Treasurer, Jim Chalmer’s second federal budget presents a plan which strives to balance the needs of those Australians doing it tough with the economic challenges of inflation and low growth.
Unfortunately, it doesn’t offer a long-term plan that drives a sustainable future for Australia. Plus it provides very little assistance for small business.
The first surplus in 15 years is an achievement, but will be short lived. The following 2 years are projected to return to deficits mainly due to the slowing of the global economy, a result of persistent inflation and rising interest rates.
The Treasurer has proposed measures to help ease cost of living pressures. The package of $14.6 billion will provide cuts to healthcare, housing and energy costs and will boost welfare payments to single parents and the unemployed.
Aside from the pandemic and the global financial crisis, the next 2 years are expected to be the weakest for global growth in more than 2 decades – slowing from 3.25% to just 1.5% and 2.25% in the following years.
The good news is that the Reserve Bank says inflation is falling slightly faster than it had first forecasted and has now passed its peak. It’s expected to be around 4.5% by the end of the year – a long way off the peak of 7.8%.
What’s in it for Small Business
Energy Incentive
As part of the Government’s plan to move Australia to renewable energy, a new “Small Business Energy Incentive” has been launched to encourage businesses to switch to efficient energy sources.
This incentive applies to a range of depreciating assets, as well as upgrades to existing assets. Eligible assets will need to be installed or upgraded and ready for use between 1 July 2023 and 30 June 2024.
The key features of the incentive include:
- Eligible for small to medium sized businesses with an aggregate turnover less than $50 million.
- Eligible businesses can access an additional 20% deduction, associated with depreciating assets that support electrification and more efficient energy use.
- Eligible expenditure is up to $100K (i.e. a maximum bonus deduction of $20K)
- Eligible assets would include:
- Newer and more energy efficient fridges and other cooling systems
- Assets that support electrification such as heat pumps and electric heating systems
- Exclusions apply to electric vehicles, capital works and assets that connected to the electricity grid.
Instant Asset Write-Off
This allows for an immediate deduction for the cost of depreciating assets for small business entities. It should be noted that the previously unlimited full expensing asset write-off concludes 30 June 2023.
This budget sees a new instant asset write-off which is much more limited in its effect and impact.
The new asset write-off will come into effect for the 2023-2024 financial year.
Small businesses instant asset write-off threshold is $20,000 for 2023-24 for businesses with aggregated turnover of less than $10 million. The $20,000 threshold will apply on a per asset basis.
Assets priced over allowable write-off valued at $20,000 or more are still eligible to be placed into the general asset pool and depreciated at 15% in the first year and 30% each income year thereafter.
Small Business Skills and Training Boost
Small businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of expenditure that is incurred for the provision of eligible external training courses to their employees by registered providers in Australia.
This measure will apply to expenditure incurred in the period commencing from 29 March 2022 until 30 June 2024.
TAFE & Educational Training
The government is funding a further 300,000 TAFE and Educational Training Places to become fee-free.
There are several funded programs that employers can access providing they meet certain eligibility requirements.
The programs include Priority Wage Subsidy, Hiring Incentives and Disability Australian Apprentice Wage support.
Changes to Superannuation
Pension Withdrawal Limits
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, is set to end on 30 June 2023.
Member Balances Greater Than $3M
The Government confirmed its intention to implement superannuation tax changes for individuals with account balances above $3 million from 1 July 2025, including defined benefit schemes.
There will be an additional 15% tax on earnings which will operate on an accruals basis and include any notional unrealised gains and losses.
NALE (Non Arms Length Expenditure)
If an SMSF incurs, a small fund expense that is not on arm’s length terms, all the income derived by the fund (including taxable contributions and capital gains) could be taxable at 45%. The level of income subject to the penalty taxation will be limited to twice the general expenses of the fund. It is not clear as to how it will be calculated.
Employer Superannuation Contributions
The Budget confirmed the Government’s intention to require all employers to pay their employees’ super guarantee at the same time as their salary and wages from 1 July 2026 – This will become an impost on businesses’ compliance costs and cashflow.
Transfer Balance Cap
The transfer balance cap will increase to $1.9M from 1 July 2023.
Changes to Personal and Business Tax
Deductions – Work from Home
From 1 July 2022, the ATO has explained that taxpayers who are working from home can claim deductions based on their actual expenses (actual cost method), or they can adopt a revised fixed rate method of 67 cents per hour.
For the 2024 and later financial years a record of the hours worked must be documented for the full year.
Medicare Levy
The Medicare levy low-income threshold has increased to exempt low-income taxpayers from paying the Medicare levy.
We understand that in these uncertain times it’s important to utilize your business and tax advisors.
If you have any growing concerns or need more information on how these changes may impact your situation – get in contact with our team of Advisors.
