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Federal Budget Report 2023

Our Budget Report outlines this year’s Federal Budget 2023 / 2024 key economic forecast indicators and key tax and economic measures as announced by the Government on 9 May 2023. 

Inside you will find

Corporate & MNE Measures

SME Measures

Energy & infrastructure measures

Digital Economy measures

Migration & mobility measures

Superannuation measures

Individual/ Personal measures

Introduction

In a post-pandemic era with high inflation and interest rates, the government is balancing the stimulation of the economy while addressing the cost of living and high interest rate pressures on households.

Despite facing economic headwinds and uncertainty globally, the Australian economy is predicted to outpace all major advanced economies. However, it is also experiencing a slowdown due to the worsening global economic situation, high inflation, and rising interest rates. The cost-of-living pressures are affecting households and curbing domestic demand.

Real GDP growth is expected to slow down to 1.5% in 2023-24, but is expected to recover in 2024-25. Despite this, employment opportunities are still increasing and the unemployment rate is expected to remain low compared to historical standards.

The expected cash balance for the 2023/24 financial year is a small surplus of $4.2 billion, a significant improvement from the $32.0 billion deficit projected at the 2022/23 Budget, as well as the preceding 14 years. However, this surplus will be brief, as the next four years are expected to see additional deficits.

Despite significant reductions in medium-term structural budget deficits, they remain substantial. The budget remains vulnerable to economic weaknesses and offers little reassurance for debt repayment or savings, as evidenced in the next 4 years forecast.

On an ending note, from a tax and business compliance standpoint, this Budget heralds that all businesses, regardless of size, are on notice with regards to GST compliance and can expect review and audit activity over the coming periods.  This indicates the most comprehensive GST compliance action since its inception in 2000. 

Corporate & MNE Measures

The headlines for corporate and business tax from the Federal Budget 2023 are as expected; Australia has confirmed the implementation timeline for the OECD/G20 Pillar Two global minimum tax rules starting from 2024. The more unexpected measure from the Budget was the considerable expansion of the general anti-avoidance rule. Both these measures will increase the compliance burden even further for MNE’s over the next 6-12 months and signal the ATO’s extra scrutiny of the commercial relevance of implemented tax and transfer pricing positions.

The most significant revenue impact in the Budget is $7.6 billion, comprising of GST and other tax receipts expected to be collected from an expanded GST compliance program. In addition, the ATO has received significant other funding to continue other compliance activities. 

Implementation of a global minimum tax and a domestic minimum tax

Australia has announced the implementation of the OECD/G20 Pillar Two global minimum tax. Pillar Two will establish a global minimum tax rate of at least 15% under a globally agreed set of rules that will require groups to undertake annual calculations on a country by country basis. The Government has confirmed Australia’s intention to implement Pillar Two in line with the OECD timeline, consistent with the United Kingdom and European Union states.

The measures will apply to multinational enterprises with a global turnover above €750 million (i.e. approximately $1.2 billion) and will apply to Australian headquartered multinational enterprises as well as Australian subsidiaries of foreign parents..

Australia will implement a domestic minimum tax for income years beginning on or after 1 January 2024, to ensure that Australia retains taxing rights over undertaxed Australian profits.

Further, the following measures will also be introduced:

  • The Income Inclusion Rule (IIR) is to apply to income years beginning on or after 1 January 2024
  • The Undertaxed Profits Rule (UTPR) is to be effective 12 months later (income years beginning on or after 1 January 2025).

The measure is forecast to increase revenue by $370 million and increase payments by $110 million over the five years from 2022-23.

Andersen in Australia Comment:

These measures will greatly increase the compliance burden on inbound Australian groups and Australian subsidiaries of multinationals.  We are aware of some larger MNE’s who have already commenced in getting up to speed with the calculations of the global group’s effective tax rates in readiness of these new rules. If your company are yet to access these calculations it is highly recommended to seek expert advice and to start this process as soon as possible as there can be a lot of complications involved with this.

Expanding the general anti-avoidance rule in the income tax law

The Government will widen and strengthen Part IVA (the general anti-avoidance rule) for income years commencing on or after 1 July 2024, regardless of when schemes were entered into.

