Federal Budget

Individuals Budget Overview 

The Federal Government is endeavouring to continue their theme from the previous budget (Oct 2022), which is to focus on providing cost of living relief measures without fuelling inflation. These measures target power bills, medical costs, welfare support and wage rise for health care workers.

Cost of Living Relief Measures

• Energy rebates of up to $500 for millions of eligible households including holders of Pensioner Concession Cards, Commonwealth Seniors Health Card holders and recipients of Family Tax Benefit payments.
• Financing energy saving home upgrades for up to 170,000 households via Household Energy Upgrades Fund
• Reducing out of pocket medical expense via Medicare and Medicine reforms.
• Expanding eligibility for the Single Parenting Payment via introducing higher cut-off age for the youngest child (from 8 to 14).
• Increasing base payment for JobSeeker, Austudy and Youth Allowance by $40 a fortnight, with larger increases for those over 55s.

Family, Aged-Care and Childcare

As previously proposed, Childcare Subsidy (CCS) and Paid Parental Leave (PPL) measures will come into effect on 1 July 2024.

More than 250,000 aged care staff will receive 15% pay increase in award wages.

Housing Affordability

• Commonwealth Rent Assistance receivers will be able to access a higher rate of up to $31 a fortnight.
• Home Guarantee Scheme eligibility will be expanded to any two eligible borrowers beyond married and de-facto couple. Australian Permanent Residents will also be eligible.
• Providing incentives to invest in build-to-rent accommodation.
• Increasing the depreciation rate from 2.5% to 4% per year for eligible new build-to-rent projects where construction commences after 9 May 2023.

Personal Income Tax

There are no changes regarding the previously legislated tax changes (called the Stage 3 tax cuts), which comes into effect from July 2024.  The Stage 3 tax cuts abolish the 37% marginal tax rate and lowers the 32.5% marginal tax rate to 30%.  Essentially, individuals earning between $45,000 and $200,000 pay the same 30% marginal tax rate.

Low and Middle Income Tax Offset (LMITO)

There is no extension to the LMITO, which was set to expire at the end of the 2022 financial year.  By not extending the LMITO many individuals will have an increase in their tax bill by $1,500 this year.

Author: Simon Dinér

Business Sector Budget Overview

Small business support – $20,000 instant asset write off

The Government will reduce compliance costs for small businesses (with aggregated turnover of less than $10 million) by temporarily increasing the instant asset write-off threshold to $20,000 from 1 July 2023 to 30 June 2024. A welcomed relief, as the temporary full expensing measure (immediate deduction with no cost limit) is due to end by 30 June 2023 and the instant asset write-off is slated to return to $1,000.

Note that assets costing more than $20,000 can continue to be placed into the small business simplified depreciation pool and depreciated at:

• 15% in the first year; and
• 30% for the subsequent years.

The five years lock-out rule that prevents small businesses from re-entering the small business capital allowance regime once they opt-out will continue to be suspended until 30 June 2024.

Small business support – Small Business Energy Incentive

Small to medium businesses (with aggregated turnover of less than $50 million), will be able to deduct an additional 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 for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000.

A range of depreciating assets (including upgrades to existing assets) will be eligible for the Small Business Energy Incentive. These will include assets:

• that upgrade to more efficient electrical goods e.g. energy-efficient fridges;
• that support electrification e.g. heat pumps and electric heating or cooling systems; and
• demand management assets e.g. batteries or thermal energy storage.

Full details of the eligibility criteria will be finalised (in consultation with stakeholders). Note that the eligible assets will need to be first used, or installed ready for use between 1 July 2023 and 30 June 2024. Eligible upgrades will also need to be made in this period.

However, the following are excluded from the Small Business Energy Incentive:

• electric vehicles;
• renewable electricity generation assets;
• capital works; and
• assets that are not connected to the electricity grid and use fossil fuels.

Small Business Support – helping small businesses manage their tax instalments

The Government will amend the tax law to set the GDP adjustment factor for pay as you go (PAYG) and GST instalments at 6 per cent for the 2023 – 24 income year (a reduction from 12% under the statutory formula).

The 6% GDP adjustment rate will apply to small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments), in respect of instalments that relate to the 2023–24 income year and fall due after the enabling legislation receives Royal Assent.

Tax Integrity – lodgement penalty amnesty

Small businesses with outstanding tax obligations, including income tax and business activity statements, that were originally due for lodgement from 1 December 2019 to 28 February 2022, a lodgement penalty amnesty will apply to remit failure-to-lodge penalties provided those outstanding returns are lodged between 1 June 2023 to 31 December 2023.

