2023 Federal Budget Tax Updates

2.28 min min read
The Treasurer, Jim Chalmers, handed down his Federal Budget for the new financial year on Tuesday, 9 May 2023. Read on to about how to find out how this could affect your next tax return.

Mr Chalmers walked away from the large, blanket tax cutting initiatives of the last Liberal government, such as Temporary Full Expensing (which applied to virtually all businesses) and the Low and Middle Income Tax Offset (which applied to all individual taxpayers with an income of less than $126,000), and instead focused on help which is more targeted and less generous. While the initiatives are likely to be welcomed by those taxpayers who are the target of the tax breaks, they will pass by many, if not most, taxpayers entirely unnoticed.

This was a Budget which was relatively light on tax measures, with most of the heavy lifting being done on the spending side with a variety of cost-of-living measures designed to boost incomes for the lowest paid and most vulnerable Australians. In particular, increases in Jobseeker for all claimants, a package of rent assistance for those on low incomes, energy bill relief and a huge boost to Medicare will all be welcome. But there was no news about the Morrison government’s Stage 3 tax cuts – which remain legislated to come into effect on 1 July 2024 and which will largely benefit the most wealthy. There was no reprieve also for the Low and Middle Income Tax Offset, which expired last year – and leaves millions facing an effective tax increase in the current year of up to $1,500.

Highlights were focused on the small business sector, which sees a return of the old $20,000 instant asset write-off (an immediate tax deduction for all eligible capital assets costing less than $20,000) but at the expense of the existing temporary full expensing regime (an immediate write-off of all eligible capital assets, regardless of amount) which ends on 30 June 2023. In addition, SME’s will get access to a new program to incentivise them to buy energy-efficient fridges, electric cooling systems, batteries and other assets that support electrification and more efficient energy use, in the form of a 20% additional deduction for qualifying assets.
Slim pickings compared to Temporary Full Expensing!  
 

Individuals

Personal Tax Rates unchanged

There are no changes to any personal tax rates or threshold in 2023-24.


Resident rates and thresholds for 2023-24

The 2023-24 tax rates and income thresholds for residents (unchanged since 2021-22) are:
  • taxable income up to $18,200 – nil;
  • taxable income of $18,201 to $45,000 – 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

Non resident tax rates and threshold for 2023-24

For 2023-24, the tax rates for foreign residents (unchanged) are:
  • $0 - $120,000 - 32.5%
  • $120,001 - $180,000 - 37%
  • $180,001+ - 45%

Stage 3: rates and thresholds from 2024-25 onwards

The Budget did not announce any changes to the Stage 3 personal income tax cuts that are set to commence from 1 July 2024.

Under the Stage 3 tax changes from 1 July 2024, as previously legislated, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.

Therefore, from 1 July 2024, there will only be 3 personal income tax rates - 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.


Low and Middle Income Tax Offset: Not Extended!

There was no announcement to extend the LMITO beyond 2021-22 and therefore the LMITO has now ceased.

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).


Medicare low-income thresholds for 2022-23

For the 2022-23 income year, the Medicare levy low-income threshold for singles will be increased to $24,276 (up from $23,365 for 2021-22). For couples with no children, the family income threshold will be increased to $40,939 (up from $39,402 for 2021-22). 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 SAPTO, the Medicare levy low-income threshold will be increased to $38,365 (up from $36,925 for 2021-22). 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.
 

Small Business

Instant asset write off returns with a $20,000 threshold

The instant asset write-off returns with a $20,000 threshold per asset from 1 July 2023 to 30 June 2024.
Small businesses, ie those with 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 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 instant asset write-off rules allow for the immediate deduction for the cost of a depreciating asset for small business entities. However, these rules were effectively replaced by temporary full expensing (which effectively allowed for the immediate write off of all eligible capital assets, without a monetary limit) in relation to depreciating assets first held, and used or installed ready for use for a taxable purpose, between the 2020 Budget time (6 October 2020) and 30 June 2023. Temporary full expensing therefore ends on 30 June 2023. 


