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Stage 3 Tax Cut Changes

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The Prime Minister has officially announced the following proposed changes to the Stage 3 tax cuts: 

  • Lower the tax rate from 19% to 16% for incomes ranging between $18,200 and $45,000 
  • Reduce the tax rate from 23.5% to 20% for incomes between $45,000 to $135,000 the newly established threshold.  
  • Increase the income threshold at which the 37% tax rates apply from $120,000 to $135,000  
  • Increase the threshold at which the 45% tax rate applies from, $180,000 to $190,000 

Therefore, assuming that the necessary legislative amendments are approved, the Australian resident personal income tax rates from 1 July 2024, will be as follows: 

From 1 July  2024 
Resident Individuals   
Up to $18,200 Nil  
$18,201 to $45,000 16% on part over $18,200 
$45,001 to $135,000 $4,288 + 30% on part over $45,000 
$135,001 to $190,000 $31,288 + 37% on part over $135,000 
$190,001 and over  $51,638 + 45% on part over $190,000 

The Treasury has furnished a tax savings calculator on their website.  

For more information about these measures please click here. If you would like to discuss in detail how these would affect your tax position feel free to contact us.

Filed Under: Tax

ATO Reminds Businesses to Pay Before They Disclose Their Debts

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Businesses are being urged by the Australian Taxation Office (ATO) to comply with their tax and superannuation obligations in order to avoid having their debts disclosed to credit reporting agencies.

Since July 2023, the ATO have returned to regular debt collection procedures, and have issued Notices of intent to disclose business tax debts to over 22,000 businesses with a tax debt of at least $100,000 that are extended over a 90 day period.

This month, debts from over 9,000 businesses are anticipated to be disclosed.

According to ATO Assistant Commissioner Jillan Kitto, making payments with the ATO is the only solution in avoiding your businesses’ tax debt to become evident in credit rating checks.

Businesses in debt are to contact the ATO immediately, as Kitto stated, ‘We aim to collaborate with businesses to assist in managing their debts’. This enables a sufficient chance for businesses to reconnect with the ATO. Nevertheless, for those who persistently and continuously neglect their tax and superannuation responsibilities, their debts will be disclosed.

The ATO anticipates that over 50,000 notices of intent will be issued in the 2023-24 financial year.

Although during the pandemic, the ATO’s priorities were shifted from debt collection to providing stimulus payments and assisting with tax matters, it is essential to reestablish the practice of timely tax payments.

Businesses that currently meet the criteria for disclosure have accumulated debts exceeding $5 billion.

Therefore, if you have an outstanding tax debt, the ATO strongly urge you to pay it or reach out us so you can be provided with the right support.

For more information about these measures click here.

Applications Open for the Xero Beautiful Business Fund

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Introducing the Xero Beautiful Fund, an initiative providing over NZ $750,000 in funding to our valued Xero small business customers – clients of small businesses – in Australia. 

The Xero Beautiful Business Fund is now accepting applications from all Xero small business customers! Submissions close on October 6, 2023, and the winners of each category will be announced in November 2023.

About the Fund 

There are four categories, with no restriction on the number of entries that can be submitted. If you believe you meet the criteria, feel free to submit as many entries as you like.  

  • Innovating for sustainability  
  • Strengthening community connection  
  • Trailblazing with technology  
  • Upskilling for the future  

The application process for each category is very simple. All you need to do is craft a 90 second pitch video, upload it, and complete a brief online application form. 

Spread the word 

We are encouraged to share information about the Xero Beautiful Business Fund to contribute to a more promising future for small businesses.  

For more information about these measures please click here or reach out to the Xero team. 

2023-24 Federal Budget Update

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The 2023-24 Budget has been released by the Federal Government, presenting economic forecasts and highlighting key priorities such as providing relief for cost of living and promoting economic growth. 

