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The 'ace in the hole' of the 2023-24 Federal Budget was the $4.2bn surplus; the first in 15 years. But there's also a range of changes and implications for business.

This article provides an overview of the budget for business owners and leaders.

The headlines

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 featured prominently. Those directly significant to some businesses include:

• Energy bill relief for some small business
• Encouraging doctors to offer bulk billing by tripling the incentive for children under 16, pensioners and other Commonwealth card holders

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.

For small business, the instant asset write-off will enable multiple assets of up to $20,000 to be written-off in the year of purchase.

What wasn't in the Budget?

There was no mention of the loss carry back rules for companies, suggesting that these rules will expire on 30 June 2023, along with the temporary full expensing rules. The loss carry back rules allow eligible companies to apply tax losses against taxable profits made in certain previous income years, rather than carrying them forward to future years.

There is no mention of the simplification of Division 7A - Division 7A captures situations where shareholders access company profits in the form of loans, payments or the forgiveness of debts. The 2016-17 Federal Budget proposed changes to reduce the compliance burden of Division 7A. These changes were initially meant to apply from 1 July 2018, but were deferred a number of times before the Government announced that any changes would commence from the start of the income year following the date on which the changes receive Royal Assent. Aside from a Treasury discussion paper released back in October 2018, this issue remains in limbo.

The Budget also doesn't refer to either the Skills and Training Boost or the Technology Investment Boost. These measures, announced by the previous Government, would provide a bonus deduction equal to 20% of qualifying expenditure if the legislation containing these measures is passed in its current form (Treasury Laws Amendment (2022 Measures No. 4) Bill 2022). The Technology Investment Boost is aimed at expenditure incurred between 7:30pm (ACT) on 29 March 2022 and 30 June 2023. The Skills and Training Boost is aimed at expenditure incurred between 7:30pm (ACT) on 29 March 2022 and 30 June 2024.

Business and employers

$20,000 small business instant asset write-off

Small businesses with an aggregated turnover of less than $10 million will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.

“Immediately deductible” means a tax deduction for the asset can be claimed in the same income year that the asset was purchased and used (or installed ready for use).

If the business is registered for GST, the cost of the asset needs to be less than $20,000 after subtracting the GST credits that can be claimed for the asset.  If the business is not registered for GST, it is $20,000 including GST.

The write-off applies per asset, so a small business can deduct the cost of multiple assets.

The rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that falls within the scope of the capital works rules is not expected to qualify.

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% in the first income year and 30% each income year thereafter.

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. This will be particularly relevant to small business entities that chose to leave the simplified depreciation system in order to opt-out of applying the temporary full expensing rules to one or more specific assets.

This announcement effectively confirms that the temporary full expensing rules, which have provided an immediate deduction for the full cost of assets acquired from 6 October 2020, will come to an end on 30 June 2023. Small business entities that are considering acquiring depreciating assets with a cost of $20,000 or more and business entities with aggregated turnover of $10 million or more should keep this cut-off date in mind as 30 June 2023 approaches.

$20,000 small business incentives for energy efficiency

As previously announced, the Small Business Energy Incentive provides an additional deduction of 20% 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, with a maximum bonus deduction of $20,000.

The incentive is available to small and medium businesses with aggregated annual turnover of less than $50 million.

While the full detail of what qualifies for the incentive is not yet available, it is expected to apply to a range of depreciating assets and upgrades to existing assets such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

Some exclusions will apply including electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.

Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus deduction.

Lowering tax instalments for small business

Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. In 2022-23, the Government reduced this uplift factor to 2% instead of the 10% rate that would have applied. And now for 2023-24, the Government has set the uplift factor to 6% instead of the 12% rate that would have applied.

'Payday' super - Increasing payment frequency of employee super

As previously announced, from 1 July 2026, employers will be required to pay their employees' super guarantee entitlements on the same day that they pay salary and wages. Currently, SG is paid quarterly.

Hybrid cars excluded from FBT exemption for electric cars

As previously announced, plug-in hybrid electric cars will be excluded from the fringe benefits tax (FBT) exemption for eligible electric cars from 1 April 2025. Arrangements entered into between 1 July 2022 and 31 March 2025 can remain eligible for the FBT exemption as long as the exemption applied to the car before 1 April 2025 and the employer has a financially binding commitment to continue providing private use of the car on and after this date.

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%. 

15% multinational global and domestic minimum tax

The Government will implement key aspects of the OECD's Two Pillar Solution introducing:

• A 15% 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% domestic minimum tax applying to income years starting on or after 1 January 2024. 

Tax law changes for general insurers

The introduction of the new accounting standard, AASB17 Insurance Contracts, by the Australian Accounting Standards Board has meant that the tax law is no longer aligned with accounting standards. A legislative amendment will be made to enable general insurers to continue to use audited financial reporting information, which is calculated according to the new standard, as the basis for their tax returns.

Critical technology industry support

$116m over 5 years will support the development of critical technologies. This includes support for businesses to integrate quantum and artificial intelligence (AI) technologies into their operations through:

• A Critical Technologies Challenge Program supporting projects that use critical technologies to solve significant national challenges, and will commence with a focus on projects that use quantum computing
• Extending the National AI Centre and its role in supporting responsible AI usage
• Establishing an Australian Centre for Quantum Growth to support ecosystem growth and commercialisation in Australia's quantum industry
• Supporting SME's adoption of AI technologies to improve business processes and increase trade competitiveness.

In addition, a Powering Australia Industry Growth Centre will develop advanced technology and skills as part of the Government’s Australian Made Battery Plan.

Support for child care workforce

 A series of measures will support the Early Childhood Education and Care (ECEC) sector including:

• $34.4m over 5 years to subsidise ECEC services to backfill up to 75,000 early childhood educators, and training for teachers and directors.
• $33.1m over 5 years for financial assistance for up to 6,000 educators to undertake a paid practicum in initial teacher education courses at a bachelor or post-graduate level.
• $4.8m for up to 2,000 ECEC workers to undertake a practicum exchange at a different service.

15% pay increase for Aged Care Workers

$515m over 5 years will be provided to fund the outcome of the Fair Work Commission's decision on the Aged Care Work Value Case – increasing award wages by 15% from 30 June 2023 for many aged care workers, including registered nurses, enrolled nurses, assistants in nursing, personal care workers, home care workers, recreational activity officers, and some head chefs and cooks.

Delayed Streamlining excise administration for fuel and alcohol

The start date for the 2022-23 March Budget measure to streamline fuel and alcohol excise compliance has been pushed back to 1 July 2024.

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.