New tax incentive for small business to invest in energy-saving technology

The Small Business Energy Incentive will help small‑ and medium‑sized businesses to invest in their energy transformation.

The bonus tax deduction will provide businesses with an annual turnover of less than $50 million with an additional 20 per cent deduction on spending that supports electrification and more efficient use of energy.
It will help small businesses make investments like electrifying their heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps. 

Tradies, manufacturers, restaurants, hairdressers, real estate agents and other small businesses are expected to benefit from the move. 

However, 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.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.

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


Small Business Lodgment Penalty Amnesty

A lodgment 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.


Property Investors

New tax incentives to boost the housing market

The government will introduce tax incentive changes to help increase the supply of housing. The incentives are:
  1. An increase in the depreciation rate (for capital works purposes) from 2.5% to 4% per year for eligible new build-to-rent projects where construction commences after 9 May 2023; and
  2. A reduction in the rate of withholding tax for eligible fund payments from managed investment trusts (MITs) to foreign residents on income from newly constructed residential build-to-rent properties after 1 July 2024 from 30% to 15%, subject to further consultation on eligibility criteria.

Home Guarantee Scheme to be expanded from 1 July 2023

The government has announced an expansion to the criteria enabling people to participate in the different Home Guarantee Schemes.

Eligibility criteria for all elements of the scheme – including the First Home Guarantee, the Regional First Home Buyer Guarantee, and the Family Home Guarantee – will be expanded.

Among the main changes are the following:
  • While the three guarantees - the First Home Guarantee, the Regional First Home Buyer Guarantee, and the Family Home Guarantee - are currently limited to Australian citizens, all three guarantees will also become available to eligible borrowers who are Australian Permanent Residents from 1 July 2023.
  • There will also be changes to the eligibility criteria to allow previous property owners to enter the schemes. While the Home Guarantee Schemes are currently only available to first home buyers, from 1 July 2023 former property owners will become eligible. However, this will be limited to those who haven't owned a property in Australia in the last ten years. The change aims to support those who have "fallen out of homeownership", for example, those who may have experienced financial crisis or relationship breakdown.
  • From 1 July 2023, there will be expanded eligibility for joint applications under the First Home Guarantee and the Regional First Home Buyer Guarantee. These shared equity schemes allow eligible first home buyers with a minimum 5 per cent deposit to enter the property market and avoid paying the usual lenders’ mortgage insurance that applies to those with less than a 20 per cent deposit. Instead, the government guarantees the remainder of the missing deposit (up to 15 per cent). Previously, these guarantees were only available to couples (those who are married or in a de‑facto relationship) or single applicants. However, the criteria will be expanded from 1 July 2023 to enable couples who are not in a relationship - such as friends, siblings and other family members - to join the scheme.
  • There will be changes to the eligibility criteria for the Family Home Guarantee.  This scheme currently supports eligible single parents with at least one dependent child to buy a home with as little as a 2 per cent deposit without paying Lenders Mortgage Insurance. The government guarantees a maximum amount of 18 per cent of the value of the property (as assessed by the participating lender). From 1 July, eligible borrowers who are single legal guardians of children such as aunts, uncles and grandparents will become eligible. 

 

Superannuation

Super to be paid on employee’s payday….but not until 1 July 2026

The government will require all employers to pay their employees' super guarantee at the same time as their salary and wages from 1 July 2026.

Treasury and the ATO will consult with industry and stakeholders on these changes in the second half of 2023. The final design will be considered as part of the 2024-25 Budget.


Super pensions: No extension to the reduction in minimum drawdowns

There will be no further extension of the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities. As a result, the 50% reduction in the minimum pension drawdowns, which has applied for the 2019-20, 2020-21 and 2021-22 and 2022-23 income years, is set to end on 30 June 2023.

Accordingly, superannuation trustees and members will need to start planning for the additional cash flow requirements to satisfy the minimum annual payment amounts for 2023-24 in relation to account-based, allocated and market linked pensions.

The Treasurer, Jim Chalmers, handed down his Federal Budget for the new financial year on 14th May 2024. The headline measure in this year’s Federal Budget is one we already knew about – individual tax cuts.

