The Government has handed down its 2023/24 Federal Budget with a small surplus and a range of cost of living measures. Limited tax measures were announced, aimed mainly at small businesses to encourage transition to energy efficient assets, and to assist with business cash flow.
Business Measures
Small Business Instant Asset Write-off (IAWO)
The Government will increase the threshold for the small business IAWO to $20,000 for the 2024 income year. The temporary full expensing rules cease on 30 June 2023 for all businesses, and the threshold for the small business IAWO was to return to $1,000. The increased IAWO threshold will apply to businesses with an aggregated annual turnover of up to $10 million. All other businesses will return to general depreciation rules, with no IAWO. While a welcome announcement, it is again only a temporary measure and will currently cease on 30 June 2024.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2024.
Small Business Energy Incentive
The Government will provide small businesses, with an aggregated annual turnover of up to $50m, an additional 20% deduction for the cost of eligible deprecating assets that support electrification and more efficient use of energy. The measures will apply for assets first used or installed ready for use between 1 July 2023 and 30 June 2024. Total expenditure of up to $100,000 will be eligible, equating to a maximum bonus deduction of $20,000. (This is in line with the current digital and training tax boosts).
The measure will cover new assets and upgrades to existing assets. It will include assets that upgrade to more efficient electrical goods such as energy-efficient fridges, assets that support electrification such as heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage. Exclusions from the measures will include electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels. Full details of eligibility criteria will be finalised in consultation with stakeholders.
Small Business Tax Instalments
The GDP adjustment factor for pay as you go (‘PAYG’) and GST installments will be set at 6% for the 2024 income year, a reduction from 12% under the statutory formula. This follows a similar reduction in the 2023 year, where the factor was reduced from 10% to 2%.
The intention in reducing the adjustment factor is to provide cash flow support to small businesses and other PAYG installment taxpayers. The rate will apply to small businesses and individuals with an aggregated turnover of up to $10 million for GST installments and up to $50 million for PAYG installments. It will apply to installments for the 2024 income year that fall due after the legislation receives Royal Assent.
Lodgement penalty amnesty program
An amnesty program is to be provided for small business (aggregated turnover of up to $10 million) to encourage them to re-engage with the tax system. The amnesty will remit Failure To Lodge penalties for tax statements lodged from 1 July 2023 to 31 December 2023 that were due for the period from 1 Decem- ber 2019 to 29 February 2022. The measure will apply to income tax returns; BAS & IAS statements; SG charge statements and any other relevant tax statements.
Capital Works Deduction for Build-to-Rent Projects
Eligible new build-to-rent projects will be subject to a higher rate of capital works deduction of 4% per year. It will apply to projects where construction commences after 7.30pm on 9 May 2023.
Previously, incentives for build-to-rent projects have only been relevant to Managed Investments Trusts (‘MITs’). However, the announced measure applies to all build-to-rent projects consisting of 50 or more apartments or dwellings made available for public use. The dwellings must be retained under single ownership for at least 10 years before being able to be sold and landlords must offer a lease term of at least 3 years for each dwelling.
In addition, the final withholding tax rate on eligible fund payments from MIT investments for build-to rent projects will decrease from 30% to 15% from 1 July 2024.
Tax Integrity Measures
Expansion of Part IVA
The Government will expand the scope of the general anti-avoidance rule for income tax (‘Part IVA’) to ensure that it can apply to schemes that:
reduce Australian tax by accessing a lower withholding tax rate on income paid to foreign residents
achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.
This measure will apply to income years commencing on or after 1 July 2024, regardless of whether the scheme was entered into before that date.
Global and domestic minimum tax
It is proposed to implement the OECD Pillar Two Model Rules by introducing:
15% global minimum tax for large multinational enterprises— this comprises an Income Inclusion Rule (which imposes a top-up tax on a resident multinational parent or subsidiary) applying to income years starting from 1 January 2024, and an Undertaxed Profits Rule (which denies deduc- tions) from 1 January 2025.
15% domestic minimum tax applying to income years starting from 1 January 2024—which would give Australia first claim on top-up tax for any low-taxed domestic income.
These taxes will apply to large multinationals with annual global revenue of EUR750 million (approximately $1.2 billion) or more.
Superannuation measures
Non-arm’s length income
The non-arm’s length income (‘NALI’) provisions will be amended in respect of non-arm’s length ex- penditure (‘NALE’) incurred by self-managed superannuation funds and small APRA funds.
Currently, where a fund incurs NALE that is general expenditure, the entire income of the fund will be NALI (noting this is subject to the ATO’s compliance approach in PCG 2020/5 which applies to 30 June 2023). The amendments will instead limit the resulting NALI to 2 times the amount of the general ex- pense (a decrease from a previous proposal of 5 times). NALI will also exclude fund contributions.
No start date for the measures was announced. There are no changes to the NALI rules for SMSFs and small APRA funds for NALE incurred in relation to specific assets.
The Government will also exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund, and exempt expenditure that occurred prior to the 2018-19 income year.
Personal measures
With the focus on cost of living relief, there were no personal tax measures announced in the Federal Budget. The LMITO has not been extended, and therefore the offset will not apply for the 2024 income year.
Medicare Levy – CPI Adjustments
The Medicare levy low-income thresholds will increase in accordance with the CPI. This measure occurs annually.
Exempting lump sum payments in arrears from the Medicare levy
The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024. This measure is to ensure low-income taxpayers do not pay higher amounts of the Medicare levy as a result of receiving an eligible lump sum payment, such as compensation for underpaid wages.
To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the 2 most recent years to which the lump sum accrues. Taxpayers must also satisfy the existing eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least 10% of the taxpayer’s income in the year of receipt.
ATO Compliance funding
Personal Income Tax Compliance
The Government will provide funding to the ATO and Treasury to extend the Personal Income Tax Compliance Program and expand its scope. The expansion of the scope of the program will address emerging areas of risk, which are stated to include deductions relating to short-term rental properties to ensure they are genuinely available to rent.
GST Compliance
The Government will provide additional funding to the ATO to continue a range of activities that pro- mote GST compliance. This measure is estimated to increase GST receipts by $3.8 billion, and other tax receipts by $3.8 billion, over the 5 years from 2022–23.
These activities will ensure businesses meet their tax obligations, including accurately accounting for and remitting GST, and correctly claiming GST refunds. Funding through this extension will also help the ATO develop more sophisticated analytical tools to combat emerging risks to the GST system.
Improving engagement to ensure timely payment of tax and superannuation liabilities
The Government will provide funding to enable the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities. This will focus on taxpayers with debts over $100,000 and older than two years who 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. Funding will also be provided to improve data-matching capabilities for underpayment of SG.
The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayer’s particular circumstances. Please contact Colledges Accountants+Advisors if you would like assistance with the issues identified in this bulletin.
This article has been reproduced with the permission of MC Tax Advisors.
