The Federal Budget was delivered by Treasurer, Dr Jim Chalmers on 9 May 2023. The Federal Budget contains a variety of measures primarily targeted at responding to immediate challenges in light of the uncertain economic conditions Australia is currently facing. This budget intends to strengthen Australia’s fiscal position while forecasting a budget surplus.

The following is a summary of the key tax measures arising from the 2023/24 budget:

1. Build-to-rent projects

(a) MIT withholding

For eligible new build-to-rent (BTR) projects where construction commences after 7.30 pm on 9 May 2023, the Government has agreed to reduce the final withholding tax rate on eligible fund payments from Managed Investment Trust (MIT) investments from 30% to 15%. The reduced MIT withholding tax rate will apply from 1 July 2024.

(b) Capital works

For new BTR projects where construction commences after 9 May 2023, the capital works depreciation rate will increase from 2.5% to 4% for projects which satisfy certain eligibility criteria, including projects:

1. 1. 1. where construction commences after 7.30 pm on 9 May 2023;
      2. which consist of 50 or more apartments/dwellings that are made available for rent by the public; or
      3. which offer a lease term of at least three years for each dwelling.

2. Managed investment trusts – clean building

The Government has proposed extending the clean building MIT withholding tax concession to data centres and warehouses. This measure will apply to data centres and warehouses that meet relevant energy efficiency standards, provided construction commences after 7.30 pm on 9 May 2023. This measure will apply from 1 July 2025.

This measure also seeks to increase the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating from the Green Building Council Australia or a 6-star rating under National Australian Built Environment Rating System.

3. Small business support measures

The Government has announced multiple small business support measures to improve small businesses’ cash flow and efficiency while decreasing their administrative burdens.

(a) PAYG and GST instalment changes

The Government will amend the tax law to set the GDP adjustment factor for PAYG and GST at 6% for the 2023-24 income year, which is a reduction from the 12% pursuant to the statutory formula.

It is intended that the reduction from the statutory formula will support cash flow in small businesses.

(b) Temporary increase of the instant asset write-off

A temporary increase to the instant asset write-off will be applied, where the threshold will be increased to $20,000 from 1 July 2023 to 30 June 2024. Small businesses (those businesses which meet the small business test) will be able to immediately deduct the full cost of eligible assets which cost less than $20,000 on a per-asset basis, provided they are first used or are installed ready for use between 1 July 2023 and 30 June 2024.

Assets valued at $20,000 or more (i.e. those ineligible to be written off in accordance with the above measure) can continue to be placed into the ‘small business simplified depreciation pool’ and can be depreciated at 15% in the first income year and 30% in each subsequent income year.

4. Tax liability lodgment task force and amnesty program

From 1 July 2023, over a four-year period, the Australian Taxation Office (ATO) will receive additional funding which will allow for increased engagement with businesses to address growing tax and superannuation liabilities. This funding will assist the ATO in targeting public and multinational groups with turnovers exceeding $10 million, and privately owned groups or individuals controlling over $5 million, provided the entities have debts greater than $100,000 or older than two years. In addition to this, a lodgment penalty amnesty program will be introduced, which will encourage small businesses with aggregate turnovers of less than $10 million to lodge outstanding tax statements originally due from 1 December 2019 to 28 February 2022 by remitting the penalties associated with these outstanding tax statements.

5. Superannuation

(a) Increased payment frequency on superannuation guarantee contributions

From 1 July 2026, superannuation guarantee contributions must be paid at the same time as salaries and wages. Employers will no longer be able to pay these contributions on a quarterly basis. The frequency of contributions is being increased to help address the underpayment of superannuation entitlements and will further benefit employees through greater compounding returns. Additionally, the ATO is set to receive additional funding towards the recovery of unpaid superannuation.

(b) Increased taxation on superannuation balances

The tax concessions available to individuals with total superannuation balances greater than $3 million are set to be reduced. From 1 July 2025, the headline tax rate on superannuation balances above $3 million will increase from 15% to 30%. Earnings below the $3 million threshold will not be affected by this change.

6. Multinationals and minimum level of tax

Pillar Two of the Organisation for Economic Co-Operation and Development tax reforms is set to be implemented, which will introduce a global minimum tax and domestic minimum tax of 15% for large multinationals. Multinationals with annual global revenue exceeding €750 million (approximately A$1.2 billion), which are currently taxed at less than 15%, will be subject to an additional amount of ‘top-up’ tax, some exceptions may apply. This measure is set to apply to income years starting on or after 1 January 2024 and aims to address the tax challenges surrounding the increasing globalisation and digitisation of the economy.

7. Part IVA – increased scope

The Government will improve the integrity of the tax system by expanding the scope of the anti-avoidance rule for income tax. This increased scope will apply from 1 July 2024 regardless of whether the scheme was entered into prior to that date, and will seek to capture:

(a) schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and

(b) schemes that achieve an Australian income tax benefit, even where the dominant purpose is to reduce foreign income tax.

8. Franking credits and implications of capital raising

The Government has announced an amended commencement date of the tax integrity measure aimed at distributions funded by capital raisings from 19 December 2016 to 15 September 2022.

This measure was previously introduced to prevent a company from attaching franking credits to distributions either made outside a normal dividend cycle, or in addition to a normal dividend cycle, to the extent that the irregular or additional dividend was directly or indirectly a result of capital raising activities.

9. Amendments to Non-Arm’s Length Income (NALI) rules

It is known that self-managed superannuation funds must always transact on an arm’s length basis. Any NALI is taxed at the highest marginal tax rate. This budget seeks to amend the NALI provisions announced by the former Government by:

(a) limiting the income of self-managed superannuation funds and small Australian Prudential Regulation Authority (APRA) regulated funds that are taxable as NALI to twice the level of a general expense;

(b) excluding superannuation contributions from fund income being taxed as NALI; and

(c) exempting large APRA-regulated funds from the NALI provisions for the two categories of expenses, being general and specific. General expenses relate to the income of the fund, such as accounting fees, whereas specific expenses relate to a specific asset owned by the fund, such as repair expenses of a property owned by the fund.

These measures will not apply to expenditures that occurred prior to the 2018-19 financial year.

Queries

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Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.