From 1 July 2024, all 13.6 million taxpayers will get a tax cut, which will flow through into their pay packets immediately thereafter. These tax cuts replace the original Stage 3 tax cuts which were legislated by the former government.

The tax cuts may provide some relief from the surging cost of living to some taxpayers, especially low and middle income taxpayers. 

As originally designed by the Liberal/National government, the tax cuts delivered most of the benefit to those on high incomes. The revised tax cuts see the benefits spread out further, and will now allow people earning $40,000 to get a tax cut of $654 and people earning $80,000 to get a tax cut of $1,679. 

Taxpayers don’t need to do anything to get the tax cut. Employers will automatically adjust the amount of tax they take out of your pay which means you should see an immediate increase in take home pay from 1 July 2024*.

Read to see how these tax changes affect you. 


*Personal Tax Cuts

The effect of the tax cuts can best be illustrated in table form. The original stage 3 cuts are those suggested by the Coalition and the revised tax cuts are those announced (and legislated) by the Albanese government.  


Redistribution of tax cuts

Taxable incomeTax cut under original stage 3Tax cut under revised stage 3Difference
$20,000$0$00
$30,000$0$354354
$40,000$0$654654
$50,000$125$929804
$60,000$375$1,179804
$70,000$625$1,429804
$80,000$875$1,679804
$90,000$1,125$1,929804
$100,000$1,375$2,179804
$120,000$1,875$2,679804
$140,000$3,275$3,729454
$160,000$4,675$3,729-946
$180,000$6,075$3,729-2,346
$200,000$9,075$4,529-4,546
$250,000$9,075$4,529-4,546

Note: excludes Medicare levy


Individuals


Personal Tax Rates Cut

The undoubted headline of this year’s Budget was the cut to personal tax rates, which was initially announced back in January 2024. Key features include:

  • A cut in the 19% tax rate to 16%, saving $804 for those on taxable incomes of $45,000

  • A cut in the 32.5% rate to 30% for incomes between $45,000 and $135,000 

  • Retaining the 37 per cent rate but increasing the threshold for it to apply to $135,000.

  • Retaining the current 45% tax rate but increasing the threshold to $190,000 

  • Resident rates and thresholds for 2024-25

The tax rates and income thresholds from the 2024-25 for residents (as already legislated) are:


Tax rates and income thresholds from 2024-25

Taxable incomeTax payable
$0 - $18,200Nil
$18,201 - $45,000Nil + 16% of excess over $18,200
$45,001 - $135,000$4,288 + 30% of excess over $45,000
$135,001 - $190,000$31,288 + 37% of excess over $135,000
$190,001+$51,638 + 45% of excess over $190,000

  

Non resident tax rates and threshold for 2024-25

For 2024-25 and later income years, the tax rates for foreign residents are:

  • $0 - $135,000 - 30%;

  • $135,001 - $190,000 - 37%;

  • $190,001+ - 45%.

  

Working holidaymakers

 For 2024-25 and later income years, the rates of tax for working holiday makers are:

  • $0 - $45,000 - 15%;

  • $45,001 - $135,000 - 30%;

  • $135,001 - $190,000 - 37%;

  • $190,001+ - 45%.


Low Income Tax Offset (unchanged)

No changes were made to the low income tax offset (LITO) in the 2024-25 Budget.

Taxable income (TI)Amount of offset
$0 - $37,500$700
$37,501 - $45,000$700 - ([TI - $37,500] x 5%)
$45,001 - $66,667$325 - ([TI - $45,000] x 1.5%)
$66,668 +Nil

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 low-income thresholds for 2022-23

The Medicare levy low-income thresholds for 2023-24 would normally have been announced in this 2024-25 Budget. However, the Government released the 2023-24 Medicare levy thresholds on 25 January 2024 when it announced the changes to the Stage 3 tax cuts (see above). The new thresholds to provide cost-of-living relief were enacted by the Treasury Laws Amendment (Cost of Living - Medicare Levy) Act 2024.

From the 2023-24 income year, the Medicare levy low-income threshold for singles has been increased to $26,000 for 2023-24 (up from $24,276 for 2022-23). This represents an increase of 7.1 per cent, in line with inflation.

