International tax
Implementation of a global minimum corporate tax and a domestic minimum tax
The Government has confirmed that it will implement Pillar Two of the OECD Two-Pillar Solution to address the tax challenges arising from digitalisation of the economy.
Broadly, this will result in a 15 per cent global minimum tax for large multinational enterprises with the relevant measures applying to income years starting on or after 1 January 2024.
The minimum tax will be achieved essentially through a top-up tax usually at the ultimate parent company level. This is to ensure the overall tax liability of the group in respect of profits in each country where it operates is at an effective tax rate of 15 per cent.
Australia will also implement a 15 per cent domestic minimum tax that will apply to income years starting on or after 1 January 2024. The domestic minimum tax will give Australia first claim on top-up tax for any low-taxed domestic income. It is recognised that in a small number of instances a large multinational company’s effective Australian tax rate may fall below 15 per cent. In these instances, the domestic minimum tax applies so that Australia collects the revenue that would otherwise have been collected by another country’s global minimum tax.
The global minimum tax and domestic minimum tax will apply to large multinationals with annual global revenue of EUR750 million (approximately A$1.2b) or more.
It is noted the Government made no announcement in respect of Pillar One, which seeks to reallocate some of the taxing rights over the largest and most profitable multinationals to the countries where their goods and services are consumed. These rules would only apply where a multinational has global revenues exceeding EUR20 billion per annum (approximately A$32.5b).
Corporate tax
Build to rent
The Federal Government aims to encourage investment and construction in the build-to-rent sector to increase Australia’s housing supply by increasing the rate of capital works deduction to 4 per cent per year; and reducing the final withholding tax rate on eligible fund payments from managed investment trust investments from 30 per cent to 15 per cent from 1 July 2024.
Extending the clean building managed investment trust withholding tax concession
The Government will extend the clean building managed investment trust withholding tax concession (i.e. a concessional rate of 10 per cent on fund payments instead of the standard 15 per cent withholding rate) to data centres and warehouses. This measure will apply to data centres and warehouses where construction commences after 7.30 pm AEST on 8 May 2023, which satisfy the relevant energy efficiency standards and will apply from 1 July 2025.
This measure will also raise the minimum energy efficiency requirements for existing and new clean buildings 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’
The Government will amend the Petroleum Resource Rent Tax legislation to clarify that ‘exploration for petroleum’ is limited to the ‘discovery and identification of the existence, extent and nature of the petroleum resource’ and does not extend to ‘activities and feasibility studies directed at evaluating whether the resource is commercially recoverable’.
This measure also clarifies that mining, quarrying and prospecting rights cannot be depreciated for income tax purposes until they are used (not merely held) and will limit the circumstances in which the issue of new rights over areas covered by existing rights lead to tax adjustments. This measure applies to all expenditure incurred from 21 August 2013 and is consistent with ATO tax ruling TR 2014/9.
Tax integrity – expanding the general anti-avoidance rule
Government will improve the integrity of the tax system by expanding the scope of the general anti-avoidance rule for income tax (Part IVA) so that it can apply to schemes that reduce tax paid in Australia by accessing lower withholding tax rate on income paid to foreign residents and schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.
The rules will apply to income years commencing on or after 1 July 2024, regardless of when the scheme was entered into.
Personal tax
Personal income tax rates
- Individual income tax rates unchanged for 2023–24.
- The Stage 3 tax changes will apply from 1 July 2024 as previously announced
Tax rates and income thresholds – from 2024–25 onwards
Tax income ($)
|
Tax payable ($)
|
| 0 - 18,200 |
Nil |
| 18,201 – 45,000 |
Nil + 19 per cent of excess over 18,200 |
| 45,001 – 200,000 |
5,092 + 30 per cent of excess over 45,000 |
| 200,00+ |
51,592 + 45 per cent of excess over 200,000 |
Extending the personal income tax compliance program
- The ATO will receive $89.6m and the Treasury $1.2m to extend the Personal Income Tax Compliance Program for two years from 1 July 2025 and expand its scope from 1 July 2023.
- The ATO is to use the extension to continue delivering a combination of proactive, preventative and corrective activities in key areas of non-compliance.
Superannuation
$3m Superannuation Cap – effective date 1 July 2025
Individuals with a balance of more than $3m at 30 June 2026 will incur an additional 15 per cent tax (in addition to the 15 per cent paid in superannuation) on earnings corresponding to the portion of an individual’s total superannuation balance that is greater than $3m. Earnings relating to assets below the $3m threshold will continue to be taxed at 15 per cent, or 0 per cent if held in a pension account, within the superannuation fund.
