The Hon. Dr Jim Chalmers, Treasurer delivered his second Federal Budget last night and while we’re yet to see the details and the announcements need to pass royal assent, here are FIVE key take outs for SMES.
1: Get your compliance in order
There is extra funding for the ATO to chase tax debts, but there’s an amnesty to allow small businesses to get their tax lodgments up to date.
2: Be energy efficient
…and utilise a range of incentives to save on energy bills and tax.
3: Use the instant asset write-off
Temporary full expensing applies to 30 June 2023, then a $20,000 instant asset write off will take its place.
4: Watch your cash flow
Cash is king, but there will be increasing strains on business cash flow.
5: Manage your superannuation
The Superannuation Guarantee rate is increasing to 11% and the timing of payment of super contributions will change.
Small Business Energy Incentive
A Small Business Energy Incentive will be introduced to support small and medium businesses’ electrification of assets and improvements to energy efficiency with the aim of helping eligible business save on their energy bills.
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. This will be limited to a maximum of $100,000 of expenditure, with the maximum bonus deduction being $20,000.
Eligible expenditure may be on new depreciating assets as well upgrades to existing assets. This will include investments in electrifying heating and cooling systems, installing batteries and upgrades to high-efficiency electrical goods. 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.
Full details of eligibility criteria will be finalised in consultation with stakeholders. 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.
This measure is estimated to provide $310 million in tax relief and support up to 3.8 million businesses. This is in addition to the $62.6 million announced in the October 2022 Budget for energy efficiency grants for small and medium enterprises.
Increased amendment period for small businesses
From 1 July 2025, the two year amendment period for small businesses’ income tax returns will be extended to four years – a measure aimed at reducing the burden on small businesses wishing to revise their income tax returns.
Temporary increase to instant asset write-off
The instant asset write-off threshold will be temporarily increased for the 2023-2024 income year to $20,000.
Businesses with an aggregated annual turnover of less than $10 million can immediately fully deduct eligible assets costing less than $20,000 for assets that are first installed or ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold is applied on an asset-by-asset basis.
Currently, the temporary full expensing measure allows eligible businesses with aggregated annual turnover of less than $5 billion to fully deduct the business portion of the cost of eligible assets first held or installed ready for use between 6 October 2020 and 30 June 2023.
For assets that cost $20,000 or more, the small business simplified depreciation pool can still be applied. Depreciation is at 15% in the first income year and 30% each income year after.
Businesses that have previously opted out of applying the simplified depreciation pool will be able to re-enter the regime up to 30 June 2024.
15% minimum rate of tax on large multinational groups
Large multinational groups that have global revenue of A$1.2 billion or more will be subject to a 15% minimum tax rate. This will be achieved via two key measures.
For income years starting on or after 1 January 2024, Australian parent entities of large multinational groups will be subject to a top up tax in Australia where they have global income that is subject to an effective tax rate of 15% or less.
Reduction of superannuation concessions
From 1 July 2025, Government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million.
Broadly, where an individual’s total superannuation balance exceeds $3 million at the end of a financial year, an additional tax rate of 15% on the amount of earnings relating to the proportion of their balance that exceeds $3 million. The formula calculates a deemed earnings amount which includes notional (unrealised) gains and losses, not just actual realised gains and losses.
Increasing the payment frequency of employer Superannuation Guarantee contributions
From 1 July 2026, employers will be required to pay an employee’s Superannuation Guarantee entitlements on the same day that they pay the employee’s salary and wages.
Currently, Superannuation Guarantee liabilities are payable on a quarterly basis and are not aligned with the frequency of salary and wages payments.
The changes aim to improve employee’s visibility of superannuation payments and enable the ATO to monitor superannuation non-compliance in real time.
Superannuation Guarantee set to continue to increase to 12%
The Superannuation Guarantee rate is scheduled to increase as previously legislated from the current 10.5% to 11% from 1 July 2023.
The Superannuation Guarantee rate will increase to 11.5% from 1 July 2024 and to 12% from 1 July 2025.
Existing reductions in tax rates – stage 3
No changes were announced in this Budget regarding the legislated Personal Income Tax Plan (PITP). The PITP is still set to continue, delivering further tax relief in future years.
Stage 3 of the PITP will commence from 1 July 2024, with 95% of all individual taxpayers be assessed at a marginal rate of 30% or less. The tax rates will be as follows:
|% on excess
Cessation of low to medium income tax offset
The Low and Middle Income Tax Offset (LMITO) of up to $1,500 ceased on 30 June 2022. The cessation was announced in the March 2022 Federal Budget by the previous Coalition Government. The Budget did nothing to reinstate the offset.
The LMITO was a measure introduced in response to COVID-19 global pandemic. The LMITO was available to individuals with taxable incomes between $48,000 and $126,000.
To learn more about how the Federal Budget may affect you or your business, please contact Craig Barry, Resources Unearthed on +61 (0) 7 3007 2000 or email email@example.com.
For William Buck’s Full 2023 Federal Budget Analysis download here.
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