Shades of déjà vu

Just like the last Budget handed down by the Liberals in May 2022, there is less change than normal.  This is evidenced by research houses analysis papers again being a third if not half the size of normal budget analytical papers.

But there remain significant matters of interest for all.

Some losers.

But a few wins.

So here is our analysis of where you stand to win, where you will lose and what we will be discussing with you as part of pre year tax planning and beyond.  And as I remarked in our initial Budget paper on Wednesday, for most there is more interest in what wasn’t announced or clarified.

So what won’t be continuing?

The following are arguably the biggest impacts following this Budget:-

• The instant asset write-off will end on 30^th June 2023. The good news is that we will now not returning to a $1,000 limit – it will be $20,000.  More on this later.
• It was surprising and arguably unjustified that previous government extended the 50% minimum pension requirement into 2022/23. But there is no change to the position that minimum pension payments return to full rates for the 2022/23 and beyond.  This means self managed super funds will need to be more careful about being cashed up enough (noting we track that minimum pensions have been paid and follow up those who are still underpaid close to 30^th June).  Whether you need that extra money or not the minimum must be paid – and careful analysis of whether you can re-contribute it will be required before doing so.
• Many of our clients have benefited from the Low Middle Income Tax Offset (LMITO). The Liberals had already legislated that it ended 30^th June 2022 – and that hasn’t changed.  Consequently many taxpayers’ 2023 tax refund will be $1,500 less (but $3,000 to many dual income families) – which could come as a rude shock to those battling the cost of living.

Businesses

$20,000 instant asset write-off

This is welcome news to all as a $1,000 limit from 1^st July 2023 was not going to give much of a tax break.

For the 2023/24 gear, a $20,000 threshold will apply.

TIP      It applies per asset.  Nor are like assets grouped.  So you could spend $100,000 on multiple assets and claim $100,000 for tax (so if your business is operated via a company it will pay $25,000 less tax).

TRAP  The $20,000 includes GST – so the threshold is really $18,181 (but $20,000 if buying an asset from a business which is not registered for GST or from the public).

TRAP  A group turnover test of $10,000,000 now applies.

TRAP  Although more applicable to the open limit instant asset write-off, it would be remiss not to mention the upcoming sting in the tail for some businesses.  It has been great for cash flow to write-off the cost of say a $50,000 car.  However, the day may soon come when that car is sold.  And given the ever lingering supply chain problems, one may be able to sell it for $35,000 or $40,000.  And that will be straight profit – as the car has already been written down to nil.  So a car traded in during June 2024 will see a couple of weeks depreciation being claimed but the entire ex-GST proceeds of the traded in car being fully taxable.

TIP      For some, it may be best to delay the sale by say a couple of weeks into a new financial year (which is not that far away).

TRAP  If your company will make a loss for 2023/24 or has carried forward losses, there will be no immediate tax saving (not until future profits exceed losses).

New energy incentive for small & medium businesses

Business with group turnover under $50,000 will be able to deduct an extra 20% on up to $100,000 of expenditure on eligible depreciating assets.  Qualifying assets are:-

• More efficient electrical goods (eg fridges).
• Assets that support electrification (eg heat pumps and cooling systems).
• Demand management assets (eg batteries).

TIP      Must be installed between 1^st July 2023 and 30^th June 2024.

TRAP  Electrical vehicles don’t qualify for this incentive.

Lodgement program amnesty

An amnesty will open from 1^st June 2023 for businesses with group turnover under $10,000,000 that haven’t lodged activity statements that were originally due between 1^st December 2019 to 28^th February 2022.  A concession if you will to covid in an attempt to get businesses back into the tax system.  Failure to lodge penalties will be remitted under this amnesty.

It would be unfortunate if a company found themselves qualifying for this as GST, PAYG WH and SG super that remain unreported and unpaid for longer than 3 months leave a director open to the ATO issuing a Directors Penalty Notice against a director.  Effectively, a DPN makes the company’s debt a personal debt of a director – and the only way out is to pay it.

