On Tuesday 9th, Treasurer Jim Chalmers handed down his second budget. Acknowledging that Australia is facing a challenging economic environment in an uncertain world, the 2023-24 budget has a strong emphasis on:
- providing cost of living relief
- strengthening Medicare, and
- investing in a stronger and more secure economy.
Perhaps the surprise in this year’s Budget was the announcement of a surplus for the 2022-23 financial year of $4.2 billion. This is the first surplus since 2007-08 and represents significant turnaround from the projected $36.9 billion deficit forecast in the October 2022 Budget.
Real GDP growth is expected to be 1½% for 2023-24 before rising to 2¼% in 2024-25.
The unemployment rate in recent years has placed Australia in an enviable position. The current historically low unemployment rate is expected to increase marginally in 2023-24 and 2024-25.
Much of the focus of the past year or so has been the rapid rise in the inflation rate. The Government predicts the inflation rate has now peaked and is starting to moderate. The inflation rate for 2023-24 is forecast to be 3¼% and will return to the Reserve Bank’s target band of 2-3% by 2024-25.
To help you understand the changes put in place, we have provided an overview of what you need to know as an individual and/or business owner.
Jump ahead to updates you want to know…
Individuals
Superannuation
The Budget was decidedly quiet on the superannuation front this year. The only measures of any significance were:
Confirmed 30% tax on super earnings above $3m
An additional tax of 15% on earnings will apply to individuals with a total superannuation balance over $3 million at the end of a financial year from 1 July 2025.
This is expected to affect 80,000 individuals, at least in the early stages. However, this is expected to increase as the $3 million threshold is not indexed.
This measure will also extend to members of defined benefit superannuation schemes.
Importantly, most superannuation members have significantly less than $3m in superannuation and will not be affected by this proposal.
Securing Australians Superannuation Package.
Employers are currently required to pay superannuation guarantee contributions for their employees by the 28th day of the month following the end of each quarter. The Budget proposes that from 1 July 2026, employers will be required to pay their employees superannuation guarantee contributions on the same day they pay their employees. This initiative will help to counter the underpayment or non-payment of superannuation guarantee contributions, which remains a significant problem.
Self manged super funds – amendments to non-arm’s length (NALI) income provisions
The provisions announced by the previous Government covering the NALI provisions as they apply to expenditure incurred by superannuation funds will be amended to provide more certainty.
In particular, the income subject NALI provisions will be limited to twice the level of a general expense. In addition, fund income subject to NALI will exclude contributions.
Perhaps what was more notable from the Budget was what wasn’t mentioned.
Pension drawdowns
For the past couple of financial years, the minimum prescribed income to be drawn from a pension account has been discounted by 50%. Discounting was due to end on 30 June 2023.
The Budget did not include any reference to the current 50% discount being extended beyond 30 June 2023.
Legacy pension amnesty
In its 2021 Budget, the previous Government announced their intention to allow a two-year window (from 1 July 2022) to allow people with old-style defined benefit income stream products (e.g. lifetime, life expectancy, and market linked pensions) to exit those products without incurring tax or social security penalties. Unfortunately, legislation to implement this opportunity was not passed before the last Federal Election was called.
While it has been hinted the current government will revisit this proposal, the Budget was silent on this.
Transfer balance cap indexation
The general transfer balance cap is scheduled to increase to $1.9 million from 1 July 2023.
While the method of indexation is enshrined in current law, there had been some concern the Government might move to pause or limit indexation.
Again, the Budget was silent on any changes to the indexation of the general transfer balance cap, so we expect the cap to increase to $1.9 million from 1 July 2023.
Income Tax
Like superannuation, the Budget was very quiet on income tax, with a couple of minor exceptions.
Exempting lump sums in arrears from the Medicare Levy
This initiative, due to apply from 1 July 2024, will ensure that low-income earners don’t pay a higher Medicare Levy because of receiving an eligible lump sum payment, such as compensation for underpaid wages.
While this is worthwhile for those affected, it is expected to have minimal impact as the cost to the Budget is only $2m over the next five years.