Part IVA will be expanded to also include the following:

  • Schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents. It is expected that the measure is seeking to ensure that Part IVA can be applied in a case where the liability to withholding tax is reduced but not eliminated, as well as a case where the liability to withholding tax is eliminated (reduced to nil).
  • Schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.

To date, the general provisions of Part IVA have been premised upon there being a sole or dominant purpose to obtain a relevant Australian tax benefit. This proposal seeks to ensure that Part IVA can apply where there is an Australian tax benefit even where the sole or dominant purpose was to obtain a foreign tax advantage.

Andersen in Australia Comment:

Businesses and tax advisors will now need to consider the further strengthening of the Part IVA anti-avoidance provisions. First, schemes that provide withholding tax rate arbitrage benefits will now be caught.  Second, schemes that that achieve an Australian tax benefit even though the dominant purpose of the actor was to reduce foreign income tax will also be caught and can no longer be used as a defence.

Andersen recommends that Part IVA is considered before entering into any transaction and that all existing arrangements are reviewed in light of these proposed changes from 1 July 2024.

Proposed changes to the Petroleum Resource Rent Tax (PRRT)

The government will amend certain aspects of the PRRT regime that will have the effect of accelerating the payment of PRRT by participants in offshore LNG projects in Australia. The specific changes include:

  • Introduction of a ‘deductions cap’ equal to 90 percent of the assessable receipts for any given year. Deductions denied under the cap can be carried forward and uplifted at the long-term bond rate.
  • Modernisation of the ‘Gas Transfer Price’ rules to reflect tolling arrangements and the use of existing infrastructure.
  • Various other administrative, integrity and transfer pricing updates to align with modern rules and principles.
  • A retrospective clarification to the definition of ‘exploration’ for PRRT purposes to give effect to the Commissioner’s view in Taxation Ruling TR 2014/9, applicable to expenditure incurred from 21 August 2013.

Mining, quarrying and prospecting rights

This measure will clarify 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. These changes apply from 7:30PM (AEST) on 9 May 2023.

GST compliance program

The government will provide $588.8 million of funding to the ATO over the next 4 years to continue a range of activities that promote GST compliance. This activity is estimated to increase GST receipts by $3.8 billion, and other tax receipts by $3.8 billion, over 5 years. This funding will also help the ATO develop more sophisticated analytical tools to combat risks to the GST system.

Reduce compliance costs for general insurers

The insurance industry has been concerned to ensure the current tax legislation for insurance companies is updated to reflect changes under the new accounting standard, AASB17 Insurance Contracts, which applies for income years commencing on or after 1 January 2023. The new accounting standards apply to all insurance entities and aligns to the global accounting standard IFRS17.

The Government announced it will introduce legislation to amend the tax law under Division 321 to minimise the regulatory burden facing the general insurance industry, to ensure that the tax laws will align to the new accounting standards, and hence allow the continued use of audited financial reporting information under AASB17, as the basis for their tax returns.

The measure will have effect for income years commencing on or after 1 January 2023.

Andersen in Australia Comment:

It is not yet clear as to the effect of this announcement for life insurance companies under Division 320, and whether any transitional measures will be introduced in respect of any tax impacts on transition from the current to the new accounting standard.

Powering Australia – amendment to the Electric Car Discount

The Government will sunset the eligibility of plug-in hybrid electric cars from the fringe benefits tax exemption for eligible electric cars. This change will apply from 1 April 2025. Arrangements involving plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025 remain eligible for the Electric Car Discount.

Innovation incentives

  • Patent box announcements will not proceed

The Government formally announced that the three separate patent box measures announced by the former Government will not proceed. These included a patent box regime for Australian medical and biotechnology patents together with a patent box regime for agricultural and low-emissions innovations sectors.

