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The 2023-24 Federal Budget will be released on Tuesday, 9 May 2023. Look out for our update the next day on the important issues to you, your superannuation, and your business.
Current Insights and Expectations
Little has been released to date on the impending Budget beyond the tax on super balances above $3 million and the decision not to extend the temporary $1,500 low and middle-income tax offset beyond 30 June 2023. However, several key areas are expected to be addressed, reflecting the Government’s focus on balancing cost-of-living pressures with the need to avoid increasing inflation.
Cost of Living and Inflation
Cost of living is a major focus, but on this, the Government is walking a tightrope between easing pressure without increasing inflation. In the election cycle, if there is going to be a tightening, the mid-term Budgets are the time to do it. The Government will undoubtedly look at concessions provided within the tax system and whether those concessions meet their stated objective and when it comes to spending, potentially redraw the allocations.
Key Budget Areas to Watch
- Stage Three Tax Cuts: The legislated stage three tax cuts, which collapse the 32.5% and 37% tax brackets to a single rate of 30% for those with assessable income between $45,000 and $200,000, are not due to commence until 1 July 2024. The Government committed to keeping the tax cuts during the election and can bypass the issue until the 2024-25 Budget, but we’ll see.
- Defence Spending: Provision for announced defence spending is expected to be a significant component of the Budget, reflecting ongoing commitments to national security and military capability.
- Clean Energy Transition: Active support to develop a viable clean energy industry and transition to clean energy is anticipated. This aligns with the joint submission from the Business Council of Australia, Australian Council of Trade Unions, World Wide Fund for Nature-Australia, and the Australian Conservation Foundation.
- Productivity Measures: Temporary full expensing, the productivity measure designed to encourage business investment by allowing businesses to fully expense the cost of depreciable assets in the first year of use, is set to expire on 30 June 2023. The Government will either extend, redevelop the small business instant asset write-off, or remove the concession altogether.
- Technology and Training Boosts: In the 2022-23 Federal Budget, the former Government announced that it would provide certain business taxpayers with ‘bonus’ tax deductions for investing in employee training or improving digital operations. The Skills and Training Boost allows small businesses (aggregated turnover less than $50 million) to claim a 120% deduction for eligible expenditure incurred on external training for employees between 29 March 2022 and 30 June 2024. The Technology Investment Boost provides a 120% deduction for eligible expenses incurred for the purposes of improving digital operations or digitising business operations. This can include the cost of depreciating assets. The boost is aimed at costs incurred between 29 March 2022 and 30 June 2023 and is limited to a maximum bonus deduction of $20,000. However, the legislation enabling both boosts has not passed Parliament. There is an opportunity in the Budget to extend the scope and nature of the concession.
Potential Changes and Implications
The outcome of the Budget will have significant implications for various sectors and individuals. Here are some potential changes and their impacts:
- Superannuation Tax Changes: The proposed tax on super balances above $3 million could affect high-net-worth individuals and their retirement planning strategies. It is essential to stay informed about these changes to make necessary adjustments.
- Low and Middle-Income Tax Offset: The decision not to extend the temporary $1,500 low and middle-income tax offset beyond 30 June 2023 will impact many taxpayers. Understanding how this change affects your tax liability is crucial for financial planning.
- Business Investment Incentives: The potential extension or modification of the temporary full expensing and technology and training boosts could influence business investment decisions. Businesses should be prepared to take advantage of these incentives if they are extended.
- Clean Energy Initiatives: Support for clean energy transition will likely create opportunities for businesses in the renewable energy sector. Staying updated on these initiatives can help businesses align their strategies with government priorities.
Conclusion
As we await the release of the 2023-24 Federal Budget, it is important to stay informed about potential changes and their implications. Whether you are an individual taxpayer, a business owner, or a superannuation fund member, understanding the Budget’s impact on your financial situation is crucial. Look out for our detailed update the day after the Budget release, where we will break down the important issues and provide insights on how to navigate the changes.
To stay up with the latest news on superannuation and taxes, see the ATO.