Medicare levy low-income threshold
As occurs most years, the income thresholds applying to the Medicare Levy are to increase from 1 July 2022. The proposed thresholds are:
| Status | Current Threshold | New Threshold |
|---|---|---|
| Single | $23,365 | $24,276 |
| Family | $39,402 | $40,939 |
| Single seniors and pensioners | $36,925 | $38,365 |
| Family seniors and pensioners | $51,401 | $53,406 |
| Each dependent child or student | +$3,619 | +$3,760 |
Aged Care
The Government has committed to spending a total of $36 billion on the aged care sector in the 2023-24 year with a focus on increased wages for aged care workers, funding to help improve the quality of care for both home care recipients and those in residential care facilities and additional funding to implement recommendations identified in the Royal Commission into Aged Care.
Wages to increase by 15%
From 30 June 2023, it is proposed that a 15% increase to award wages will be available for many aged care workers including registered nurses, enrolled nurses, assistants in nursing, personal care workers, home care workers, recreational activity officers, and some head chefs and cooks.
Implementation of Royal Commission initiatives
Over the next 5 years, the Government will provide funding exceeding $300 million to implement recommendations from the Royal Commission into Aged Care Quality and Safety including:
- Enhancements to the Star Rating system to improve accountability and transparency of aged care providers,
- The development and implementation of a new, stronger Aged Care Regulatory Framework to support the new Age Care Act which is due to commence from 1 July 2024,
- Establishment of a national worker screening and registration scheme and the development, monitoring and enforcement of food and nutritional standards.
Improvements to care at home
Funding has been committed to improve in-home aged care by implementing a range of initiatives including the release of an additional 9,500 Home Care Packages and the design, build and implementation of the new Support at Home Program which is proposed to commence from 1 July 2025.
Welfare
Delivering cost-of-living relief was a key focus for the Government in this year’s budget including reduced energy bills, reduced health costs and increases to Rent Assistance for 1.1 million households.
Energy bill relief
Two initiatives have been announced to help reduce energy bills for eligible Australian households.
Firstly, the Commonwealth Government in conjunction with state and territory governments will provide targeted electricity bill relief of up to $500 for eligible households. The amount that will be available will depend on which state or territory you live in.
To be eligible for the bill relief, you will be the primary electricity account holder and you must also hold an eligible concession card or receive an eligible government payment in your specific state or territory.
The second initiative announced was the establishment of the Household Energy Upgrades Fund to support home upgrades that improve energy performance and save energy, therefore providing further reductions to energy bills.
Reducing out-of-pocket health costs
From 1 July 2023, a range of measures have been announced to help reduce out-of-pocket health costs including:
- Tripling incentives for doctors to provide bulk billing,
- Investing in more bulk billing Urgent Care Clinics,
- Improving access to medicines, vaccinations and related services delivered by pharmacies.
The Government also proposes to allow 2 months’ worth of certain PBS medicines to be dispensed by pharmacies from 1 September 2023.
Additional support to help combat rental affordability
With rental prices in most Australian locations increasing rapidly over the past decade, rental affordability for many, including those on Government income support and family benefits, is a major problem.
To assist, the maximum rates of the Commonwealth Rent Assistance will increase by 15%. It is projected that this will support over 1 million households including veterans, pensioners, job seekers, students and those receiving family tax benefits.
Social Security
Some positive news for those receiving working age payments from Centrelink with an increase to the base rate of payment confirmed. Single parents will also be supported when eligibility rules are expanded for Parenting Payment (Single).
Payments to increase by $40 per fortnight
The Government has announced that the base rate for a range of working age payments will increase by $40 per fortnight from 20 September 2023.
Payments that will benefit from the increase include:
- JobSeeker Payment
- Youth Allowance
- Parenting Payment (Partnered)
- Austudy
- ABSTUDY
- Disability Support Pension (Youth), and
- Special Benefit.