Screen production incentives

The Government will amend existing screen and production related tax incentives as follows:

  • Increase the Location Offset rebate rate to 30% whilst increasing the minimum Qualifying Australian Production Expenditure (QAPE) thresholds to $20 million for feature films and $1.5 million per hour for television series.
    • Funding of $6.9 million over four years from 2023–24 (and $1.8 million per year ongoing) for Ausfilm to continue to market Australia as a destination for screen production.
    • Funding of $0.5 million over three years from 2024–25 (and $0.2 million per year ongoing) for the Australia-India Audio-Visual Co-Production. Agreement to enable eligible producers to access the Producer Offset, a refundable tax offset for approved Australian expenditure.
    • With the Digital Games Tax Offset (DGTO) provisions currently before Parliament, additional funding of $12 million over four years from 2023-24 (and $3 million per year ongoing) for Screen Australia to support Australian interactive games businesses to grow operations and capitalise on emerging opportunities.

SME Measures

Small Business Support – helping small business manage their tax instalments and improving cashflow

The Government will amend the tax law to set the GDP adjustment factor for pay as you go (PAYG) and GST instalments at 6 per cent for the 2023–24 income year, a reduction from 12 per cent under the statutory formula.

The 6 per cent GDP adjustment rate will apply to small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregate turnover for PAYG instalments), in respect of instalments that relate to the 2023–24 income year and fall due after the enabling legislation receives Royal Assent.

Andersen in Australia Comment:

The reduced factor will provide cash flow support to small businesses and individuals who are eligible to use the relevant instalment methods.

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

The Government will improve cash flow and reduce compliance costs for small businesses by temporarily increasing the instant asset write‑off threshold to $20,000, from 1 July 2023 until 30 June 2024.

Small businesses, 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 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 5 years if they opt‑out will continue to be suspended until 30 June 2024.

Andersen in Australia Comment:

The instant asset write-off rules for small business entities were originally replaced by temporary full expensing 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 2022, then extended to 30 June 2023.

Small Business Energy Incentive

The Government will support small and medium businesses to save on energy bills through incentivising the electrification of assets and improvements to energy efficiency.

Small and medium businesses, with aggregated annual turnover of less than $50 million, will be able to deduct an additional 20 per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy. Up to $100,000 of total expenditure will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000.

A range 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.

Eligible assets will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. Eligible upgrades will also need to be made in this period.

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.

Andersen in Australia Comment:

This measure will assist small businesses (with turnover of less than $50 million) that are able to make such expenditures depending on the profitability of their business.

Enhanced Support for Small and Medium-sized Businesses and Startups

The Government will provide $431.9 million over 4 years from 2023–24 (and $79.2 million per year ongoing) to improve support for small to medium enterprises (SMEs) and startups.

Funding includes: $392.4 million over 4 years from 2023–24 (and $68.2 million per year ongoing) to establish the Industry Growth Program to support Australian SMEs and startups to commercialise their ideas and grow their operations. Support will be targeted towards businesses operating in the priority areas of the National Reconstruction Fund

$39.6 million over 4 years from 2023–24 (and $11.0 million per year ongoing) to continue the Single Business Service, supporting SMEs engagement with all levels of government.

Tax Integrity – improving engagement with taxpayers to ensure timely payment of tax and superannuation liabilities

The Government will provide funding over 4 years from 1 July 2023 to enable the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities.

The additional funding will facilitate ATO engagement with taxpayers who have high‑value debts over $100,000 and aged debts older than two years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10 million, or privately owned groups or individuals controlling over $5 million of net wealth.

A lodgement penalty amnesty program is being 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.

Andersen in Australia Comment:

We welcome the proposed measure by the Government to directly engage with taxpayers (aggregate turnover of less than 10mil) to encourage them to repay the high-value debts and provide a lodgement penalty amnesty and remittance for failure to lodge penalties. 

Energy & infrastructure

Clean Energy Measures

The Budget allocates $4.0 billion into clean energy transformation in Australia bringing the government’s total investment to more than $40 billion. Major initiatives include:

Hydrogen Headstart

The Government will provide $2.0 billion to accelerate development of Australia’s hydrogen industry, catalyse clean energy industries, and help Australia connect to new global hydrogen supply chains.

Funding includes:

$2.0 billion for the establishment of a new Hydrogen Headstart program, which will provide revenue support for investment in renewable hydrogen production through competitive production contracts, including funding for the Australian Renewable Energy Agency and the Department of Climate Change, Energy, the Environment and Water to support the development and operation of the program

$5.6 million in 2023-24 to analyse the implications for Australia of intensifying global competition for clean energy industry, and to identify actions before the end of 2023 to further catalyse clean energy industries, ensure Australian manufacturing competitiveness and attract capital investment

$2.0 million over two years from 2024–25 to establish a fund to support First Nations communities to engage with hydrogen project proponents and planning processes.

