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The $4.2bn surplus, the first in 15 years, stole most of the headlines in this year's Federal Budget. However, there is a range of implications of importance for individuals, families and investors. 

This article provides a budget overview to help you stay in front of the changes.

Introduction

The surplus was driven by a surge in the corporate and individual tax take. High commodity prices, inflation, and high employment have all pushed up corporate and individual tax receipts. But the gains can't be relied on long term. The Budget is expected to deliver a deficit of $13.9 billion in 2023-24, and a $35.1bn deficit in 2024-25.

Social initiatives dominated the Budget:

• Energy bill relief for some households and small business
• Encouraging doctors to offer bulk billing by tripling the incentive for children under 16, pensioners and other Commonwealth card holders
• Increases to Commonwealth rent assistance
• Increases to JobSeeker and other income support payments
• Expanding access to the single parenting payment

The stage 3 tax cuts legislated to take effect on 1 July 2024 remain in place. Stage 3 radically simplifies the tax brackets by collapsing the 32.5% and 37% rates into a single 30% rate for those earning between $45,001 and $200,000.

Individuals and Families

Energy price plan relief

$1.5bn has been provided over 5 years to provide targeted energy bill relief and progressing gas market reform.

The Energy Bill Relief Fund will provide targeted energy bill relief to eligible households and small business customers, which includes pensioners, Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and small business customers of electricity retailers.

In partnership with the states and territories, the plan is expected to deliver up to $500 in electricity bill relief for eligible households and up to $650 for eligible small businesses.

Household energy upgrade fund

A $1.3bn Household Energy Upgrades Fund will be established to support home upgrades that improve energy performance. No, the Government is not giving out cash for upgrades, but providing $1bn to the Clean Energy Finance Corporation to provide low-cost finance and mortgages in partnership with private financial institutions for home upgrades that save energy.

Less people to pay Medicare Levy

The Medicare levy low-income thresholds for singles, families, seniors and pensioners will increase from 1 July 2022. 

For each dependent child or student, the family income thresholds will increase by a further $3,760 instead of the previous amount of $3,619.

Increased rent assistance

The maximum rates of the Commonwealth Rent Assistance (CRA) allowances will increase by 15% from 2022-23.

Scheme enabling pensioners to earn more extended

The measure enabling age pensioners and veterans to earn more money before their pension is reduced has been extended for another 6 months, until 31 December 2023. Under this measure, pensioners can earn up to $11,800 before their pension is reduced.

In-home aged care increase

An additional 9,500 Home Care Packages will be available in 2023-24. The $338.7m package also includes a trial to test products and services for a new assistive technologies loan program, commencing in July 2024 within 2 states and territories.

Access to home guarantee scheme expanded to friends and siblings

As previously announced, from 1 July 2023, access to the Government's Home Guarantee Scheme will be expanded to joint applications from "friends, siblings, and other family members" and to those who have not owned a home for at least 10 years.

Cost of tobacco to increase from September

The tobacco excise and excise-equivalent customs duty will increase by 5% per year for 3 years from 1 September 2023 in addition to ordinary indexing.

Superannuation and Investors

Clarifying the non-arms length income rules for super funds

The non-arms length income (NALI) rules prevent superannuation trustees artificially increasing the balance of the fund, and accessing preferential tax treatment on the higher amount, by failing to recognise expenses incurred by the fund provided by a related party at a reduced rate. For example, your brother is a qualified accountant and does all of your SMSF's accounting work for free (that he would normally charge $5k for).

Currently, where expenses incurred by the fund are not at arm’s length and below market rates, any income derived could be deemed to be non-arm’s length income and taxed at the top marginal tax rate. Expenses are divided into two categories, general and specific. General expenses relate to all of the income of the fund, for example accounting and audit fees. Specific expenses relate to a specific asset such as maintenance expenses on a property owned by an SMSF.

A Treasury consultation paper released in  January 2023 recommended amendments to the way NALI is dealt with. The consultation recommended capping the amount of fund income taxable as NALI to 5 times the amount of the breach. The Budget confirms this cap to twice the level of a general expense.

In addition, fund income taxable as NALI will exclude contributions.

Expenditure that occurred prior to the 2018-19 income year will be exempt.

And, as per the consultation, large APRA regulated funds will be exempted from the NALI provisions for both general and specific expenses of the fund.

Confirmed 30% tax on super earnings above $3m

An additional tax of 15% on earnings will apply to individuals with a total superannuation balance over $3 million at the end of a financial year from 1 July 2025. The definition of total superannuation balance (TSB) for the new tax uses the current definition and includes amounts in retirement phase pensions.

The calculation for the tax aims to capture growth in TSB over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.

Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests.

Individuals will have the choice of paying the tax personally or from their superannuation fund and those with multiple accounts can nominate which fund will pay the tax.

This measure is estimated to increase tax receipts by $950m and increase payments by $47.6m over the 5 years from 2022-23.

Tax breaks for build-to-rent developments

As previously announced, the Government is actively sweetening the deal for build-to-rent developments. For eligible new build-to-rent projects where construction commences after 7:30pm AEST on 9 May 2023, the Government will:

• Increase the rate for the capital works tax deduction (depreciation) from 2.5% to 4% p.a.
• Reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%. 

WLM can help

If you would like advice or assistance of any of the Budget measures, or to risk protect your position, please contact us today.