Business and investment

Federal Budget Tax | Analysis and insights

Key highlights

  • - There is no extension to Temporary Full Expensing, which will finish on 30 June 2023; however, small businesses will have a temporary one year increase of the instant asset write-off threshold to $20,000.
  • - The 2022-23 income year is the final year for which eligible entities can carry-back losses to prior years.
  • - Small and medium businesses will receive an additional 20 per cent bonus tax deduction for spending that supports 'electrification' and more efficient use of energy under the Small Business Energy Incentive.
  • - The tax law will be amended to reduce compliance costs for general insurers by aligning tax outcomes with the newly introduced accounting standard AASB 17 Insurance Contracts, with effect for income years commencing on or after 1 January 2023.
  • - From 1 July 2024, reduced withholding rates for fund payments from Managed Investments Trusts (MITs) holding eligible build-to-rent properties. Increased capital works depreciation rates will also apply to eligible build-to-rent properties.
  • - From 1 July 2025, income from data centres and warehouses can qualify for a reduced withholding rate (of 10 per cent) where a trust qualifies as a Clean Building MIT.
  • - From 1 July 2023, LNG project deductions capped to 90 per cent of income in a year. This sets a minimum net level of PRRT at 2.8 per cent of assessable receipts after allowing an income tax deduction for the PRRT paid, and only applies seven years after a project’s first production.
  • - Amendments will be made to the definition of exploration for PRRT and income tax purposes following the decision of the Full Federal Court in Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2.
  • - Introduction of ‘Payday Super’ from 1 July 2026.

From a business tax perspective, the Government has focused on providing support for small and medium businesses in this year’s Budget. In line with its commitment to improve Australia’s supply of housing and energy efficient commercial buildings, the Government has also announced tax concessions to support investment in these areas. 

Temporary stimulus measures to end shortly 

Two tax stimulus measures that were introduced in 2020 in response to the economic effect of COVID-19 will end shortly.

Temporary full expensing (TFE), which provides businesses with aggregated turnover of up to $5 billion with the ability to deduct the full cost of eligible assets acquired after 7:30pm on 6 October 2020, and first used or installed ready for use on or before 30 June 2023, has not been extended. 

This means that the normal tax depreciation rules will apply to depreciation assets first used or installed ready for use from 1 July 2023, and for small business entities that adopt the simplified depreciation rules, the threshold for deducting the full cost of eligible depreciating assets will be temporarily increased to $20,000 for assets that are first used or installed ready for use between 1 July 2023 and 30 June 2024 (see further below), and will then revert to $1,000.

The temporary loss carry-back tax offset, which was intended to complement TFE by providing temporary cash flow support to eligible companies who found themselves in a tax loss position due to the COVID-19 pandemic, is also ending. The 2022-23 income year is the final year for which eligible entities can carry-back losses to prior years. 

Small Business Energy Incentive

The ‘small business energy incentive’ is designed to support eligible small and medium businesses to make investments that would help them save energy and save on energy bills. The Government announced that businesses with an aggregated turnover of less than $50 million will be able to claim an additional 20 per cent deduction on investments related to electrification and more efficient energy use.

Up to $100,000 of total expenditure will be eligible for this new tax incentive, with a maximum of additional tax deduction of $20,000 per eligible entity.  Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. This start date corresponds with the ending of the temporary full expensing measure (see further above).

Acquisitions of depreciating assets, as well as upgrades to existing assets, will be eligible for the Small Business Energy Incentive. These will include assets that upgrade to more efficient electrical goods such as energy-efficient fridges, assets that support electrification such as heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage. Full details of eligibility criteria will be finalised in consultation with stakeholders.

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.

This incentive is intended to help support small and medium businesses recover after a challenging economic period and will also help in Australia’s aim to reduce emissions. 

Small Business Support – $20,000 instant asset write-off

Small businesses with aggregated turnover of less than $10 million will be eligible for a temporary increase in the instant asset write-off threshold to $20,000 for eligible assets 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 continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024 (i.e. it is permissible to re-enter the simplified depreciation regime until 30 June 2024).

Lodgment penalty amnesty 

A lodgment penalty amnesty program will be provided for small businesses with aggregated 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, and that were originally due during the period from 1 December 2019 to 29 February 2022.

Driving collaboration with small business to comply with tax obligations

The Australian Taxation Office (ATO) will be given additional funding to lower the tax-related administrative burden for small businesses and additional reforms will be implemented to cut paperwork and reduce the time small businesses spend doing taxes.

The various initiatives will include:

  • a trial expansion of the ATO independent review process to small businesses (with aggregated turnover between $10 million and $50 million) who are subject to an ATO audit. This trial will run from 1 July 2024 to 31 December 2025
  • five new tax clinics from 1 January 2025 to improve access to tax advice and assistance for million small businesses
  • from 1 July 2024, small businesses will be permitted to authorise their tax agent to lodge multiple Single Touch Payroll forms on their behalf
  • from 1 July 2024, small businesses will benefit from faster income tax refunds by reducing the use of cheques, and 
  • from 1 July 2025, small businesses will be permitted up to four years to amend their income tax returns.