Author: Shervy Dahliana and Colleen Dillon

Superannuation Budget Overview

There were no unexpected changes to superannuation and only one new change affecting SMSFs announced in the budget.The superannuation guarantee rate is currently legislated to increase progressively from 11% from 1 July 2023 to 12% by 1 July 2025

There was no announcement extending the halving of pension minimums past 30 June 2023 or about freezing the Transfer Balance Cap at its current level.

Previously announced superannuation measures, including the reduced tax concessions for earnings on total superannuation balances over $3 million and new payday super changes were included.

Pension minimums for 2023-2024

The government did not announce any extension of the halving of the account-based pension and term allocated pension minimum drawdown requirements.  As a result, the minimum drawdown requirements are likely to revert to 100% of the standard minimum from 1 July 2023.

Transfer balance cap

In February 2023, it was confirmed that the Transfer Balance Cap (TBC) would increase by $200,000 to $1.9 million on 1 July 2023 due to indexation. There was no announcement freezing the transfer balance cap at its current level in the budget.  It is highly likely that the transfer balance cap will increase to $1.9 million on 1 July 2023 as expected.  This has the following impact on brought forward non-concessional caps:

Payday Super

The government has announced that 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 instead of paying quarterly. The government will also provide $40.2 million to the Australian Taxation Office in 2023-24 to invest in improved data matching capabilities and to act on cases of underpayment of superannuation.

Tax increase for super balances over $3 million

The government has announced it will reduce the tax concessions available to individuals with a total super balance exceeding $3 million, from 1 July 2025.  Details of how this will be implemented can be found here.

Individuals with a total super balance of less than $3 million will not be affected.

Non-arm’s Length Income (NALI)

The government has announced that it will amend the NALI rules for SMSFs and Small APRA Funds to limit the amount of income that will be taxed as NALI where a fund incurs a general fund expense that is less than market rate.

Currently, where a fund incurs a general fund expense under an arm’s length value all the income of the fund, including contributions, could be regarded as NALI and be taxed at 45%.

The change announced provides that from 1 July 2018 if an SMSF’s general expenditure is lower than would be expected, the amount of NALI will be limited to twice the general expense shortfall.  For example, a $2,000 expense shortfall in a single year could result in tax of $1,800 (2 x $2,000 x 45%).

The Government also confirmed that any non-arm’s length expenditure that occurred before 2018-19 will be exempted, and large APRA regulated funds will be exempt from the NALI provisions for both general and specific fund expenses.

Author: Marie Ickeringill and Joyce Guo

NFP Budget Overview 

The Federal Budget contains very little direct assistance to charities but does include various cost of living measures which Treasury believes will provide relief without adding inflationary pressures. Refer to our summaries for Individuals along with analysis for the Aged Care, Disability and Education sectors The Government has committed $100 million over five years from the 2024-25 year to establish a social impact investment Outcomes Fund. The aim is to target deeply ingrained social issues in disadvantaged communities, and will include improvements to education, disability care, aged care, homelessness and unemployment.

It has also provided approximately $730 million to improve NDIS effectiveness. The budget also provides funds for more lending to community housing providers for social and affordable housing projects through the National Housing Finance and Investment Corporation.

The Government plans to make Australia a renewable energy “superpower” with $4 billion investment for renewable energy measures. Around half of the funding is for a Hydrogen Headstart program for large scale renewable hydrogen projects.

Author: Cathy Braun

FBT Budget Overview 

The budget highlighted two points to consider from a fringe benefits tax (FBT) perspective, being:

• The eligibility of plug-in hybrid electric cars to be exempt from FBT; and
• The effect of the tax rate and threshold changes on salary packaging for some not-for-profit organisations.

Electric Car Discount

The government confirmed its previous announcement that the eligibility of plug-in hybrid electric cars to be exempt from FBT will only apply to arrangements entered into from 1 July 2022 to 31 March 2025.  This means that new arrangements from 1 April 2025 for plug-in hybrid electric cars will not be FBT exempt (but existing arrangements will continue to be exempt).

Salary Packaging for Not-For-Profits

The government made no changes to the stage three personal income tax changes that will apply from 1 July 2024.  This means that salary packaging of some fringe benefits provided by FBT rebatable employers will be less attractive due to the changed rates and thresholds.

We recommend that an employee of an FBT rebatable employer only salary packages ‘ordinary’ fringe benefits such as expense payments if their taxable income is greater than $200,000 from 1 July 2024 (previously $120,000 from 1 July 2020).  This is because the effective FBT rate that applies to expense payments will be less than the employee’s marginal tax rate of 47%.  However, their marginal tax rate will be either less than or the same as the effective FBT rate if their taxable income is lower than $200,000, so a tax saving will not be achieved.

The tax changes do not affect the tax-effectiveness of concessionally-valued benefits (such as car fringe benefits) and exempt benefits, and employees of FBT rebatable employers should continue to concentrate on these.  Furthermore, salary packaging arrangements provided by FBT exempt employers (such as public benevolent institutions) are unaffected by the stage three personal income tax changes.

