FEDERAL BUDGET 2023-24

RSM contributors

Rami Brass

Partner

Liam Telford

National Tax Technical Director

Facing a slowing global economy, and economic growth in Australia predicted at less than 1.5%, the Treasurer still managed to deliver a budget surplus of $4.2b. However, with increased spending on health, aged care and defence this will turn into a deficit of $13.9b in the next year. Now you see it, now you don’t.

The $14.6b ‘cost of living’ package, the boost to JobSeeker, an increase in wages for our healthcare workers and an increase in Medicare benefits are all commendable initiatives, but the additional spend will have to be funded.

The funding will come from an earlier announced increase in the superannuation concessional tax rate from 1 July 2025 from 15% to 30% for individuals with balances exceeding $3m. Unfortunately, there was nothing mentioned about indexing this $3m threshold. This measure is expected to increase receipts by $2.3b in the first full year.

The Government will also implement the two-pillar solution outlined by the OECD/G20. These include:

a minimum 15% global minimum tax for multinationals.
a domestic minimum tax rate of 15% which will give Australia first claim on large multinationals where the effective rate falls below 15%.

Furthermore, changes to the Petroleum Resource Rent Tax are expected to increase revenue by $2.4b over five years from 2022-23.

Other major sources of funding include increases to tobacco excise, and increased compliance programs, especially GST compliance which is expected to increase GST receipts by $3.8b.

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On the other hand, there will also be some winners.

For eligible new Build to Rent (BTR) projects commencing after 9 May 2023:

- The capital works deductions will increase from 2.5% to 4% per annum.

- The withholding tax rate on eligible fund payments from Managed Investment Trusts will reduce from 30% to 15%. (Unfortunately, there are a number of onerous eligibility criteria for BTR projects).

The instant asset write-off for SMEs with an annual turnover of less than $10m will be extended to 30 June 2024. The write-off will be limited to $20,000 per asset.
Businesses with an annual turnover of less than $50m will be allowed an additional 20% deduction for spending that supports electricity and more efficient use of energy. The benefit will be limited to $100,000 of total expenditure, that is, a limit of an additional $20,000 tax deduction or, a cash benefit of approximately $7,000. On that basis it’s hard to see many businesses taking advantage of this incentive.
Most importantly the Government did not announce any changes to the stage 3 tax rate cuts from 1 July 2024:

- Under stage 3 the 32.5% rate will reduce to 30%.
- The 30% bracket will apply between $45,0000 and $200,000.

Unfortunately, all these tax incentives will be offset by: the increase in compliance cost and impact on cash flow when employers are required to pay their employees superannuation guarantee at the same time as their salary and wages. This will come into effect from 1 July 2026.

As you can see the 2023-24 Federal Budget delivers a mixed bag of increased taxes for some, tax incentives, increased tax compliance and reduced tax rates for the average Australian.