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Federal Budget 2023-24
INFORMATION FOR INDUSTRIES
Labeled as the "biggest budget turnaround on record" by the Treasurer himself, the Budget delivered a mixed bag of increased taxes for some, tax incentives, increased tax compliance, and reduced tax rates for the average Australian. But what about our industries?
Federal Budget 2023-24
Download your free copy of RSM's Federal Budget 2023-24 report here.
From 1 July 2024, reducing the withholding tax rate from managed investment trusts (MIT) attributed to build-to-rent (BTR) projects from 30% to 15%.
Measures to increase the stock of social and affordable housing, including expanding eligibility to the Home Guarantee Scheme and increasing the liability cap associated with low-cost loans provided by the Affordable Housing Bond Aggregator
Where construction commences from 9 May 2023, the capital works deduction applicable to eligible new BTR projects will be increased from 2.5% to 4%
CONTRIBUTOR
Economic outlook for property
Australia’s property outlook is dominated by historic low vacancy rates, decreasing housing approvals, the fastest interest rate increases in recent history and upheaval in builder markets as a result of supply-side shocks associated with raw materials and skilled labour all contributing to a perfect storm of rapidly increasing rental rates and low housing affordability.
The Government seeks to encourage supply of housing stock through various initiatives:
Build-to-rent
The Government is seeking to provide tax concessions to BTR projects by:
- Increasing the capital works deduction applicable to eligible new BTR projects from 2.5% to 4%, where construction commences after 7:30pm (AEST) on 9 May 2023
- Reducing the withholding tax rate applicable to managed investment trusts (MIT) attributed to BTR projects from 30% to 15% from 1 July 2024
An eligible BTR project will be defined as one that:
- Consists of 50 or more apartments or dwellings made available for rent to the general public
- Are retained under single ownership for at least 10 years before being able to be sold
- Landlords must offer a lease term of at least three years for each dwelling
According to the Government, it is estimated these changes could deliver 150,000 rental properties over 10 years. These announcements also complement various land tax concessions across a number of state jurisdictions in respect to BTR projects to help encourage investment into this asset class.
Increasing the supply of social and affordable housing
The Government seeks to address housing affordability issues across the country by improving access for home buyers through various measures including:
- Increasing the liability cap of the National Housing and Finance Investment Corporation by $2b, to support further low-cost loans issued by the Affordable Housing Bond Aggregator
- Amending the National Housing and Finance Investment Corporations mandate to require it to take reasonable steps to deliver 1,200 homes in each state and territory within five years of the Housing Australia Future Fund commencing
- Expanding the eligibility of the Home Guarantee Scheme
Household energy upgrades fund
The Government has allocated $1.3b to the Household Energy Upgrades Fund to assist in increasing the energy performance of housing stock and reduce energy costs through:
- $1b allocation to the Clean Energy Finance Corporation to provide eligible Australians with low-cost loans and mortgages for energy-saving home upgrades
- $300m over four years to support upgrades to social housing with states and territories to save energy
The aim of this measure is to assist households in managing the increasing costs of their energy bills through more energy efficient housing.
WINNERS
Local and Foreign investors in BTR, local renters, affordable and social housing
Petroleum Resource Rent Tax (PRRT) regime will be reformed to give effect to a total of 16 recommendations by the Gas Transfer Pricing (GTP) review.
Measures were announced to amend PRRT legislation to clarify the scope of the term ‘exploration for petroleum’.
Measures were announced to amend income tax legislation to clarify that mining, quarrying, and prospecting rights (MQPR) cannot be depreciated until they are first used (rather than merely held).
CONTRIBUTOR
Significant reform of Australia’s Petroleum Resource Rent Tax (PRRT) regime, which is expected to yield in aggregate $2.4bn of additional PRRT receipts over the forward estimates period to 30 June 2027, has been announced
The Government has announced that it will implement a total of 16 recommendations made by the Gas Transfer Pricing (GTP) and Callaghan reviews. Foremost amongst these is a cap on the use of eligible deductions for liquefied natural gas (LNG) projects that will apply from 1 July 2023.
The fundamental objective of this measure is to bring forward PRRT receipts by limiting the proportion of PRRT assessable income that can be offset by deductions to 90% (after mandatory transfers of exploration expenditure), which will result in PRRT payable equivalent to 4% of assessable PRT receipts. To minimise the impact of upfront PRRT payments on project economics, the cap will apply only seven years after first production, whereas unused denied deductions will be carried forward and uplifted at the government long-term bond rate (LTBR).
This is less favourable than current uplift rates and is designed to preclude the ‘excessive’ compounding of deductions and reduce the risk of diminishing net PRRT receipts. Certain classes of deductible expenditure are excluded from the cap.
Whilst the PRRT reform is arguably less modest than some stakeholders were expecting, it arguably strikes a fine balance between ensuring a minimum return to the community from the offshore LNG industry and not deterring further investment in existing and new LNG projects.
Separate measures were announced to amend:
- PRRT legislation to clarify the scope of the term ‘exploration for petroleum’, and Income tax legislation to clarify that mining, quarrying and prospecting rights (MQPR) cannot be depreciated until they are first used (rather than merely held).
- Income tax legislation to clarify that mining, quarrying and prospecting rights (MQPR) cannot be depreciated until they are first used (rather than merely held).
Both measures are intended to reflect legislative intent as recently affirmed by the Full Federal Court in Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2.
WINNERS
LNG producers and investors who may have feared harsher PRRT reform.
LOSERS
Potential beneficiaries of higher anticipated PRRT receipts.
Confirmed removal of Temporary Full Expensing of Depreciating Assets (TFEDA).