Author: Murray Nicholls

Aged Care Budget Overview

The Federal Government has committed to a 15% increase to the wage rates under the three awards covering the sector – Aged Care Award 2010; Nurses Award 2020; Social, Community, Home Care and Disability Services Industry Award 2010 (SCHADS Award).

Employers will receive a share of the $11.3 billion in funding allocated to the aged care sector to fund wage increases equivalent to 15% of the award rate, regardless of whether employees are paid at the award or higher based on an EBA. Employers will need to ensure that the EBA rates are not less than the new minimum award rates. These new wage rates will come into effect from the first full pay period commencing on or after 30 June 2023.

The aged care workers who will benefit from the wage increase are:

• registered nurses
• enrolled nurses
• assistants in nursing
• personal care workers and home care workers
• head chefs and cooks
• recreational activities officers (lifestyle workers).

It is anticipated that this wages boost will attract further employees into the sector that has been struggling since the onset of COVID-19. This additional funding will help aged care providers in meeting their target of having a registered nurse on duty 24/7 from 1 July 2023.

Other key announcements for the sector include:

• a further 9,500 home care packages will be released into the market – costing a further $166.8 million,
• $52.1 million of additional funding to support very remote aged care services,
• $81.9 million for regulatory changes to develop and implement a new Aged Care Act.

Author: Kane Noorbergen

Cyber Security Budget Overview

Whilst cost of living pressures were the focus in the Treasurer’s speech, spending on cyber security continues in the wake of the recent highly publicized cyber events.

The highlight is an expected $2 billion spent in digital development in the next 12 months. This includes significant investments in the improvement of government systems including the NDIA, My Health Record, ADHA, myGov and Department of Veterans Affairs.

The Government continues to acknowledge the much needed investment in cyber security to continue to strengthen our critical infrastructure assets, support small business and protect individuals.

There is also $86.5 million over four years to combat scams and online fraud, including establishing a National Anti-Scam Centre and $45.2 million over four years for stronger privacy protections and enforcement in response to privacy and data breaches.

The Government has committed $101.6 million over five years to support and uplift cyber security in Australia, including strengthening capacity, support for small businesses and improvement of critical infrastructure.

Whilst not specifically mentioned in the budget, the Government continues to review cyber reforms and we expect further announcements in the coming months particularly around the governments powers to intervene in cyber attacks on private businesses.

Author: Matthew Crouch

Disability Sector Budget Overview

The demand for disability support has risen, specifically for NDIS-provided services, due to increased recognition of disability needs, high uptake among children, and low exit rates from disability programs as people age.

The federal government has assured that the NDIS will invest in a financial sustainability framework to ensure that the total costs of the scheme is targeted to grow no more than 8% annually by 1 July 2026, with further cuts in the future.  At this growth rate, the NDIS will still be the fastest growing Commonwealth payment program, while achieving cost savings of about $59 billion over the next decade compared to the previous October 2022 forecasts.

To achieve the target growth rate, the federal government is investing $732.9 million to improve sustainability and administration. Key initiatives include:

• Moving to less frequent plan reviews and committing to participants that not spending budgets won’t affect future plans
• Improving lifetime planning approach to offer flexibility for participants to receive support that adjusts according to their varying circumstances
• Supporting participants to manage plans within budget
• Incentives for providers to innovate service delivery
• Implementing preferred provider arrangements to leverage buying power of the NDIS.
• Cracking down on fraud and non-compliance funding

Other funding announced:

$14.1 million over 2 years starting in 2022-23 to financially support NDIS disability support workers who do not have access to leave entitlements.  Disability support providers who pay leave entitlements to eligible staff who contract COVID-19 will be reimbursed at a rate of:

• $450 where a worker has lost at least 8 hours but less than 20 hours of work and;
• $750 where a worker has lost more than 20 hours of work.

Author: Jeff Tulk and Calvin Ho

Education Sector Budget Overview

Whilst the Government is looking to redirect some uncommitted Education Sector money and kept with the status quo of record funding for non-government schools under the continuation of the current funding model, the Government continues to invest in attracting, training and retaining people in the teaching profession, including $9.3 million, on top of $328 million previously announced for the National Teacher Workforce Action Plan.

The Government is providing $40.3 million to support First Nations Students to improve school attendance, engagement and learning outcomes in schools in Central Australia.

There is also further investment in school capital funding with $105 million over four years.

Childcare had more of a focus with $72.4 million committed over five years support the Early Childhood Education and Care sector to build and retain the workforce, including $34 million to backfill up to 75,000 staff to undertake essential training and $33 million for 6,000 educators to undertake upskilling.

Author: Matthew Crouch