Treasurer Jim Chalmers handed down the 2023 / 24 Federal budget on Tuesday 9th May, revealing a 4.2 billion surplus -the first in 15 years. However the surplus is largely on the back of an unexpected $80 billion boost in resources revenue – through record coal and iron ore prices rather than any structural reform – with structural deficit challenges to continue to pose a threat to long term fiscal stability and structural spending pressures from fast-growing payment areas including in defence, health, aged care, the National Disability Insurance Scheme (NDIS) and interest payments.
The budget could be described as a “big spend – big tax” budget – with $21 billion in expenditure measures , potentially adding further inflationary pressures while largely focusing on measures to help Australians manage rising cost of living and inflationary pressures.
On the other side of the ledger are a range of measures to raise more revenue. These include a 15% global and domestic minimum tax for large multinational companies, the previously announced tax on super balances over $3 million, increase to the tax on offshore gas companies and higher tax on tobacco companies.
The country’s escalating housing crisis, and in particular the “pain of rising rents” was addressed including;
Small Business Support – helping small business manage their tax instalments and improving cash flow
The Government will amend the tax law to set the GDP adjustment factor for pay as you go (PAYG) and GST instalments at 6 per cent for the 2023–24 income year, a reduction from 12 per cent under the statutory formula.
The reduced factor will provide cash flow support to small businesses and other PAYG instalment taxpayers.
The 6 per cent GDP adjustment rate will apply to small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregate turnover for PAYG instalments), in respect of instalments that relate to the 2023–24 income year and fall due after the enabling legislation receives Royal Assent.
Small Business Support – $20,000 instant asset write-off
The Government will improve cash flow and reduce compliance costs for small businesses by temporarily increasing the instant asset write-off threshold to $20,000, from 1 July 2023 until 30 June 2024.
Small businesses, with aggregated annual turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024.
Small Business Support – Small Business Energy Incentive
The Government will support small and medium businesses to save on energy bills through incentivising the electrification of assets and improvements to energy efficiency.
Small and medium businesses, with aggregated annual turnover of less than $50 million, will be able to deduct an additional 20 per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy. Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000.
A range of depreciating assets, as well as upgrades to existing assets, will be eligible for the Small Business Energy Incentive. These 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. Full details of eligibility criteria will be finalised in consultation with stakeholders.
Eligible assets will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. Eligible upgrades will also need to be made in this period.
Certain exclusions will apply such as electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.
Expanding the general anti-avoidance rule in the income tax law
The Government will improve the integrity of the tax system by expanding the scope of the general anti-avoidance rule for income tax (Part IVA of the Income Tax Assessment Act 1936) so that it can apply to:
- schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents
- schemes that 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.
Improving engagement with taxpayers to ensure timely payment of tax and superannuation liabilities
The Government will provide funding over four years from 1 July 2023 to enable the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities.
The additional funding will facilitate ATO engagement with taxpayers who have 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.
A lodgement penalty amnesty program is being provided for small businesses with aggregate turnover of less than $10 million to encourage them to re-engage with the tax system. The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.
Enhanced Support for Small and Medium-sized Businesses and Startups
The Government will provide $431.9 million over four years from 2023–24 (and $79.2 million per year ongoing) to improve support for small to medium enterprises (SMEs) and startups. Funding includes:
- $392.4 million over four years from 2023–24 (and $68.2 million per year ongoing) to establish the Industry Growth Program to support Australian SMEs and startups to commercialise their ideas and grow their operations. Support will be targeted towards businesses operating in the priority areas of the National Reconstruction Fund
- $39.6 million over four years from 2023–24 (and $11.0 million per year ongoing) to continue the Single Business Service, supporting SMEs engagement with all levels of government.
This measure repurposes and expands funding that was previously supporting SMEs through the Entrepreneurs’ Programme, and is additionally offset by redirecting funding from within the Industry, Science and Resources portfolio.
Public registry of beneficial ownership
The Government will provide $1.9 million over two years from 2023–24 to establish a public registry of beneficial ownership of companies and other legal vehicles, including trusts.
Implementation of a global minimum tax and a domestic minimum tax
The Government will implement key aspects of Pillar Two of the OECD/G20 Two-Pillar Solution to address the tax challenges arising from digitalisation of the economy:
- A 15 per cent global minimum tax for large multinational enterprises with the Income Inclusion Rule applying to income years starting on or after 1 January 2024 and the Undertaxed Profits Rule applying to income years starting on or after 1 January 2025.
- A 15 per cent domestic minimum tax applying to income years starting on or after 1 January 2024.
The global minimum tax and domestic minimum tax will be based on the OECD Global Anti-Base Erosion Model Rules, which are designed to ensure large multinationals pay an effective minimum level of tax on the income arising in each jurisdiction where they operate.
A global minimum corporate tax rate of 15 per cent prevents a ‘race to the bottom’ on corporate tax rates, and protects our corporate tax base. The global minimum tax rules would allow Australia to apply a top up tax on a resident multinational parent or subsidiary company where the group’s income is taxed below 15 per cent overseas.
A domestic minimum tax would give Australia first claim on top-up tax for any low-taxed domestic income. In a small number of instances, a large multinational company’s effective Australian tax rate may fall below 15 per cent. In these instances, the domestic minimum tax applies so that Australia collects the revenue that would otherwise have been collected by another country’s global minimum tax.
The global minimum tax and domestic minimum tax will apply to large multinationals with annual global revenue of EUR750 million (approximately $1.2 billion) or more.
Clarifying the tax treatment of ‘exploration’ and ‘mining, quarrying and prospecting rights’
The Government will amend the Petroleum Resource Rent Tax (PRRT) legislation to clarify that ‘exploration for petroleum’ is limited to the ‘discovery and identification of the existence, extent and nature of the petroleum resource’ and does not extend to ‘activities and feasibility studies directed at evaluating whether the resource is commercially recoverable’. This measure is consistent with the Government’s policy intent and the Commissioner of Taxation’s administrative treatment and written binding advice as set out in TR 2014/9, which applies from 21 August 2013. The amendments will apply to all expenditure incurred from 21 August 2013.
This measure will also clarify that mining, quarrying and prospecting rights (MQPRs) cannot be depreciated for income tax purposes until they are used (not merely held) and will limit the circumstances in which the issue of new rights over areas covered by existing rights lead to tax adjustments. These amendments will restore the policy intent of the law and apply in respect of all MQPRs acquired or started to be used after the date of announcement (7:30 PM (AEST) on 9 May 2023 (Budget night)).
These amendments ensure the PRRT and income tax legislation operates as intended following the Full Federal Court’s decision in Commissioner of Taxation v Shell Energy Holdings Australia Limited  FCAFC 2.
Macquarie : Federal Budget 2023
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