The Treasurer has announced a set of measures aimed at alleviating the cost of living, which includes a package worth up to $3 billion for energy bill relief. This relief is anticipated to reduce the power bills by up to $500 for approximately five million households. Additionally, $1.3 billion has been allocated for home energy upgrades. These initiatives have been carefully designed to provide relief without contributing to inflationary pressures.  

In economic terms, the forecast predicts a Budget surplus of $4.2 billion for the year 2022-23. However, there is an anticipated underlying cash deficit of $13.9 billion for 2023-24 (and a project deficit of $35.1 billion for 2024-25). 

The expected economic growth for Australia is to slow down from 3.25% in 2022-23 to 1.5% in 2023-24, but it is expected to recover and reach 2.25% in 2024-25. 

Although inflation is currently high at 6% for the current year, it is expected to decrease to 3.25% in 2023-24 and subsequently return to the Reserve Bank of Australia’s target range of 2-3% in 2024-25. The Treasurer stated it is still higher than the preferred level for the Government. 

Here are some key highlights from this year’s Budget. 

Personal taxation Measures 

  • Stage 3 tax cuts – No changes to personal tax rates have been announced by the Government. As previously legislated, the Stage 3 personal income tax cuts will commence as of July 1, 2024. With these changes, the tax rate for the $45,000 to $200,000 tax bracket will be reduced from 32.5% to 30%. The 37% tax bracket will also be abolished on July 1, 2024. 
  • Medicare levy thresholds – For income years commencing from 2022/23 and onwards, the Medicare levy thresholds have been raised across all categories.  
  • Medicare levy exemption – From July 1, 2024, low-income taxpayers who meet the eligibility criteria for the current lump sum payment in arrears tax offset will have eligible lump sum payments exempted from the Medicare levy. This modification aims to provide relief for eligible individuals and ensure they are not subject to the Medicare levy on such payments.  

Small Business Measures 

  • Small business instant asset write-off threshold – Commencing July 1, 2023, to June 30, 2024, small businesses with an aggregated annual turnover of less than $10 million will benefit from a temporary threshold increase. The threshold will temporarily be increased to $20,000 for assets that are initially used or installed and ready for the use during this period. Assets valued at $20,000 or above can still be added to the small business simplified depreciation pool and depreciated at a rate of 15% in the first income year, followed by 30% each income year thereafter.  
  • Small business energy incentive – From July 1, 2023, to June 30, 2024, businesses with an annual turnover below $50 million will have the opportunity to receive an additional 20% deduction on expenditures aimed at promoting electrification and enhancing energy efficiency. To be eligible for this deduction, assets or upgrades must be put into service or installed ready for use within the specified timeframe.  
  • Small business lodgement penalty amnesty – Small businesses with a turnover less than $10 million, will be granted an amnesty that will waive penalties for failure to lodge outstanding tax statements that were initially due between July 1, 2023, to December 31, 2023, businesses will have the opportunity to lodge these outstanding tax statements without incurring any penalties.  
  • A lodgement penalty amnesty will be provided to small businesses with an aggregate turnover of less than $10 million. This amnesty aims to waive failure-to-lodge penalties for outstanding tax statements that were originally due between December 1, 2019, and February 29, 2022, and are lodged in the period from June 1, 2023 to December 31, 2023. 
  • PAYG & GST Instalment uplift factor – The Gross Domestic Product uplift factor will be adjusted to 6% instalments related to the 2023-24 income year (instead of 12% as would otherwise apply under the statutory formula). This change will be effective for instalments that become due after the measure is officially legislated.  

Business Taxation Measures  

  • Build to-rent properties – For eligible new build-to-rent projects, these changes will take effect where construction begins after 7:30pm (AEST) on May 9, 2023. The rate of the capital (depreciation) will be increased to 4% per year. Additionally, the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments will be reduced from 30% to 15%. 
  • FBT rules for electric vehicles – The Government has announced that as of April 1, 2025, plug-in hybrid electric vehicles will no longer be eligible for the Fringe Benefits Tax (FBT) exemption applicable to electric cars. 
  • Part IVA Extension – From July 1, 2024, the Government will broaden the application of the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). These changes will address potential tax avoidance strategies relevant to foreign residents. 