Funding for for the Hydrogen Headstart program will be held in the Contingency Reserve.

Build to Rent (BTR) measures

The Government has introduced measures to encourage investment and construction in the build-to-rent sector in order expand Australia’s housing supply.

BTR Managed Investment Trust (MIT) withholding tax reduction

A reduction in withholding tax for foreign investors from 30% to 15% on distributions from residential BTR projects commencing 1 July 2024.

BTR accelerated capital works deduction

An increase in the rate of capital works deduction from 2.5% to 4% per annum for construction commencing after 7.30PM AEST on 9 May 2023. Applies to buildings with 50 apartments/dwellings, with leases of a minimum term of three years, and single ownership of a project for 10 years.

Consultation will be undertaken on implementation details, including any minimum proportion of dwellings being offered as affordable tenancies and the length of time dwellings must be retained under single ownership.

Extending the clean building managed investment trust withholding tax concession

The Government will extend the clean building managed investment trust (MIT) withholding tax concession to data centres and warehouses.

This measure will extend eligibility for the concession to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 PM (AEST) on 9 May 2023 (Budget night). This measure 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. The Government will consult on transitional arrangements for existing buildings.

ready for use between 1 July 2023 and 30 June 2024. Eligible upgrades will also need to be made in this period.

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.

Ensuring the supply of Reliable, Secure and Affordable Energy

The Government will provide $80.0 million over 4 years from 2023–24 (and $11.1 million per year ongoing) to support the supply of cheap, clean and reliable energy across Australia. Funding includes:

$35.6 million over 4 years from 2023–24 (and $8.8 million per year ongoing) to the Australian Energy Regulator (AER) to continue compliance and enforcement activities to regulate and monitor energy markets

$28.4 million over 4 years from 2023–24 to support the delivery of new cross-government energy market reforms and national energy projects as directed by Energy Ministers through the Energy Special Account

$10.9 million over 4 years from 2023–24 (and $2.4 million per year ongoing) to the AER for new legislated functions that will support Australia’s energy transformation and reduce emissions.

The Government will also increase resilience in the retail electricity sector by progressing work with Snowy Hydro Limited to register in the Retailer of Last Resort scheme.

Digital Economy

In this Budget, the Government has placed considerable emphasis on assisting businesses with the integration of quantum and AI technology into their operations. A range of initiatives and investments have been announced to foster the commercialisation and responsible application of these essential technologies.

An initial Data and Digital Government Strategy has been released, with the final strategy and accompanying implementation plan to be informed by public consultation and delivered by the end of 2023.

The National AI Centre’s role in encouraging responsible AI use will be extended, and an Australian Centre for Quantum Growth will be established to strengthen Australia’s quantum ecosystem.

Federal Budget 2023 distribution

Migration & mobility

The Budget announcement on the proposed migration measures reflect the Government’s strong commitment to boost skilled migration, improve skills recognition and ensure that the migration system continues to contribute to a more prosperous Australia.

Raising the Temporary Skilled Migration Income Threshold (TSMIT)

The Government will increase the Temporary Skilled Migration Income Threshold from the current rate of $53,900 to $70,000 from 1 July 2023.  This measure meets the Government’s election commitment as published in the Plan for a Better Future, and outcomes from the Jobs and Skills Summit and is intended to ensure that the skilled migration program remains focused on its objective of attracting skilled migrants who complement the skills of the Australian workforce.

Migration Program – 2023/ 24 planning levels

For the 2023–24 permanent Migration Program, the Government is expected to return to the targeted longer‑term level of 190,000 places and will allocate 137,100 places (around 70 per cent) to the Skill stream, helping address Australia’s longer term skill needs.

This program also improve pathways to permanent residency for Temporary Skill Shortage (TSS) (subclass 482) visa holders, by removing restrictions to enable TSS visa holders on the short‑term stream access to permanent residence pathways through the Employer Nomination Scheme (subclass 186) visa.