For couples with no children, the family income threshold is $43,846 (up from $40,939 for 2022-23). The additional amount of threshold for each dependent child or student is $4,027 (up from $3,760).

For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold is $41,089 (up from $38,365). The family threshold for seniors and pensioners is $57,198 (up from $53,406), plus $4,027 for each dependent child or student (up from $3,760).


Student loan indexation to be reformed

In a welcome move by many, the government is to reform the indexation of HECS and HELP debts to the lower of the consumer price index (CPI) and the wage price index (WPI). This move is to be backdated to June 2023, which means that last year’s increase of 7.1 per cent will be lowered to the WPI of 3.2 per cent. This will wipe out around $3 billion in student debt from more than three million Australians.

The effect of this measure can be seen in the following table:

If your HECS debt balance is:You should get this much back:
$15,000$675
$25,000$1,120
$30,000$1,345
$35,000$1,570
$40,000$1,795
$45,000$2,020
$50,000$2,245
$60,000$2,690
$100,000$4,485
$130,000$5,835

  

Small Business


Instant Asset Write Off Extended For A Further Year

The instant asset write-off is to be retained for a further year through to 30 June 2025. 

Small businesses, i.e., those with 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 2024 and 30 June 2025. 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 be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

This measure was already in force for the year through to 30 June 2024 and its extension represents a welcome break for small businesses.


Tax Compliance


ATO Personal Tax Compliance Program extended

The Government will extend the ATO Personal Income Tax Compliance Program for one year from 1 July 2027.

This extension will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, including overclaiming of deductions, incorrect reporting of income and inappropriate tax agent influence. This will enable the ATO to continue its focus on emerging risks to the tax system, such as deductions relating to short-term rental properties.


ATO counter-fraud strategy

The Government will provide $187.0 million over four years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems. Funding includes:

  • $78.7 million for upgrades to information and communications technologies to enable the ATO to identify and block suspicious activity in real time

  • $83.5 million for a new compliance taskforce to recover lost revenue and intervene when attempts to obtain fraudulent refunds are made

  • $24.8 million to improve the ATO’s management and governance of its counter-fraud activities, including improving how the ATO assists individuals harmed by fraud.

 The Government will also strengthen the ATO’s ability to combat fraud by extending the time the ATO has to notify a taxpayer if it intends to retain a business activity statement (BAS) refund for further investigation. The ATO’s mandatory notification period for BAS refund retention will be increased from 14 days to 30 days to align with time limits for non-BAS refunds.

This will have effect from the start of the first financial year after Royal Assent of the enabling legislation.


Foreign Resident Capital Gains Tax Regime To Be Strengthened

The Government will strengthen the foreign resident capital gains tax (CGT) regime to ensure foreign residents pay their fair share of tax in Australia and to provide greater certainty about the operation of the rules. The amendments will apply to CGT events commencing on or after 1 July 2025 to:

  • clarify and broaden the types of assets that foreign residents are subject to CGT on

  • amend the point-in-time principal asset test to a 365-day testing period

  • require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.

This measure will ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land, more in line with the tax treatment that already applies to Australian residents. The new ATO notification process will improve oversight and compliance with the foreign resident CGT withholding rules, where a vendor self-assesses their sale is not taxable real property.


ATO to be granted greater discretion over old tax debts

The government will amend the tax law to give the Commissioner of Taxation a discretion to not use a taxpayer’s refund to offset old tax debts, where the Commissioner had put that old tax debt on hold prior to 1 January 2017. This discretion will apply to individuals, small businesses and not-for-profits.


Superannuation


Paying super on Government Paid Parental Leave from 1 July 2025 

The Budget confirmed the proposal to pay superannuation on Government-funded Paid Parental Leave (PPL) for births and adoptions on or after 1 July 2025. From that time, the super guarantee (SG) rate will be 12% (up from 11.5% for 2024-25). Therefore, eligible parents will receive an additional payment (12% of their PPL payments) as a contribution by the Government to their superannuation fund.

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