Superannuation Measures 

  • Non-arm’s length income (NALI) – From July 1, 2023 there will be a change in the way non-arm’s length expenses (NALE) are taxed. The new change states that NALE taxed at 45%, known as NALI will limited to twice the amount of general expenses. This is reduction from the previous multiple of five. This change applies to Self-Managed Superannuation Funds (SMSFs) and small APRA fund. 
  • Super account balances above $3 million – Despite pushback from the industry the government has reaffirmed its plan to implement an additional 15% tax on superannuation balances exceeding $3 million starting as of July 1, 2025. This includes defined benefit schemes. No specific information about the changes has been provided, indicating the proposed adjustments will likely be implemented as previously announced. As a result, unrealised gains are anticipated to be subjected to the extra 15% tax.  
  • Payday super – Starting from July 1, 2026, employers will have the obligation to pay their employees’ super guarantee concurrently with their salary and wages.  
  • Regarding pension drawdowns, the Budget did not introduce any additional extension to the temporary reduction of the minimum annual payment amounts for superannuation pensions and annuities. The previous measure that implemented a 50% reduction in these minimum amounts is not extended beyond the 2023-24 financial year. 

For more information about these measures click here. 

New Shutdown Rules For Awards

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Fair Work Australia has advised that as of May 1, 2023, there are new rules regarding shutdowns in many awards.  

A business shutdown refers to the temporary closure, during festive periods such as Christmas and New Year. For additional information please refer to the Direction to take annual leave during shutdown.

Under the new regulations, the following conditions apply: 

  • Employees have the authority to mandate that employees use their paid annual leave during the temporary shutdown. 
  • Employers are obligated to provide written notice of the temporary shutdown period to all employees who are effected, allowing a minimum of 28 days’ notice. 
  • The requirement for employees to take annual leave must be reasonable.  
  • The notice period can be shortened if an agreement is reached between the employer and the majority of impacted employees 
  • If an employee lacks sufficient annual paid leave to cover the entire shutdown period, alternative arrangements can be through an agreement with the employer. These options include: 
  • Using accrued time off; 
  • Taking annual leave in advance, or; 
  • Opting for leave without pay 

During the shutdown period, if any public holidays coincide with the employee’s regular working days, the will receive compensation for those holidays. 

Who the changes apply to: 

These revised regulations are applicable to employers who fall under the scope of the affected awards. 

The Fair Work Australia website contains the updated details regarding the guidelines for taking annual leave during a shutdown. This information encompasses various industries and awards, such as: 

  • Building and construction 
  • Hair and beauty  
  • Hospitality (e.g. fast food and restaurants  
  • Real estate  

Access your industry via the Direction to take annual leave during shutdown webpage. 

Which awards are changing? 

The following list of award are changing: 

Use the 3-step Find my award tool to figure out what you are covered by. If you already know your award, you can access a copy directly from the List of awards page.  

For more information about these measures click here.

Introducing Payday Super 

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The Government plans to introducea reform mandating the payment of superannuation on payday, which it believes will have a positive impact on the retirement incomes of millions of Australians. 

As of July 1, 2026, employers will need to pay their employees’ super at the same time as they are paid. By doing so, they believe it will strengthen Australia’s superannuation system and enable a more dignified retirement for more workers in Australia. 

For example, if a 25-year-old, with a median income were to switch to payday super, while receiving both their super alongside their wages, they could be $6,000 or 1.5% better off than when they reach retirement age. 

It is claimed employers will experience a smoother payroll management with fewer accumulated liabilities on their records as a result of the more frequent super payments. 

It will not only simplify the process of monitoring and managing superannuation payments for employees but also enhance protection against potential exploitation by disreputable employers. 