The tax will be assessed personally with the option to fund the payment out of superannuation fund assets upon the approval of a successful release authority. The measure will not place a limit on the amount of money an individual can hold in superannuation, and the current contributions rules continue to apply. Although an additional tax is to be imposed, the rate remains lower than the top marginal rate of 45 per cent, with superannuation still remaining a concessional taxed environment.
Securing Australians’ superannuation
From 1 July 2026, employers will be required to pay their employees’ Superannuation Guarantee (SG) entitlements on the same day that they pay salary and wages. Currently, employers are only required to pay their employees’ SG on a quarterly basis. This will allow employees greater visibility over whether their entitlements have been paid, as well as better enable the ATO to recover unpaid superannuation. A start date of 1 July 2026 will allow all involved ample time to make necessary system changes and cash flow.
The Government will also provide $27m to the ATO in 2023–24 to improve data matching capabilities to identify and act on cases of SG underpayment by employers. This package will particularly benefit those in lower paid, casual and insecure work who are more likely to miss out when super is paid less frequently.
Innovation incentives
To build the foundations of a strong economy, targeted Government investments into innovation to create new industries and renew existing capabilities have been flagged in the Budget, including:
- $61.4m to support the establishment and operation of the $15b allocated to the National Reconstruction Fund
- $2b will be invested in the Hydrogen Headstart program focused on accelerating the development of hydrogen energy technologies with Australia already hosting the largest global pipeline of renewable hydrogen projects
- A further $1.3b will be allocated to the Powering the Regions program to support emissions reduction and clean energy development, and $57.1m will be used to develop a Critical Minerals International Partnerships program
- $392.4m to establish a new Industry Growth Program aimed at supporting innovative Australian startups and SMEs via grants and mentorships to take their new products and services from idea through to commercialisation
- $3.4b will be invested over the next decade to establish the Advanced Strategic Capabilities Accelerator within the Department of Defence. The accelerator will support and drive innovation to deliver cutting edge technologies that are most relevant to the Australian Defence Force and strengthening our national security.
- $101.2m over the next 5 years will support technologies that are enabling capabilities with an initial focus on growing Australia’s quantum and artificial intelligence ecosystem.
Missed opportunities include the previously proposed patent box measures that will not proceed and the Export Market Development Grant (EMDG) program, which will have a $61m reduction in funding over four years. Both initiatives actively encourage business investment in innovation and support economic growth. Interestingly, there was no mention of the Federal Government’s flagship innovation support program – the R&D Tax Incentive – in this Federal Budget.
Indirect tax
GST compliance program extension
The Government has announced additional funding of $588.8m to the ATO to continue GST compliance activities over the next four years from 1 July 2023.
The ATO is currently conducting GST assurance programs to confirm that taxpayers are accurately remitting GST and correctly claiming GST refunds. Additional funding will help the ATO develop more sophisticated analytical tools to combat emerging risks to the GST system.
The Government estimates that this measure will increase tax receipts by $7.6b over the five years from 2022–23.
Business tax
Small business lodgement penalty amnesty
The Government will announce a lodgement amnesty program for small businesses with aggregate turnover of up to $10m and 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.
Small business support – $20,000 instant asset write-off
Small business with aggregated turnover of less than $10m 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. A $20,000 threshold will apply on a per asset basis, so multiple assets can be written off.
Assets valued at $20,000 (which will not be eligible for instant asset write-off) or more can continue to be placed into the small business simplified depreciation pool, where they will be depreciated at 15 per cent for the first income year and 30 per cent for each income year thereafter.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt out will continue to be suspended until 30 June 2024. This is estimated to decrease receipts by $290m over the next 5 years.
Small business energy incentive
Government will support small and medium businesses to save on energy bills through incentivising the electrification of assets and the improvement of energy efficiency. This will apply to those with aggregate turnover of less than $50m and will allow an additional deduction of 20 per cent of the cost of eligible depreciation of assets that support electrification. Up to $100,000 of total expenditure will be eligible with a maximum bonus deduction being $20,000.
Eligible assets will need to be first used or ready for use between 1 July 2023 and 30 June 2024. The full details of eligibility criteria are yet to be finalised. The incentive will apply to a range of depreciating assets including assets that upgrade to more efficient electrical goods such as energy-efficient fridges, assets that support electrification such as electric heating or cooling systems and demand management assets such as batteries. Exclusions include electric vehicles, renewable electricity generation assets, capital works and assets not connected to the electricity grid and use fossil fuels.
This measure is estimated to decrease receipts by $310m and increase payments by $4.2m over 5 years from 2022–23.
Small business support – managing tax instalments and improving cash flow
The Government will amend the tax law to set the GDP adjustment factor for PAYG and GST instalments to 6 per cent, a reduction from 12 per cent under the statutory formula. The reduced factor will provide cash flow support to small businesses and other PAYG instalment taxpayers.
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