TIP      If a business owner has unlodged activity statements from that period they would be mad not to ensure they were lodged under the amnesty.  Not only does it remove the possibility of being served a DPN but amnesties such as these are followed by audit programs.

FBT exemption for electric cars

This exemption announced last year was indeed welcome news.  Perhaps understandably the exemption for plug-in hybrid cars will cease from 1^st April 2025.

PAYG Instalment relief

Inflation has reared its head in so many unwanted ways.  One such manifestation is that the ATO formula has seen the indexation of the instalments increase to 12%.

The rate for small businesses and individuals will be reduced to 6%.

TIP      Our pre year end tax planning checklist of some 67 items reviews current profits against instalments paid to date and the June one to determine whether the June instalment can be varied.

TRAP  This relief only applies to small businesses.  Businesses with group turnover over $50,000,000 will continue to be assessed under a 12% uplift factor.

Technology investment boost

This was announced in last year’s Budget – but it remains unlegislated.  It grants an extra 20% deduction on expenditure up to $100,000 incurred between 29^th March 2022 to 30^th June 2023.

TRAP  A company only stands to benefit up to $5,000 given the 25% company income tax rate.  Savings to trust will depend on the beneficiaries’ marginal tax rate.

TRAP  With few sitting days until 30^th June this may well fail to be enacted.

TRAP  If your company will make a loss for 2022/23 or has carried forward losses, there will be no immediate tax saving (not until future profits exceed losses).

Cyber security funding

A funding program will be set up to assist small businesses protect themselves against cyber threats.  But don’t get too excited as the funding allotted won’t be enough to support less than 1% of all small businesses in Australia.

Individuals

PAYG Instalment relief

The indexation formula will be halved as per above for businesses.

Short term rental properties

A program will be set up to review deductions claimed against short term rental income.

Superannuation

Removal of delayed quarterly payment of SG super

Currently, employers have until 28 days after the end of each quarter to pay their employees super.

From 1^st July 2026, employers will be required to pay the super on the day of the pay run.

TRAP  Employers will need to ensure that have sufficient funds to pay the super at every pay run (noting that the penalties are huge for paying SG super late).  Business funding assessments will become more stringent.

TRAP  Employers will need to ensure their pay run calculations are correct each and every time (too bad if you make a mistake if say under the weather with the flu).  No longer will you have the luxury of checking the super at quarter end when you know all of the last quarter’s pay runs are correct before paying the super.

Taxing of super balances in excess of $3,000,000

We have addressed this at the time of its announcement.  No new details are to hand.

What concerns us is the advice that effects very few.  In time it won’t.  $3,000,000 may sound a lot but without any indexation the number of people who will fall foul of this will be in the millions.

Of particular concern is that it is wealth tax and moreover an unrealised wealth tax.  It doesn’t tax income – it taxes the growth in your super over $3,000,000.  You pay tax even if you haven’t sold the offending assets.  One would get to $3,000,000 alone just by having invested $45,000 in After Pay at the float by the time of its peak (and then its value halved).

Closing remarks

And are we really going to have a surplus?

By a technicality or rather accounting tweak, yes we are.

From 2020/21 the budgetary surplus or deficit includes the growth in the Future Fund.  That was rather a cheeky change as it’s like saying my overspending is OK cos I’m able to tap my super fund.  Without its inclusion, this budget would be in deficit (and 2018/19 would have been in surplus – which kind of makes one wonder why the change in 2020/21).

Next steps

We welcome any question you may have.

We will though be undertaking more training on the Budget and thereafter update our pre year end tax planning checklist.

And this year’s tax planning will become a whole lot more interesting given the ATO’s new stance on distributions to adult children, the recent state case which alarmingly required a trust distribution to be overturned and the new requirements for professional firms to pay certain amounts to its principals (with a rather surprising definition on whom qualifies as a professional firm).