Treasurer, Jim Chalmers’ second Federal Budget handed down last night in the context of an uncertain and volatile global economy, inflationary and cost of living pressures and forecasts of the weakest period of global growth since 2013.
The key headlines, in a budget sense, are the expectations for a small surplus ($4.2bn) this financial year, driven by strong employment and better than expected nominal wage growth, as well as very high commodity prices.
Cost of living measures (totalling $14.6bn) take the focus on the expenditure side, including $3bn of energy bill relief, $3.5bn on Medicare bulk billing incentives, $4.9bn for an across-the-board Jobseeker increase and increasing rent assistance by 15%. Other areas of focus include Medicare, improving aged care services (including $11.3bn for a 15% award pay increase)
We have summarised some of the key announcements that concern personal tax, superannuation and small business measures for your benefit.
PERSONAL TAXATION
Personal tax rates unchanged for 2023–2024
In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.
The 2023–2024 tax rates and income thresholds for residents (unchanged since 2021–2022) are:
- taxable income up to $18,200 – nil;
- taxable income of $18,201 to $45,000 – nil plus 19% of excess over $18,200;
- taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
- taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
- taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.
Stage 3: from 2024–2025
The Budget did not announce any changes to the Stage 3 personal income tax changes, which are set to commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. Taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.
Low and middle income tax offset (not extended)
The Budget also did not announce any extension of the low and middle income tax offset (LMITO) beyond the 2021–2022 income year. The LMITO has now ceased and been fully replaced by the low income tax offset (LITO).
As a result, low-to-middle income earners may see their tax refunds from July 2023 reduced by between $675 and $1,500 (for incomes up to $90,000 but phasing out up to $126,000), all other things being equal.
Low income tax offset (unchanged)
While the LMITO has now ceased, low and middle income taxpayers remain entitled to the low income tax offset (LITO). No changes were made to the LITO in the Budget so it will continue to apply for the 2023–2024 income year and beyond.
The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Medicare levy low-income thresholds for 2022–2023
For the 2022–2023 income year, the Medicare levy low-income threshold for singles will be increased to $24,276 (up from $23,365 for 2021–2022). For couples with no children, the family income threshold will be increased to $40,939 (up from $39,402 for 2021–2022). The additional amount of threshold for each dependent child or student will be increased to $3,760 (up from $3,619).
For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold will be increased to $38,365 (up from $36,925 for 2021–2022). The family threshold for seniors and pensioners will be increased to $53,406 (up from $51,401), plus $3,760 for each dependent child or student.
Medicare levy exemption for lump sum payments in arrears from 1 July 2024
The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024. This measure seeks to ensure low-income taxpayers don’t pay higher amounts of the Medicare levy as a result of receiving an eligible lump sum payment, for example as compensation for underpaid wages.
Eligibility requirements will ensure this relief is targeted to taxpayers who are genuinely on low incomes and should be eligible for a reduced Medicare levy.
To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the two most recent years to which the lump sum accrues. They must also satisfy the existing eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least 10% of the taxpayer’s income in the year of receipt.
BUSINESS TAXATION
Small business instant asset write-off: $20,000 threshold for 2023–2024
The Government will temporarily increase the instant asset write-off threshold to $20,000 from 1 July 2023 to 30 June 2024.
Small businesses with an 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% in the first income year and 30% each income year thereafter.
Small Business Energy Incentive
Small and medium businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 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 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 eligible criteria will be finalized 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 fossil fuels.
ATO Lodgement penalty amnesty
The Government announced that a lodgement penalty amnesty program will be 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.
SUPERANNUATION
Super to be paid on payday from 1 July 2026; more action to catch non-payers
The Budget papers confirmed the Government’s intention to require all employers to pay their employees’ super guarantee amounts at the same time as their salary and wages from 1 July 2026. This payday super measure was originally announced by the Treasurer on 2 May 2023.
The ATO will receive additional resourcing (some $40.2 million) to help it detect unpaid super payments earlier.
The proposed 1 July 2026 start date for payday super is intended to provide sufficient time for employers, superannuation funds, payroll providers and other parts of the superannuation system to prepare for the change.
Currently employee super contributions must be made at least quarterly.
Super tax changes for account balances above $3 million confirmed, but no further details
The Government confirmed its earlier intention to implement superannuation tax changes for individuals with account balances above $3 million from 1 July 2025, including in relation to defined benefit schemes.
However, the Budget Papers did not reveal any further details.
Under the proposed changes, announced on 28 February 2023, individuals with total superannuation balances (TSBs) over $3 million at the end of a financial year will be subject to an additional tax of 15% on earnings from 1 July 2025. Earnings will be calculated with reference to the difference in TSB at the start and end of the financial year, adjusting for withdrawals and contributions. This means that the proposed additional 15% earnings tax on an individual’s balance above $3 million will operate on an accruals basis and include any notional (unrealised) gains and losses.
Currently, fund earnings from superannuation in the accumulation phase are taxed at up to 15%. This 15% tax rate will continue for total superannuation balances below $3 million but individuals will pay an extra 15% for balances above that amount.
