The Treasurer, Jim Chalmers, handed down his Federal Budget for the new financial year on 9th May 2023.
Mr Chalmers walked away from the large, blanket tax cutting initiatives of the last Liberal government, such as Temporary Full Expensing (which applied to virtually all businesses) and the Low and Middle Income Tax Offset (which applied to all individual taxpayers with an income of less than $126,000), and instead focused on help which is more targeted and less generous. While the initiatives are likely to be welcomed by those taxpayers who are the target of the tax breaks, they will pass by many, if not most, taxpayers entirely unnoticed.
This was a Budget which was relatively light on tax measures, with most of the heavy lifting being done on the spending side with a variety of cost-of-living measures designed to boost incomes for the lowest paid and most vulnerable Australians. In particular, increases in Jobseeker for all claimants, a package of rent assistance for those on low incomes, energy bill relief and a huge boost to Medicare will all be welcome.
But there was no news about the Morrison government’s Stage 3 tax cuts – which remain legislated to come into effect on 1 July 2024 and which will largely benefit the most wealthy. There was no reprieve also for the Low and Middle Income Tax Offset, which expired last year – and leaves millions facing an effective tax increase in the current year of up to $1,500.
Highlights were focussed on the small business sector, which sees a return of the old $20,000 instant asset write-off (an immediate tax deduction for all eligible capital assets costing less than $20,000) but at the expense of the existing temporary full expensing regime (an immediate write-off of all eligible capital assets, regardless of amount) which ends on 30 June 2023.
In addition, SME’s will get access to a new program to incentivise them to buy energy-efficient fridges, electric cooling systems, batteries and other assets that support electrification and more efficient energy use, in the form of a 20% additional deduction for qualifying assets. Slim pickings compared to Temporary Full Expensing!
Specific measures for small businesses, including retailers, are:
Instant asset write off returns with a $20,000 threshold
The instant asset write-off returns with a $20,000 threshold per asset from 1 July 2023 to 30 June 2024.
Small businesses, ie those with aggregated annual turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.
Assets valued at $20,000 or more (which cannot be immediately deducted) can be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
The instant asset write-off rules allow for the immediate deduction for the cost of a depreciating asset for small business entities. However, these rules were effectively replaced by temporary full expensing (which effectively allowed for the immediate write off of all eligible capital assets, without a monetary limit) in relation to depreciating assets first held, and used or installed ready for use for a taxable purpose, between the 2020 Budget time (6 October 2020) and 30 June 2023. Temporary full expensing therefore ends on 30 June 2023.
New tax incentive for small business to invest in energy-saving technology
The Small Business Energy Incentive will help small‑ and medium‑sized businesses to invest in their energy transformation.
The bonus tax deduction will provide businesses with an annual turnover of less than $50 million with an additional 20 per cent deduction on spending that supports electrification and more efficient use of energy.
It will help small businesses make investments like electrifying their heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.
Tradies, manufacturers, restaurants, hairdressers, real estate agents and other small businesses are expected to benefit from the move.
However, certain exclusions will apply, such as:
- electric vehicles;
- renewable electricity generation assets;
- capital works; and
- assets that are not connected to the electricity grid and use fossil fuels.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.
Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.
Small Business Lodgment Penalty Amnesty
A lodgment penalty amnesty program will be provided for small businesses with aggregate turnover of less than $10 million to encourage them to re-engage with the tax system.
The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.
Mark Chapman is director of tax communications at H&R Block.