Tax (PAYG and GST) instalments 

The Government will reduce the GDP adjustment factor for Pay As You Go (PAYG) and GST instalments from 12 per cent to 6 per cent for the 2023–24 income year. 

The reduced GDP adjustment rate will apply to PAYG and GST instalments that relate to the 2023–24 income year and fall due after enabling legislation receives Royal Assent for small businesses and individuals with up to: 

  • $10 million aggregated turnover for GST instalments, and 
  • $50 million aggregated turnover for PAYG instalments.

The small business incentives are targeted towards asset renewal and environmental sustainability, while there is also a clear focus on increasing engagement and compliance with the tax system by private groups.

Reducing compliance costs for general insurers

In what is a much welcomed announcement for the general insurance industry, the Budget confirms that the Government will amend the current tax law to minimise the regulatory burden on the general insurance industry as result of the introduction of the new accounting standard, AASB 17 Insurance Contracts. The introduction of AASB17 has meant that the tax law is no longer aligned with the accounting standards. This proposed change will allow general insurers to continue to use audited financial reporting information, which is calculated according to the new standard, as the basis for their tax returns. 

The measure will have effect for income years commencing on or after 1 January 2023. However, there is no clarity on the treatment of transitional adjustments, which is particularly relevant for life insurers.

Build-to-rent (BTR) tax incentives

The Government has provided further detail on its recently announced tax changes for BTR accommodation with an aim of improving the supply of rental housing. The changes are welcomed by industry as they will no doubt positively impact the sector. The changes include: 

  • Reduce the withholding rate for fund payments from Managed Investment Trusts (MITs) holding BTR properties: From 1 July 2024, fund payments made from MITs that own BTR projects that satisfy certain eligibility criteria will be able to access the 15 per cent concessional withholding tax rate (reduced from 30 per cent). 
  • Increased tax depreciation for BTR projects: An increase in the capital works tax deduction (depreciation) rate for construction costs from 2.5 per cent to 4 per cent per year for BTR projects that satisfy certain eligibility criteria.

Both of the announced measures will apply to BTR projects that satisfy the following criteria:

  1. construction commenced after 7:30pm (AEST) on 9 May 2023
  2. consist of 50 or more apartments / dwellings that are made available to the general public
  3. are held under single ownership for at least 10 years before being sold (subject to further consultation), and
  4. each dwelling is offered to tenants for at least a 3 year lease term.

Criteria 2 and 4 broadly align with the requirements to access land tax and stamp duty concessions available for BTR projects in NSW.

The Government has also flagged that consultation will be undertaken on specific implementation details, including whether a minimum proportion of affordable dwellings must be made available to qualify. It is unclear whether the ‘affordable dwelling’ requirement would apply to access both concessions.

As yet, the Government has not announced any proposed changes to the GST treatment of BTR projects to align it with the treatment of other asset classes. 

Extension of clean building MIT concession to data centres and warehouses

The Government will extend the clean building MIT withholding tax concession (currently 10 per cent) to data centres and warehouses where construction commenced after 7:30pm (AEST) on 9 May 2023 and the building meets the relevant energy efficiency standard (6-star rating from the Green Building Council Australia or a 6-star NABERS rating). The 10 per cent rate will apply for fund payments made from 1 July 2025. 

The higher minimum energy efficiency ratings will also apply to construction of new buildings to which the existing clean building MIT regime applies (being offices, hotels and/or shopping centres). The current rules require only a 5-star rating from the Green Building Council Australia or a 5.5-star NABERS rating.

For existing clean building MITs, the Government will consult on transitional arrangements for these existing buildings given that they will be required to meet the new higher efficiency standard. 

While the description of data centres is reasonably clear, it will be interesting to see what type of properties will be included in “warehouses” and whether this will cover a wider scope of industrial and logistics properties. 

Changes to Petroleum Resource Rent Tax

The Government has announced changes to Petroleum Resource Rent Tax (PRRT) that are expected to increase tax receipts by $2.4 billion over the five years from 2022-23.

These changes coincide with the release of the Final Report to the Treasurer on the Review of the Gas Transfer Pricing Arrangements (the Report) for taxpayers that are subject to the PRRT on offshore liquified natural gas (LNG) projects. The review was the final piece of the Callaghan Review into PRRT which commenced in 2018 and concluded in 2019 noting that further consultation was needed on the operation of the gas transfer pricing regulations. This work was deferred due to Treasury resources being redirected to deal with the Government’s response to the pandemic. 

The conclusion of this consultation has resulted in Treasury making eleven recommendations, to which the Government has responded, indicating that it will implement eight. A summary of the most material changes are as follows: 

  • Rather than comprehensively amend the gas transfer pricing regulations, a cap on deductible expenditure of 90 per cent of assessable receipts derived from LNG projects will be applied. This will commence from 1 July 2023. 

