A surplus of $4.2 billion was achieved by Treasurer Jim Chalmers in his second federal budget despite the slowdown in the global economy and Australia’s economic growth being forecast to be less than 1.5% which is Australia’s first ‘surplus’ budget in 15 years.

This Budget focused on delivering cost-of-living relief through relieving electricity costs, providing higher welfare payments to parents, job seekers, students, and those seeking rental assistance, with increasing wages for aged care workers. Large investments were also announced in Medicare, Defence, and Energy Transition.

Personal Tax

Personal income tax rates

Individual income tax rates remain unchanged for 2023–24.

Small Business

Temporary Instant Asset Right-Off

Small businesses with an annual turnover of less than $10 million will be able to immediately deduct eligible assets costing less than $20,000 that are first used or installed ready for use between the period 1 July 2023 and 30 June 2024.

As part of this initiative, the government will provide around 3.8 million small businesses with cash flow support worth $290 million, to enable them to grow and invest.

Energy Incentive for Small Business

Between 1 July 2023 and 30 June 2024, Businesses with annual sales of less than $50 million can claim a bonus tax deduction of 20% on eligible assets that support electrification and energy efficiency. This incentive will be applied to total expenditures of up to $100,000, with a maximum deduction of $20,000 per business.

Changes in Pay-As-You-Go Instalments

In 2023–24, the Government is halving the quarterly instalments for GST and income tax for approximately 2.1 million small businesses. Instalments will increase by only 6 percent instead of 12 percent, which reflects the sector’s current economic conditions.

The GDP adjustment rate will apply to small businesses and individuals with a GST turnover of $10 million and a PAYG turnover of $50 million.

Superannuation

$3m Superannuation Cap – Effective date 1 July 2025

If an individual has more than $3 million in superannuation on 30 June 2026, he or she will be subject to an additional 15% tax (in addition to the 15% tax paid in superannuation) on earnings corresponding to the portion of the individual’s total superannuation balance above $3 million. The earnings on assets below the $3 million threshold will continue to be taxed at 15%, or 0% if held in a pension account within the superannuation fund.

Securing Australians’ Superannuation

From 1 July 2026, employers will be required to pay employees’ Superannuation Guarantee (SG) entitlements on the same day as they pay salaries and wages. At present, employers are only required to pay their employees’ SG quarterly. In addition, this will provide employees with greater visibility into whether their entitlements have been paid, as well as improve the ability of the ATO to recover unpaid superannuation. With a start date of 1 July 2026, all parties involved will have ample time to make the necessary system changes and manage cash flow.

Corporate Tax

Build to Rent Projects

To increase Australia’s housing supply, the Federal Government intends to encourage investment and construction in the build-to-rent sector by increasing the capital work Depreciation rate to 4% per year (where construction commences after 9 May 2023); and by reducing the final withholding tax rate on fund payments from managed investment trust investments from 30% to 15% from 1 July 2024.

Extending the withholding tax exemption for clean building-managed investment trusts

Data centres and warehouses will be eligible for the clean building managed investment trust withholding tax concession (i.e., a 10 percent concession instead of the standard 15 percent withholding tax). The regulation applies to all data centres and warehouses commencing construction after 7.30 p.m. AEST on 8 May 2023, which meet the relevant energy efficiency standards, and will take effect from 1 July 2025.

As a result of this measure, the minimum energy efficiency requirements for existing and new clean buildings will rise to a 6-star rating from the Green Building Council Australia or a 6-star rating under the National Australian Built Environment Rating System.

Clarifying the tax treatment of exploration and mining, quarrying, and prospecting rights

A change will be made by the Government to the Petroleum Resource Rent Tax legislation to clarify that ‘exploration for petroleum’ is limited to identifying the existence, extent, and nature of the petroleum resources and does not include ‘activities and feasibility studies intended to evaluate whether the resources are commercially recoverable.

Tax integrity – expanding the general anti-avoidance rule

Governments will improve the integrity of the tax system by expanding the scope of the general anti-avoidance rule for income tax (Part IVA) to include schemes that reduce Australian tax payments by obtaining a lower withholding tax rate on income paid to foreign residents and schemes that achieve an Australian income tax benefit, even if the dominant objective is to reduce foreign income taxes.

In addition, the rules will apply to income years beginning on or after 1 July 2024, regardless of when the scheme was implemented.

International Tax

Implementation of a global minimum corporate tax and a domestic minimum tax

To address the tax challenges arising from the digitization of the economy, the Government has confirmed that Pillar Two of the OECD Two-Pillar Solution will be implemented.

The relevant measures will apply to income years beginning on or after 1 January 2024 and will result in a 15 percent global minimum tax for large multinational enterprises. To achieve the minimum tax, a top-up tax will be imposed, usually at the level of the ultimate parent company.

The purpose of this is to ensure that the group’s overall tax liability in respect of profits in each country where it operates is equal to an effective tax rate of 15%.

Australia will also implement a 15 percent domestic minimum tax that will apply to income years starting on or after 1 January 2024. The domestic minimum tax will give Australia the first claim on top-up tax for any low-taxed domestic income.