2023-24 Federal Budget: Business

Small business depreciation — instant asset write-off threshold of $20,000 for 2023–24

The instant asset write-off threshold for small businesses applying the simplified depreciation rules will be $20,000 for the 2023–24 income year.

Small businesses (aggregated annual turnover less than $10 million) may choose to calculate capital allowances on depreciating assets under a simplified regime in Subdiv 328-D of ITAA 1997. Under these simplified depreciation rules, an immediate write-off applies for lowcost depreciating assets. The measure will apply a $20,000 threshold for the immediate write-off, applicable to eligible assets costing less than $20,000 first used or installed 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 low-cost assets. The threshold had been suspended during the operation of temporary full expensing from 6 October 2020 to 30 June 2023.

Assets costing $20,000 or more will continue to be placed into a small business depreciation pool under the existing rules.

The provisions that prevent a small business entity from choosing to apply the simplified depreciation rules for 5 years after opting out will continue to be suspended until 30 June 2024.

Source: Budget Paper No 2, pp 27–28.

Increased deductions for small and medium business expenditure on electrification and energy efficiency

An additional 20% deduction will be available for small and medium business expenditure supporting electrification and energy efficiency.

The additional deduction will be available to businesses with aggregated annual turnover of less than $50 million. Eligible expenditure may include the cost of eligible depreciating assets, as well as upgrades to existing assets, that support electrification and more efficient use of energy. Certain exclusions will apply, including for electric vehicles, renewable electricity generation assets, capital works, and assets not connected to the electricity grid that use fossil fuels.

Examples of expenditure the measure will apply to include:

• assets that upgrade to more efficient electrical goods (eg energy-efficient fridges)
• assets that support electrification (eg heat pumps and electric heating or cooling systems), and
• demand management assets (eg batteries or thermal energy storage).

Total eligible expenditure for the measure will be capped at $100,000, with a maximum additional deduction available of $20,000 per business.

When enacted, the measure will apply to eligible assets or upgrades first used or installed ready for use between 1 July 2023 and 30 June 2024. Full details of eligibility criteria will be finalised in consultation with stakeholders.

Sources: Budget Paper No 2, p 28; Treasurer's press release Small Business Energy Incentive”, 30 April 2023

FBT exemption for eligible plug-in hybrid electric cars to end

The FBT exemption for eligible plug-in hybrid electric cars will end 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 exemption.

This measure was originally introduced in the Treasury Laws Amendment (Electric Car Discount) Act 2022.

Source: Budget Paper No 2, p 25.

Accelerated deductions and reduced MIT withholding tax for new build-to-rent projects

An increased capital works deduction rate and reduced withholding on managed investment trust (MIT) payments will apply to eligible new build-to-rent projects where construction commences after 7:30 pm (AEST) on 9 May 2023.

The capital works deduction rate will increase from 2.5% to 4% per year for eligible new build-to-rent projects. Taxpayers can claim a deduction for capital expenditure incurred in constructing capital works, such as income-producing buildings, under Div 43 of ITAA 1997. Currently, the capital works deduction rate of 4% per year only applies in relation to income-producing buildings used mainly for industrial activities and certain buildings providing short-term traveller accommodation.

The final withholding tax rate on fund payments from eligible MIT investments will be reduced to 15% for income from new residential build-to-rent projects. Fund payments to non-residents attributable to MIT residential housing income are currently subject to a final withholding tax rate of 30%. The reduced rate will apply to income attributable to eligible residential build-to-rent projects from 1 July 2024. The reduction was previously proposed in 2019 as part of a Labor party pre-election announcement.

The measure will apply to build-to-rent projects consisting of 50 or more apartments or dwellings made available for rent to the general public. The dwellings must be retained under single ownership for at least 10 years before being able to be sold and landlords will be required to offer a lease term of at least 3 years for each dwelling. 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.

Sources: Budget Paper No 2, pp 19–20; Minister for Housing's press release “Billions to boost social and affordable rental homes”, 28 April 2023. 

Clean building MIT withholding tax concession to be extended

The clean building managed investment trust (MIT) withholding tax concession will be extended from 1 July 2025 to eligible data centres and warehouses, where construction commences after 7:30 pm (AEST) on 9 May 2023.

A final withholding tax rate of 10% applies to fund payments from eligible clean building MITs that are made to non-residents in information exchange countries. An eligible clean building MIT refers to a withholding MIT that holds one or more clean buildings. A clean building MIT cannot derive assessable income from any taxable Australian property other than its clean buildings and assets “reasonable incidental to” those clean buildings.