Visa changes for Graduates and Students – increasing visa duration and work hours

The Government will grant an extra two years of post‑study work rights to international higher education graduates of Australian institutions with eligible qualifications to strengthen the pipeline of skilled labour. This measure will apply from 1 July 2023.

The work hour cap for international student visa holders will be reinstated from 1 July 2023, and will be increased by 8 hours from pre‑pandemic levels to 48 hours per fortnight. International students working in the aged care sector will be exempt from the work hour cap until 31 December 2023.

Immigration Policy Settings for New Zealand Citizens

This measure will provide a direct pathway to Australian citizenship for New Zealand citizens in Australia from 1 July 2023, by allowing non-protected Special Category visa holders (subclass 444), meet general residence and other eligibility requirements, to apply directly for citizenship without becoming permanent residents first.

Andersen in Australia Comment:

We welcome the proposed measure by the Government to directly engage with taxpayers (aggregate turnover of less than 10mil) to encourage them to repay the high-value debts and provide a lodgement penalty amnesty and remittance for failure to lodge penalties. 

Superannuation

Securing Australians’ Superannuation Package – increasing the payment frequency of the Superannuation Guarantee (SG) and investing in SG compliance

From 1 July 2026, employers will be required to pay their employees’ 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. Increasing the payment frequency of superannuation to align with the payment of salary and wages will both ensure employees have greater visibility over whether their entitlements have been paid and better enable the ATO to recover unpaid superannuation. Increased frequency of payment will also support better retirement outcomes. A 1 July 2026 commencement date will allow the ATO, payroll service providers and superannuation funds time to make necessary system changes and for employers to adjust their cash flow practices. 

Changes to the design of the SG charge will also be necessary to align with increased payment frequency. The Government will consult with relevant stakeholders on the design of these changes, with the final design to be considered as part of the 2024–25 Budget. 

These changes are estimated to increase receipts by $835.0 million and decrease payments by $285.0 million in 2026–27, due to the bring forward of superannuation tax receipts on SG contributions. However, this effect will be immediately offset by the associated company tax deductions of SG payments in 2027–28. Over the medium-term from 2022–23 to 2033–34 the proposal is estimated to reduce the underlying cash balance by $256.6 million as there will be less SG charge debt raised due to increased compliance. 

The Government will also provide $40.2 million to the ATO in 2023–24, which includes

$27.0 million for the ATO to improve data matching capabilities to identify and act on cases of SG underpayment by employers and $13.2 million for consultation and co-design. 

In total, this package is estimated to increase receipts by $835.0 million and decrease payments by $243.1 million over the 5 years from 2022–23.

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. 

Andersen in Australia Comment:

The increase in the pay frequency of superannuation guarantee (SG) under this proposed measure would potentially increase the compliance cost for employers. Employers will need to update/change their payroll system to accommodate the increase in superannuation payment frequency. Employer’s cash flow practices may also require adjustments to ensure that employees’ super is paid on time.

This measure will also give the ATO greater visibility on whether SG contributions are being paid on time, and it will make it easier for the ATO to identify employers who fail to pay SG contributions on time. As the ATO will be allocated A$27 million to improve data matching capabilities to identify and act on SG underpayment activities, we would expect the ATO to increase its resources to monitor employers’ compliance with SG obligations.

Better Targeted Superannuation Concessions

The Government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million, from 1 July 2025. 

Individuals with a total superannuation balance of less than $3 million will not be affected.

This reform is intended to ensure generous superannuation concessions are better targeted and sustainable. It will bring the headline tax rate to 30 per cent, up from 15 per cent, for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million. This rate remains lower than the top marginal tax rate of 45 per cent. Earnings relating to assets below the $3 million threshold will continue to be taxed at 15 per cent or zero per cent if held in a retirement pension account. 

Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests. This will ensure commensurate treatment. 

The additional tax on earnings imposed by this measure will impact around 80,000 individuals in 2025–26, or approximately 0.5 per cent of individuals with a superannuation account. The measure will not place a limit on the amount of money an individual can hold in superannuation. The current contributions rules continue to apply. 

