Date posted: 09/05/2023

Federal Budget 2023-24: Overview on the tax changes

Surplus generated in the Federal Budget mainly goes to reducing the deficit and supporting the most vulnerable in society

In brief

  • Higher commodity prices and employment has resulted in a surplus
  • Cost of living relief has been delivered mainly through the transfer system rather than the tax system
  • Small business and the ATO are winners in this Budget. Multinationals, resource companies and smokers face higher taxes

A $4.2 billion Budget surplus, the first in 15 years, will be a surprise to many. Low unemployment, wage growth and surging commodity prices have contributed to a $40.7 billion bump in revenue.

With commodity prices expected to return to long term levels, the Government has mainly banked 87% of this surplus and reduced future debt and interest payments.    

Balancing the need to provide some cost of living relief without triggering further interest rate rises to combat inflation due to increased demand, the Government has decided to use the social security system rather than the tax system to target the most vulnerable in Australian society. The low and middle income tax offset (LMITO) has not been extended and many individuals will have a bigger tax bill this year.  

Budget relies on compliance activities 

The largest revenue raising items result from increased ATO compliance funding and tobacco tax increases. $9.1 billion of revenue is expected to be raised through extending the personal income tax compliance program, the GST compliance program and the merged Serious Financial Crime Taskforce with the Serious Organised Crime program. 

The ATO has also received funding to deal with taxpayers with a tax debt of $100,000 or more and with large corporates and high wealth individuals whose debt is more than two years old.  

The Government has announced an expansion of the general anti-avoidance rule (Part IVA) so that it can apply to:

  • Schemes that reduce tax in Australia can access a lower withholding tax rate on income paid to foreign residents, and
  • Schemes that achieve an Australian income tax benefit even where the dominant purpose was to reduce foreign income tax.

The increased scope will apply from 1 July 2024 regardless of when the scheme was entered into.  

Increased taxes for tobacco and multinationals

The Budget stated $3.3 billion will be raised from tobacco excise, increasing by 5% for three years from 1 September 2023.

The Government has announced that it will implement Pillar 2 of the OECD’s base erosion and profit shifting (BEPS) project, a 15% minimum tax for large multinationals with an annual global revenue of EUR750M or more. 

The domestic 15% minimum tax rate will apply to income years starting on or after 1 January 2024.  

The global 15% minimum tax will also apply to income years on or after 1 January 2024 if the income inclusion rule is used or 1 January 2025 if the undertaxed profits rule.  

Small businesses are winners

Small business will be able to:

  • access the instant asset write off for assets costing less than $20,000 if they are used or installed ready for use between 1 July 2023 and 30 June 2024.
  • Claim an additional 20% deduction (up to a $20,000 cap) for depreciable assets that support the electrification and more efficient use of energy if they are first used or installed for use between 1 July 2023 and 30 June 2024.
  • Participate in a lodgement penalty amnesty program which will remit failure to lodge penalties for outstanding tax statements in the period from 1 June 2023 to 31 December 2023 that were originally due between 1 December 2019 and 29 February 2022.

However small businesses should note that temporary full expensing and the loss carry back provisions have not been extended.

Other major changes to watch

  • Build to rent: to help with the housing crisis, property developers will be given extra incentives to create build to rent properties. For build to rent properties which begin construction after 9 May 2023, a capital works deduction at 4% instead of 2.5% will be available. In addition, from 1 July 2024, foreign investors in Singapore, Canada, Japan, Germany, UK and USA will be eligible for 15% rates on managed investment trust distributions of taxable income subject to certain adjustments.
  • Petroleum Resource Rent Tax (PRRT): the Government has announced a limited change (limiting deductions to 90% of assessable income) that is expected to bring forward $2.4 billion of revenue rather than increasing revenue. It will also amend the law to clarify that exploration for petroleum does not include activities to determine commercial feasibility.  

    The Government has accepted other recommendations regarding the PRRT and that it will be consulting on them in 2024. Some of these may increase PRRT receipts. Ensuring that Australians receive appropriate compensation for the extraction of non-renewable resources whilst simultaneously not discouraging investment is a delicate balancing act. 
  • Electric car FBT exemption: plug-in hybrid cars acquired after 1 April 2025 won’t be able to benefit from the FBT exemption.  
  • Patent boxes: the previous Government had announced a patent box regime for medical and biotech, agriculture and low emission technology patents whereby income generated from such patents would be taxed at 17% rather than 30%. This will no longer be proceeding.  

Minor changes incorporated in Budget

  • Deferring the start date for streamlining excise administration for fuel and alcohol from 1 July 2023 to 1 July 2024.
  • Allowing general insurers to continue to use audited financial reporting information based on AASB17 for income years commencing on or after 1 January 2023.
  • Clarifications will be made that mining, quarrying and prospecting rights cannot be depreciated until they are used not merely held.
  • Expanding the clean building managed investment trust withholding tax concession to include data centres and warehouses.
  • Exempting some lump sum payments in arrears (for example underpaid wages) from the Medicare Levy.
  • Increasing the Medicare levy low income threshold from 1 July 2022.
  • Increasing the Product Stewardship for Oil Scheme levy by 5.7 cents

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