Older JobSeekers
To recognise the barriers that older job seekers often face when looking for work such as age discrimination, the Government is expanding eligibility for the existing higher rate of JobSeeker to recipients 55 and over who have received the payment for 9 or more continuous months. This higher rate (which is $92.10 per fortnight more than the standard JobSeeker rate) is currently available to those 60 and over.
It is estimated that this change in age will help around 52,000 eligible recipients.
Eligibility to Parenting Payment for single parents expanded
From September 2023, eligible single parents, 91% of whom are women, will receive Parenting Payment (Single) until their youngest child turns 14. Currently, these parents are required to move to JobSeeker when the youngest child turns 8.
The current base rate of Parenting Payment (Single) is $922.10 per fortnight, compared to the JobSeeker Payment base rate of $745.20 per fortnight. It is hoped that the improved support for single parents will provide wellbeing benefits particularly for single mothers, who are overwhelmingly the recipients of this payment, and their children.
Businesses
$20,000 small business instant asset write-off
Small businesses, with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.
“Immediately deductible” means a tax deduction for the asset can be claimed in the same income year that the asset was purchased and used (or installed ready for use).
If the business is registered for GST, the cost of the asset needs to be less than $20,000 after subtracting the GST credits that can be claimed for the asset. If the business is not registered for GST, it is $20,000 including GST.
The write-off applies per asset, so a small business can deduct the cost of multiple assets.
The rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that falls within the scope of the capital works rules is not expected to qualify.
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.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2024. This will be particularly relevant to small business entities that chose to leave the simplified depreciation system in order to opt-out of applying the temporary full expensing rules to one or more specific assets.
This announcement effectively confirms that the temporary full expensing rules, which have provided an immediate deduction for the full cost of assets acquired from 6 October 2020, will come to an end on 30 June 2023. Small business entities that are considering acquiring depreciating assets with a cost of $20,000 or more and business entities with aggregated turnover of $10 million or more should keep this cut-off date in mind as 30 June 2023 approaches.
$20,000 small business incentives for energy efficiency
As previously announced, the Small Business Energy Incentive provides an additional deduction of 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, with a maximum bonus deduction of $20,000.
The incentive is available to small and medium businesses with aggregated annual turnover of less than $50 million.
While the full detail of what qualifies for the incentive is not yet available, it is expected to apply to a range of depreciating assets and upgrades to existing assets such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.
Some exclusions will apply including electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.
Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus deduction. For more information about this, refer to the Small Business Energy Incentive Media Release.
Lowering tax instalments for small business
Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift.
In 2022-23, the Government reduced this uplift factor to 2% instead of the 10% rate that would have applied. And now for 2023-24, the Government has set the uplift factor to 6% instead of the 12% rate that would have applied.
The 6% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2023-24 income year and are due after the amending legislation comes into effect:
- Up to $10 million annual aggregated turnover for GST instalments, and
- $50 million annual aggregated turnover for PAYG instalments.
‘Payday’ super – Increasing payment frequency of employee super
As previously announced, from 1 July 2026, employers will be required to pay their employees’ super guarantee entitlements on the same day that they pay salary and wages.
Currently, SG is paid quarterly. Government will undertake a consultation process with the aim of providing details of the final design of the measure in the 2024-25 Federal Budget. For further information, read the Introducing payday super media release.
Hybrid cars excluded from FBT exemption for electric cars
As previously announced, plug-in hybrid electric cars will be excluded from the fringe benefits tax (FBT) exemption for eligible electric cars from 1 April 2025.
Arrangements entered into between 1 July 2022 and 31 March 2025 can remain eligible for the FBT exemption as long as the exemption applied to the car before 1 April 2025 and the employer has a financially binding commitment to continue providing private use of the car on and after this date.
The release date of this document is 10 May 2023. The content of this document is of a general nature only and does not consider your personal objectives, financial situation and/or needs. Accordingly, the information should not be used, relied upon, or treated as a substitute for specific financial advice. While all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Centrepoint Alliance Limited nor its employees or agents shall be liable on any grounds whatsoever with respect to decisions or actions taken as a result of you acting upon such information.