This measure is estimated to increase receipts by $950.0 million and increase payments by $47.6 million over the 5 years from 2022–23. This includes $50.0 million in receipts associated with updating the notional contribution calculation methodology, applicable to all defined benefit members. In 2027–28, the first full year of receipts collection, the measure is expected to increase receipts by $2.3 billion. 

This measure is consistent with the Government’s proposed objective of superannuation, to deliver income for a dignified retirement in an equitable and sustainable way.

Andersen in Australia Comment:

Under this proposed measure, the tax rate for superannuation concession for individuals with A$3 million total superannuation balance will increase from 15% to 30%.

The purpose of this measure is to ensure that the superannuation system have a fairer and more sustainable outcome. Given that this measure would affect high net worth individuals with super balance above A$3 million, affected individuals may want to revisit their superannuation planning and seek further advice from their financial advisor.

Meanwhile, there is no change in the superannuation guarantee rate. The current rate of 10.5% is set to increase to 11% on 1 July 2023. The SG rates is set to increase gradually to 12% by 1 July 2025, in accordance with the government’s previously announced measure.

Individual

There is no change to the Government’s previously announced personal income tax cuts

In the Federal Budget 2023 / 2024, the Government did not announce any personal tax rates changes. The Stage 3 tax changes will proceed from 1 July 2024, as previously legislated.

A detailed table is available in our downloadable report.

An update on the Medicare Levy, Surcharge and Private Health Insurance

Increase to Medicare levy low-income thresholds for 2022-23

The Federal Budget 2023-24 has proposed to increase the Medicare Levy thresholds for low-income earners as follow:-

Medicare Levy

Please note that a Bill will be introduced shortly to amend the existing thresholds and will apply from 1 July 2022.

Medicare levy exemption for lump sum payments in arrears from 1 July 2024

Once legislated, the new measure to exempt eligible lump sum payments in arrears from the Medicare levy effective from 1 July 2024. The measure aims to relieve low-income taxpayers from paying higher amounts of the Medicare levy due to receiving an eligible lump sum payment, such as compensation for underpaid wages.

Eligibility requirements have been designed to target genuinely low-income taxpayers who should be eligible for a reduced Medicare levy. To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the 2 most recent years to which the lump sum accrues. Taxpayers must also satisfy the existing eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least 10 per cent of the taxpayer’s income in the year of receipt.

The measure is estimated to only cost the Budget $2 million over the 5 years from 2022-23.

Indexation of the income threshold will recommence

The Government will recommence the indexation of income thresholds for the Medicare Levy Surcharge (MLS) purpose from 1 July 2023. The indexation has been paused from 1 July 2015. By lifting the pause, it will allow fewer taxpayers to crossover to the next tier. Hence, it will provide higher Private Health Insurance (PHI) rebates and lower MLS liability for the taxpayers. 

Please refer to the current MLS income thresholds and rates for FY 2023-24 here.

Cost of Living Payment

The federal budget 2023 / 2024 includes $14.6 billion to reduce the burden of the cost of living for eligible Australians. The relief will come through different measures, such as:

  • energy bill relief for pensioners, veterans, concession card holders and people on government support payments.
  • incentives over the next five years for General practitioners (GPs) to provide bulk-billed services to eligible Australians.
  • Increase in childcare subsidy for families with household income below $530,000.
  • Rate increases on income support payments.
  • Increased Commonwealth Rent Assistance.

Andersen in Australia Comment:

Following the measures that the Government has announced, it is clear that the cost of living reliefs announced in the federal budget 2023 are targeting low-income earners who are struggling with the rising cost of living.

While the Government did not announce any personal tax rate changes in this Budget, the controversial stage 3 tax cuts will continue to be implemented from 1 July 2024. The Stage 3 tax cuts will benefit lower and middle-income resident taxpayers who earned between $45,000 to $200,000 as the tax rate will be reduced from 37% and 32.5% to 30%

For any enquiries related to this update, contact us today.

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Author Bio

Andersen in Australia has been recognized as one of the leading tax firms in Australia and globally. We provide comprehensive and diverse tax services and consultations to both companies and individuals, empowering them to access independent tax and business advisory guidance that exceeds their expectations.

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