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From a business tax perspective, the Government has focused on providing support for small and medium businesses in this year’s Budget. In line with its commitment to improve Australia’s supply of housing and energy efficient commercial buildings, the Government has also announced tax concessions to support investment in these areas.
Two tax stimulus measures that were introduced in 2020 in response to the economic effect of COVID-19 will end shortly.
Temporary full expensing (TFE), which provides businesses with aggregated turnover of up to $5 billion with the ability to deduct the full cost of eligible assets acquired after 7:30pm on 6 October 2020, and first used or installed ready for use on or before 30 June 2023, has not been extended.
This means that the normal tax depreciation rules will apply to depreciation assets first used or installed ready for use from 1 July 2023, and for small business entities that adopt the simplified depreciation rules, the threshold for deducting the full cost of eligible depreciating assets will be temporarily increased to $20,000 for assets that are first used or installed ready for use between 1 July 2023 and 30 June 2024 (see further below), and will then revert to $1,000.
The temporary loss carry-back tax offset, which was intended to complement TFE by providing temporary cash flow support to eligible companies who found themselves in a tax loss position due to the COVID-19 pandemic, is also ending. The 2022-23 income year is the final year for which eligible entities can carry-back losses to prior years.
The ‘small business energy incentive’ is designed to support eligible small and medium businesses to make investments that would help them save energy and save on energy bills. The Government announced that businesses with an aggregated turnover of less than $50 million will be able to claim an additional 20 per cent deduction on investments related to electrification and more efficient energy use.
Up to $100,000 of total expenditure will be eligible for this new tax incentive, with a maximum of additional tax deduction of $20,000 per eligible entity. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. This start date corresponds with the ending of the temporary full expensing measure (see further above).
Acquisitions of depreciating assets, as well as upgrades to existing assets, will be eligible for the Small Business Energy Incentive. These will include assets that upgrade to more efficient electrical goods such as energy-efficient fridges, assets that support electrification such as heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage. 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 incentive is intended to help support small and medium businesses recover after a challenging economic period and will also help in Australia’s aim to reduce emissions.
Small businesses with aggregated turnover of less than $10 million will be eligible for a temporary increase in the instant asset write-off threshold to $20,000 for eligible assets 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 continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024 (i.e. it is permissible to re-enter the simplified depreciation regime until 30 June 2024).
A lodgment penalty amnesty program will be provided for small businesses with aggregated 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, and that were originally due during the period from 1 December 2019 to 29 February 2022.
The Australian Taxation Office (ATO) will be given additional funding to lower the tax-related administrative burden for small businesses and additional reforms will be implemented to cut paperwork and reduce the time small businesses spend doing taxes.
The various initiatives will include:
The Government will reduce the GDP adjustment factor for Pay As You Go (PAYG) and GST instalments from 12 per cent to 6 per cent for the 2023–24 income year.
The reduced GDP adjustment rate will apply to PAYG and GST instalments that relate to the 2023–24 income year and fall due after enabling legislation receives Royal Assent for small businesses and individuals with up to:
The small business incentives are targeted towards asset renewal and environmental sustainability, while there is also a clear focus on increasing engagement and compliance with the tax system by private groups.
In what is a much welcomed announcement for the general insurance industry, the Budget confirms that the Government will amend the current tax law to minimise the regulatory burden on the general insurance industry as result of the introduction of the new accounting standard, AASB 17 Insurance Contracts. The introduction of AASB17 has meant that the tax law is no longer aligned with the accounting standards. This proposed change will allow general insurers to continue to use audited financial reporting information, which is calculated according to the new standard, as the basis for their tax returns.
The measure will have effect for income years commencing on or after 1 January 2023. However, there is no clarity on the treatment of transitional adjustments, which is particularly relevant for life insurers.
The Government has provided further detail on its recently announced tax changes for BTR accommodation with an aim of improving the supply of rental housing. The changes are welcomed by industry as they will no doubt positively impact the sector. The changes include:
Both of the announced measures will apply to BTR projects that satisfy the following criteria:
Criteria 2 and 4 broadly align with the requirements to access land tax and stamp duty concessions available for BTR projects in NSW.