According to the estimates of the Australian Taxation Office (ATO), approximately $3.4 billion worth of super went unpaid in years 2019-20, despite the majority of employers fulfilling their obligations.  

The Government has allocated additional resources to the ATO to further strengthen the system and help detect unpaid super payments at an early stage. Furthermore, the Government plans to establish higher targets for the ATO in terms of recovering outstanding superannuation payments. 

In the second half of 2023, the Treasury and the ATO will engage in close consultation with both industry representatives and stakeholders, regarding these proposed changes.  

With the start date being July 1, 2026, this will hopefully allow employers, superannuation funds, payroll providers, and other parts of the superannuation system time to adequately prepare for the implementation of the reform.  

For more information about these measures click here.  

Super Contribution caps remain unchanged in 2023/24

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The IFPA have announced that the government will keep Super contribution caps unchanged for the 2023/24 financial year.

Since the average weekly ordinary time earnings (AWOTE) figure for the December 2022 quarter was unable to meet the required threshold for indexing, the concessional cap will remain unchanged at $27,500 in 2023/23. As a result, the non-concessional contributions (NCC) cap for 2023/24 will also remain unchanged at $110,000, which is four times the concessional cap.

With the general transfer balance cap set to increase to $1.9 million on 1 July, 2023, this means the NCC bring forward the thresholds for 2023/24 are as follows:

Total super balance on 30 June 2023Maximum NCC capBring forward period 
Less than $1.68m$330,0003 years
$1.68m but less than $1.79m$220,0002 years
$1.79m but less than $1.9m$110,000Nil
$1.9m or moreNilNil

For more information about this measure click here.

Working from home deductions 2022-23

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There have been some new working from home deduction changes for 2022/23 and so the following is a summary of those changes. 

The pandemic has changed the way we work, with many people in Australia and around the world now working remotely from home. This has led to changes in tax deductions for expenses incurred while working from home. 

The proposed changes to the working from home fixed rate method has now been finalised and the ATO’s Practical Compliance Guide 2023/1 is now available. 

From the 2022/23 income year, the methods available to assist in calculating the work from home deductions include a revised fixed rate method and an actual cost method. 

The revised fixed rate method is an alternative method for calculating home office expenses. The revised fix rate method has been updated to make calculating expenses easier and avoid any time-consuming apportionment calculations. Therefore, creating better contemporary arrangements when working from home. 

Under this method, taxpayers can now claim an increased fixed rate of 67 cents per hour for home office expenses, regardless of the actual amount spent. The fixed rate calculates the claim for expenses such as electricity and gas. Individuals will no longer need to have a dedicated workspace, such as a home office, that is used exclusively for work purposes during the tax year.  

To claim the fixed rate method you must keep records of the hours worked from home, such as timesheets or diary entries. 

This also includes the evidence of all paid expenses you have incurred that are covered by the fixed rate method (such as phone or electricity bills). You must also have record of all the equipment you had bought in order to work from home, such as technology and/or furniture, which must also require the supplier, cost and date acquired.  

Taxpayers still have the option to use the actual cost method of claiming other work-related expenses as opposed to using the revised fixed rate method.   

For more information about these measures click here. 

Instant Asset Write Off Deadline

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A recent article written by Belinda Crowley, a tax principal at RSM Australia, has advised small businesses to act promptly in order to meet the deadline for the instant asset-write-off (IAW) scheme, otherwise, they may face significant bureaucratic hurdles once the stricter regulations are reinstated.

She stated that numerous small business and medium-sized enterprises (SMEs) would be caught off guard by the deadline and would be required to depreciate any asset worth over $1,000 after 30th June 2023.

This could be a significant time and financial burden, particularly for small businesses. Even if their accountants manage it on their behalf, it would still be an extra cost for them.

IAW has been a feature for small businesses since 2015. The government had introduced temporary full expensing as part of its support program for businesses of all sizes during the pandemic. These initiatives encourage business owners to invest in their enterprises. However, both schemes are now ending.

