAYG and GST

The Government will lower the GDP adjustment factor for PAYG and GST instalments from 12% to 6% for the 2023-24 income year. This reduction is intended to provide cash flow support to small businesses and other PAYG instalment taxpayers.

Small Business Energy Incentive

Small and medium businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of the cost of eligible depreciating assets that support more efficient energy usage. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus deduction being $20,000.

Build-to-Rent Projects

For eligible new build-to-rent projects starting construction after Budget night (9 May 2023), the capital works tax deduction rate will increase to 4% per year and the final withholding tax rate on eligible fund payments will be reduced from 30% to 15%. This measure aims to encourage investment and construction in the build-to-rent sector.

FBT regarding Electric Vehicles

From 1 April 2025, plug-in hybrid electric cars will no longer be eligible for the fringe benefits tax exemption for eligible electric cars. However, any agreements made between 1 July 2022 and 31 March 2025, regarding such vehicles will remain eligible for the Electric Car Discount.

Tax increase to super balances of $3 million

Individuals with a total superannuation balance exceeding $3 million will have reduced tax concessions from 1 July 2025. This means the tax rate for earnings above the $3 million threshold will increase from 15% to 30%. However, those with a balance below $3 million will not be affected.

Employees’ Superannuation guarantee

Starting 1 July 2026, employers will be required to pay their employees’ superannuation guarantee (SG) entitlements on the same day as they pay their salary and wages. Currently, employers only need to pay SG on a quarterly basis.

Amended provisions to non-arm’s length income

Non-arm’s length income (NALI) provisions have been amended to limit income for self-managed super funds (SMSF) and small APRA-regulated funds that are taxable as NALI to twice the level of general expenses. Large APRA-regulated funds are exempt from NALI provisions for both general and specific expenses. Expenditure which occurred prior to the 2018-19 income year is also exempt.

Tax Compliance

The ATO’s Personal Income Tax Compliance Program will be extended for two years from 1 July 2025, with an expanded scope to address emerging areas of non-compliance such as deductions relating to short-term rental properties to ensure they are genuinely available to rent.

The ATO will receive funding to continue a range of activities that promote GST compliance, including developing more sophisticated analytical tools to combat emerging risks to the GST system.

The Government will expand the scope of the general anti-avoidance rule for income tax to include schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents and schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.

The ATO will pay closer attention to taxpayers with high-value debts over $100,000 and aged debts older than two 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.

Lodgement Penalty Amnesty

To incentivise small business (aggregate turnover less than $10 million) to re-engage with the tax system, the lodgement penalty amnesty program has been declared. Under this amnesty, failure-to-lodge penalties for outstanding tax statements will be waived for statements lodged between 1 June 2023 to 31 December 2023, which were initially due 1 December 2019 to 29 February 2022.

These are the most significant tax and superannuation news in the new budget paper related to small businesses. If you have any questions or concerns, do not hesitate to contact HLD-Law for consultation.