Inclusion of a capped $20,000 Instant Asset
Write-Off (IAWO).
Additional spending in the Agriculture sector with a focus on biosecurity.
CONTRIBUTOR
Removal of Temporary Full Expensing of Depreciating Assets (TFEDA)
With agribusiness being a capital-intensive industry, no extension to the TFEDA will likely result in undesired tax implications for primary producers. With the ending of TFEDA eligible taxpayers will go back to claiming under the Instant Asset Write-Off (IAWO) provisions. The IAWO limit will be increased to $20,000 per eligible asset for the 2023-2024 year. Amounts over $20,000 will be subject to small business depreciation pooling (if under $10m turnover) or an individual depreciation rate per asset.
The key implications of these changes are:
- Reduced rate of depreciation for equipment installed and ready for use after 1 July 2023.Significant tax implications on the trade-in of equipment that has previously been depreciated under TFEDA.Higher-income tax payable as most agribusinesses have previously claimed all depreciation in full on existing assets.
- Primary producers will need to factor in any tax implications that may arise under the new rules from trading-in or disposing of assets that have been fully depreciated by 30 June 2023.
Agricultural related funding announcements
- $127m to assist with a funding shortfall in biosecurity operations of the Department of Agriculture, Fisheries and Forestry.
- $1b over four years to strengthen Australia’s biosecurity system.
- $20m to deliver initiatives under the National Soil Action Plan.
- $5.6m on a panel to independently assess and consult on the phase out of live sheep exports by sea.
- $38m to support agricultural statistics and climate analysis.
With the significant risk posed to the agricultural sector through foot and mouth disease the focus on strengthening the biosecurity measures is reassuring for primary producers.
Electrification of assets
The Government will allow a bonus tax deduction of 20% up to a total expenditure of $100,000. The additional deduction will be for the electrification of assets and improvements to energy efficiency. The measures will apply to small and medium businesses with turnover of less than $50m. For businesses with turnover less than $10m they will be able to combine the benefit of the IAWO with this concession.
For example, if a primary producer with turnover under $10m was to acquire a solar pump for $15,000, this would be eligible for the IAWO and a bonus deduction of $3,000.
WINNERS
The Agricultural industry will benefit from the increased focus and spending on measures to strengthen biosecurity.
LOSERS
Agricultural businesses who are looking to trade-in high value machinery after 1 July 2023 that has previously been fully depreciated.
Building a stronger Medicare with $3.5b in bulk billing incentives.
Delivering the largest ever pay rise to aged care workers ($11.3b for 15% pay rise).
Tackling smoking and vaping and improving cancer outcomes ($511.1m over four years).
Stronger Medicare
The headline reform in the Budget is the Strengthening Medicare measures at an estimated cost of $5.7bn over the next five years. The most significant measure is $3.5bn in bulk billing incentives, which will make healthcare more affordable and accessible to Australians, with immediate impact to children under the age of 16 as well as pension and concession card holders.
Aged Care
With the significant risk posed to the agricultural sector through foot and mouth disease the focus on strengthening the biosecurity measures is reassuring for primary producers.
Aged care has become one of the largest areas of expenditure within the Budget, with an overall spend of $36bn, including investing $11.3bn to fund the Fair Work Commissions’ decision for a 15% increase to award wages.
The investment in Aged Care also includes:
- $487m to extend disability support for older Australians
- $98.7m for Provider viability support
- $12.9m to strengthen nutrition for aged care residents
Pharmacy
The Budget had few surprises with many of the policy changes having been released prior to budget night. Among the announcement, the notable changes which affect community pharmacies are:
- From 1 September 2023, patients will be able to purchase 60 days of medication for certain medication instead of the current 30-day limit
- $2.2bn of funding to further expand PBS listings which has been an ongoing agenda
- $114.1m over five years for community Pharmacists to administer vaccines
For patients this means:
- Saving costs on the script co contribution payment (i.e. paying maximum of $30 for 60 days of medication instead of the current 30 days) which could save up to a maximum of $180 per year
- Fewer visits to the GP for new scripts
For Pharmacy owners this means:
- Reduced dispensary fee received under the PBS
- Reduced foot traffic in their pharmacy and potential decline in other sales
- Widening of scope of practice leading to potentially alternative income stream from administration of certain vaccinations.
NDIS
NDIS is one of the fastest growing areas of spending in the Budget and historically NDIS has always exceeded its budget. The Government is attempting to slow this annual growth to 8% by 1 July 2026.
To limit costs, the Government has pledged $129m to crack down on fraudulent and non-compliant behaviour. Treasury expects to save $59bn over the next decade. However, the scheme will still be driven by demand, and it will be as large as it is required to be. The NDIS is expected to contain 1 million participants by the end of 2023.
Other notable comments:
- Laying the groundwork for mental health and suicide prevention system reform. The total value of the package is $586.9m and it seeks to continue reforms to the mental health and suicide prevention system by addressing workforce shortages, extending critical services, and addressing urgent gaps.
- Health protection, preventive health, and sport. The total value of the package is $1.1bn, including $738.6m on health protection and $378.8m on health prevention. This investment is looking to future proof our health sector by reducing future demand for services and/or the severity of future care needs.
- Tackling smoking and vaping and improving cancer outcomes. The budget provides for $511.1m over four years, targeting a new national lung cancer screening program, nicotine vaping product regulation and reform and cessation support activities for tobacco and vaping use.
WINNERS
General practitioners, young families, pensioners, other commonwealth concession card holders, NDIS, telehealth patients and Aged Care.
LOSERS
Community Pharmacy in the short term, but there is potential for this to turn around.