Accounting for occasional high-value assets of, say, $ 30,000, and doing the same for any asset valued over $1,000 (or $100 for larger businesses) created one of the most significant challenges. Crowley also suggested that SME’s that don’t require an asset write-off in the current financial year should save the depreciation for when it’s necessary.

Business owners must exercise caution and seek professional assistance before making a decision, if they are currently experiencing a challenging period and do not need the deduction to reduce their tax bill. It is also worth noting that supply chain disruptions mean that even if a business wants to buy an instant write-off asset, as the asset must be installed and ready for use before 30th June, 2023, or it will not be eligible to be claimed. Therefore, it is critical to be certain that the asset will be available and operational on the site before the 30th of June.

Although the government has announced initiatives such as the skills and training boost and technology investment boost, they are unlikely to have the same impact as the instant asset write-off.

SME’s should take advantage of the new 20% uplift deduction, which was highlighted a priority in the federal budget for areas such as environment, digitalization, and training. This deduction allows businesses to receive a $120 deduction for spending $100 on training or digitisation, with the incentive backdated to March 29, 2020. This benefit is very specific and only applicable to training conducted with registered training organizations, making it difficult for SME’s to access. Additionally, access to write-offs is limited to businesses with an aggregated turnover below $50 million, and the training boost expires on  June 30, 2024, while technology scheme only lasts until the end of this financial year. The uplift deduction would not be consistently beneficial across sectors, as some industries , such as agriculture, rely more on-the-job training than formal accredited courses.

If you need to discuss how you can utilize the IAW measures for your business please contact us. To read more detail about these measures please click here.

Changes to Superannuation Concessions  

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As of July 1, 2025, the current Government has proposed to reduce the tax concessions available to individuals whose total superannuation balances exceed $3 million. Any balances that exceed this threshold would be subjected to a tax of 30% based on their earnings and growth of any balance that has exceeded the threshold of $3 million. 

Application 

Starting on 1 July 2025, individuals whose total superannuation balances (TSBs) exceed $3 million at the conclusion of a financial year will be subject to an additional tax of 15 percent on earnings.  

This is separate from any tax that their superannuation funds might pay on earnings during the accumulation phase. Consequently, earnings linked to balances over $3 million will typically be subject to a combined headline rate of 30 percent.  

This change will take effect from the 2025-26 financial year onwards, and the tax will be applicable to the proportion of earnings (and growth) corresponding to balances above $3 million.  

This implies that earnings associated with balances below $3 million will continue to be taxed at a rate of 15 percent or lower. 

Earnings are calculated based on the variation in TSB (Total Super Balance) between the start and end of the financial year, taking into account contributions and withdrawals. 

If negative earnings occur, they can be carried forward and applied to offset this tax in subsequent years.  

Individuals have the option of paying the tax from their personal funds or their superannuation funds, and those with multiple funds can select the fund from which the tax is paid. This tax will be distinct from an individual’s personal income tax and is similar to the current Division 293 tax. 

The calculation of earnings encompasses all notional (unrealised) gains and losses, mirroring how superannuation funds presently compute members’ interests. 

Notice of Assessment and Reporting Process for Funds 

TSBs surpassing $3 million will be assessed for the first time on 30 June 2026, with initial notices of a tax liability anticipated to be dispatched to individuals during the 2026-27 financial year. The Australian Taxation Office (ATO) will notify individuals of their obligation to pay this tax. The ATO already employs superannuation fund reporting to calculate the total sum that individuals have in the superannuation system, encompassing multiple accounts, which is also utilized for other objectives, such as verifying individuals’ eligibility to make non-concessional contributions.  

No doubt there will be more detail on the operation of this change provided by the tax office as we get closer to implementation date. 

For more information about these changes please click the link to the governments guide: Better targeted superannuation concessions – factsheet (treasury.gov.au)