Eligibility for the concession will be extended to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 pm (AEST) on 9 May 2023. The measure will also raise the minimum energy efficiency requirements for existing and new clean buildings to a 6-star (currently 5-star) rating from the Green Building Council Australia or a 6-star (currently 5.5-star) rating under the National Australian Built Environment Rating System. Consultation will be undertaken on transitional arrangements for existing buildings.

The measure will apply from 1 July 2025 when enacted.

Source: Budget Paper No 2, p 18. 

Franked distributions funded by capital raisings — start date postponed

The start date of a measure to prevent franked distributions funded by certain capital raisings announced in the 2016–17 Mid-Year Economic and Fiscal Outlook (MYEFO) has been postponed to 15 September 2022.

Certain distributions funded by capital raisings made on or after 15 September 2022 will be prevented from being frankable. The measure ensures such arrangements cannot be put in place to release franking credits that would otherwise remain unused where they do not significantly change the financial position of the entity.
When originally announced, the 2016–17 MYEFO measure was to apply for distributions made after 12:00 pm (AEDT) on 19 December 2016. 

The measure was introduced in sch 5 to the Treasury Laws Amendment (2023 Measures No 1) Bill 2023 with a revised application date of 15 September 2022, to align with the release of the exposure draft legislation for the measure on 14 September 2022. The Bill is currently before the Senate. 

Source: Budget Paper No 2, p 13. 

Patent box measures not to proceed

The patent box regime announced in the Coalition government's 2021–22 Budget, and expanded in the 2022–23 Budget, will not proceed. The patent box regime proposed to tax certain corporate income at an effective tax rate of 17%. The patent box measures were to apply to medical and biotechnology, agricultural and low emission innovation.

Some $400 million will be spent over 4 years to establish an Industry Growth Program supporting Australian small and medium-sized businesses (SMEs) and startups. This support will be directed towards businesses operating in the priority areas of the National Reconstruction Fund (NRF).

The NRF is a fund designed to invest, by way of loans, equity or guarantees, in:

• renewables and low emissions technologies
• medical science
• transport
• value-add in agriculture, forestry and fisheries, and resources
• defence and enabling capabilities.

Over $50 million has been allocated to the establishment and operation of the National Reconstruction Fund Corporation (NRFC), with an additional $8 million over 4 years to oversee the NRFC.

Source: Budget Paper No 2, p14, p 163, p 165.

Delay of biodiversity stewardship certificates

The commencement of the issue of biodiversity stewardship certificates under the Agriculture Biodiversity Stewardship Market scheme, the sale of which would be treated as primary production income, will be delayed from 1 July 2022 to 1 July 2024. This measure was announced in the Coalition government's 2022–23 Budget. The delayed introduction aligns the commencement with the Nature Repair Market (NRP), which is part of the government's Nature Positive Plan.

The NRP will receive $7.7 million in 2023–24 for the development of a foundation, including detailed rules, or methods, for different types of projects.

Source: Budget Paper No 2, p 77.

Increased Location Offset incentive to boost film industry

The Location Offset rebate for films will be increased to 30% of Qualifying Australian Production Expenditure (QAPE) from the current 16.5% rate. The increase is intended to attract investment from large-budget screen productions and provide domestic employment and training opportunities. The minimum QAPE thresholds will be increased to $20 million for feature films (currently $15 million) and $1.5 million per hour for television series (currently $1 million). Funding for these measures have been allocated for 4 years beginning from 2024–25.

Funding of $0.5 million has also been allocated over 3 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).

Source: Budget Paper No 2, p 182. 

Deductible gift recipients list to be updated

The list of specifically listed deductible gift recipients (DGRs) will be updated to list the following organisations as DGRs for the following dates:

• The Voice No Case Committee from the day after the entity is registered with the Australian Charities and Not-for-profits Commission to 30 June 2024
• Justice Reform Initiative Limited from 1 July 2023 to 30 June 2028
• Susan McKinnon Charitable Foundation Ltd from 1 July 2023 to 30 June 2028, and
• Transparency International Australia from 1 July 2023.

The following organisations’ DGR endorsement will also be extended for the following dates:

• Victorian Pride Centre Ltd from 9 March 2023 to 8 March 2028, and
• Australian Sports Foundation Charitable Fund from 1 July 2023.

The start date for the previously announced listing of 28 entities related to community foundations affiliated with the peak body Community Foundations Australia will be deferred from 1 July 2022 to the date of assent of relevant amendments to the tax law. The 30 June 2027 end date for the listing is removed. DGR status for these foundations will be subject to ongoing endorsement by the Commissioner under new ministerial guidelines.

The listings of Lord Mayor’s Charitable Foundation and Foundation Broken Hill Limited will be made consistent with that for other community foundations, including removal of end dates where applicable.

Source: Budget Paper No 2, p 24.