    The Recommendation indicates that undeducted amounts above the cap will be carried forward and uplifted by the Long Term Bond Rate in future periods. The Recommendation also indicated that the deduction cap would not apply to an LNG project in the first seven years post first production. The cap should not apply to closing down expenditure, which still provides taxpayer’s the opportunity for a refund relating to closing down expenditure amounts. 
  • Where a taxpayer is generating a “loss” under the Residual Pricing Methodology (RPM), that loss will be apportioned 50:50 between the upstream and downstream projects. Historically where there was a loss (i.e. the netback calculation had a lower price than the cost plus), the netback price was used. This will commence from 1 July 2024.  
  • The Government will clarify that taxpayers who toll through another taxpayer’s LNG facilities can utilise its tolling fee or tariff in determining their gas transfer price under the RPM. Additional changes will be included in updated Regulations to allow appropriate calculations of gas transfer price under the RPM for projects where the infrastructure was not within the PRRT ring fence historically. These changes will commence from 1 July 2024. 

The Government has also announced that it will implement a number of remaining measures from the 2019 Callaghan Review which had been supported but unenacted by the previous Government, including: 

  • allowing taxpayers to lodge PRRT returns once they start holding an interest in an exploration lease or retention lease
  • allowing taxpayers to report PRRT on a single return for multiple projects
  • allowing the adoption of a substituted accounting period for PRRT purposes 
  • allowing the Commissioner the power to administratively exempt PRRT projects where they are “clearly unlikely” to pay PRRT in the foreseeable future – although with the cap now applying to LNG projects as per the Recommendation above, this may have limited application, and
  • amend the anti-avoidance rules to apply in a similar manner to the income tax anti-avoidance provisions, and give the Commissioner powers to apply them to arrangements under the Gas Transfer Pricing Regulations. 

Commencement dates for these amendments have not been announced, but will likely be considered further following further consultation flagged by the Government. 

Changes to Exploration for PRRT and Income Tax Purposes

Seeking to clarify what is “exploration” for PRRT and income tax purposes, the Government is proposing amendments following the decision of the Full Federal Court in Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2. More specifically, the Government is proposing amendments to:

  • limit the definition of what constitutes exploration for PRRT purposes to exclude expenditure in relation to ‘activities and feasibility studies directed at evaluating whether the resource is commercially recoverable’ from being considered exploration expenditure. This intends to align the legislative position with that put forward by the Commissioner in Taxation Ruling TR 2014/9 and will apply to expenditure incurred after 21 August 2013, and
  • ensure that deductions for mining, quarrying and prospecting rights (MQPR) can only commence when they are used and not merely held. An additional clarification will also be made to limit the circumstances in which a licence conversion will lead to the creation of a new MQPR. Both amendments will apply to MQPRs acquired or starting to be used after 7:30pm (AEST) on 9 May 2023.

Introduction of payday superannuation

As announced ahead of the 2023-24 Federal Budget, effective from 1 July 2026, employers will be required to pay SG entitlements on the same day that an employee’s salary or wages are paid.

“Payday Super”, as it is referred to by the Treasurer, varies the current requirement for employers to pay their employees’ SG entitlements on a quarterly basis, enabling employees to better keep track of their superannuation payments. 

The Government will consult on changes to the design of the SG charge, to align with the increased payment frequency, with the final design to be considered as part of the 2024-25 Budget. 

This presents an opportunity for employers to re-assess their payroll processes and superannuation controls currently in place to ensure they can service frequent SG payments, and is likely to require a raft of improvements to payroll and superannuation software reporting functionality.

Additionally, $40 million will be provided to the ATO to improve its data matching capabilities. This increased funding will facilitate the ATO identifying and pursuing cases of SG underpayment by employers.

The ATO will also be required to report annually on recovering unpaid superannuation.

This budget further addresses the recurring theme of underpayment of worker entitlements, specifically in the area of superannuation. The requirement to report and remit superannuation contributions more frequently will require controls and supporting systems to be enhanced.

Fringe Benefits Tax (FBT)

There were no new FBT-related changes announced in this Budget.

However, as a reminder, this Budget includes the increased receipts expected from the removal of plug-in hybrid electric cars from the FBT exemption from 1 April 2025. This measure is already enacted in Treasury Laws Amendment (Electric Car Discount) Act 2022

Employers should be aware that the FBT exemption remains available to arrangements with eligible plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025. 

Contact us

Ryan Jones

Ryan Jones

Australian Energy Tax Leader, PwC Australia

Tel: +61 407 984 967

Sam Lee

Sam Lee

Partner, PwC Australia

Tel: +61 416 019 542

Josh Cardwell

Josh Cardwell

Partner, Head of Real Estate Tax, PwC Australia

Tel: +61 438 129 187

Manuel Makas

Manuel Makas

Partner, Tax, PwC Australia

Tel: +61 421 050 630

Sue Ann Khoo

Sue Ann Khoo

Partner, Tax, PwC Australia

Tel: +61 447 391 056

Anne Bailey

Anne Bailey

Partner, Workforce, PwC Australia

Tel: +61 407 204 193

Greg Kent

Greg Kent

Partner, PwC Australia

Tel: +61 412 957 101

Glen Frost

Glen Frost

Partner, Private - Family Office, PwC Australia

Tel: +61 408 616 990

Ryan Smith

Ryan Smith

Partner, Private - Family Office, PwC Australia

Tel: +61 412 401 344