The Government has also flagged that consultation will be undertaken on specific implementation details, including whether a minimum proportion of affordable dwellings must be made available to qualify. It is unclear whether the ‘affordable dwelling’ requirement would apply to access both concessions.
As yet, the Government has not announced any proposed changes to the GST treatment of BTR projects to align it with the treatment of other asset classes.
The Government will extend the clean building MIT withholding tax concession (currently 10 per cent) to data centres and warehouses where construction commenced after 7:30pm (AEST) on 9 May 2023 and the building meets the relevant energy efficiency standard (6-star rating from the Green Building Council Australia or a 6-star NABERS rating). The 10 per cent rate will apply for fund payments made from 1 July 2025.
The higher minimum energy efficiency ratings will also apply to construction of new buildings to which the existing clean building MIT regime applies (being offices, hotels and/or shopping centres). The current rules require only a 5-star rating from the Green Building Council Australia or a 5.5-star NABERS rating.
For existing clean building MITs, the Government will consult on transitional arrangements for these existing buildings given that they will be required to meet the new higher efficiency standard.
While the description of data centres is reasonably clear, it will be interesting to see what type of properties will be included in “warehouses” and whether this will cover a wider scope of industrial and logistics properties.
The Government has announced changes to Petroleum Resource Rent Tax (PRRT) that are expected to increase tax receipts by $2.4 billion over the five years from 2022-23.
These changes coincide with the release of the Final Report to the Treasurer on the Review of the Gas Transfer Pricing Arrangements (the Report) for taxpayers that are subject to the PRRT on offshore liquified natural gas (LNG) projects. The review was the final piece of the Callaghan Review into PRRT which commenced in 2018 and concluded in 2019 noting that further consultation was needed on the operation of the gas transfer pricing regulations. This work was deferred due to Treasury resources being redirected to deal with the Government’s response to the pandemic.
The conclusion of this consultation has resulted in Treasury making eleven recommendations, to which the Government has responded, indicating that it will implement eight. A summary of the most material changes are as follows:
The Government has also announced that it will implement a number of remaining measures from the 2019 Callaghan Review which had been supported but unenacted by the previous Government, including:
Commencement dates for these amendments have not been announced, but will likely be considered further following further consultation flagged by the Government.
Seeking to clarify what is “exploration” for PRRT and income tax purposes, the Government is proposing amendments following the decision of the Full Federal Court in Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2. More specifically, the Government is proposing amendments to:
As announced ahead of the 2023-24 Federal Budget, effective from 1 July 2026, employers will be required to pay SG entitlements on the same day that an employee’s salary or wages are paid.
“Payday Super”, as it is referred to by the Treasurer, varies the current requirement for employers to pay their employees’ SG entitlements on a quarterly basis, enabling employees to better keep track of their superannuation payments.
The Government will consult on changes to the design of the SG charge, to align with the increased payment frequency, with the final design to be considered as part of the 2024-25 Budget.
This presents an opportunity for employers to re-assess their payroll processes and superannuation controls currently in place to ensure they can service frequent SG payments, and is likely to require a raft of improvements to payroll and superannuation software reporting functionality.
Additionally, $40 million will be provided to the ATO to improve its data matching capabilities. This increased funding will facilitate the ATO identifying and pursuing cases of SG underpayment by employers.
The ATO will also be required to report annually on recovering unpaid superannuation.
This budget further addresses the recurring theme of underpayment of worker entitlements, specifically in the area of superannuation. The requirement to report and remit superannuation contributions more frequently will require controls and supporting systems to be enhanced.
There were no new FBT-related changes announced in this Budget.
However, as a reminder, this Budget includes the increased receipts expected from the removal of plug-in hybrid electric cars from the FBT exemption from 1 April 2025. This measure is already enacted in Treasury Laws Amendment (Electric Car Discount) Act 2022.
Employers should be aware that the FBT exemption remains available to arrangements with eligible plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025.
Manuel Makas
Partner, Financial Services Tax Lead Partner, PwC Australia
Tel: +61 421 050 630