Key takeaways from the 2023 Australian Federal Budget | Businesses:
In extra tax collections based on measures in the Budget.
Domestic Minimum Tax and Global Minimum Tax for large multinational enterprises from 1 January 2024.
Increasing the capital works tax deduction from 2.5% to 4% per year for newly constructed build-to-rent developments.
Clean building withholding tax concession
The Government will extend the Clean Building Managed Investment Trust (MIT) withholding tax concession to data centres and warehouses. To be eligible, such buildings must meet the relevant energy efficiency standard and construction must commence after 7:30pm AEST on 9 May 2023. The measure will apply from 1 July 2025.
Labor is also raising the minimum energy efficiency requirement for existing and new clean buildings to a 6-star rating, with consultation on transitional arrangements for existing buildings.
Build-to-rent housing initiatives
The Government has announced two new initiatives to promote build-to-rent developments in response to the strain on housing supply and affordability.
The first initiative increases the rate for capital works tax deductions (depreciation) from 2.5% to 4% per year, meaning that an eligible build-to-rent project will be fully depreciated over 25 years, rather than 40.
The second initiative is to reduce the final withholding tax rate on eligible fund payments from management investment trusts investments from 30% to 15%.
GST Compliance Program
The Government has extended its enhanced GST Compliance Program to 2026-2027. The program will focus on ensuring that businesses accurately account for their GST liabilities and correct claiming of GST refunds.
The continuing program is expected to raise $3.8b in net GST with $588.8m in funding being allocated to the ATO. A portion of the ATO funding will be directed at development of more sophisticated data analytic tools to combat key areas of GST risk.
The measures are important for the small to medium enterprise sector which will need to devote increased accounting resources to ensure that their GST systems and processes are fully compliant.
Petroleum Resource Rent Tax cap
The Petroleum Resource Rent Tax (PRRT) is a 40% tax on taxable profit derived from an interest in a petroleum project. The Government is proposing several changes to the PRRT in response to Treasury’s review of the PRRT.
The Government will cap deductible expenditure used to offset assessable PRRT income. The cap will be 90% of PRRT assessable receipts for each liquefied natural gas (LNG) project. LNG projects will not be subject to the cap until the later of either seven years after the first year of production or 1 July 2023.
Expenditure unable to be deducted due to the cap will be carried forward and uplifted at the Government long-term bond rate.
There will be further consultation on other potential changes to the PRRT.
Financial crime and tax avoidance
The Government has announced that it will merge the Serious Financial Crime Taskforce (SFCT) and the Serious Organised Crime program (SOC) program from 1 July 2023 and extend funding for the merged SFCT over four years until 30 June 2027.
The SFCT was established under the jurisdiction of the ATO to combat serious financial crime that affects the tax and superannuation systems, including cybercrime, offshore tax evasion, and illegal phoenix activities. The SOC program focuses on the trade and production of illicit goods, such as drugs and firearms, as well as large-scale money laundering activities that distort financial markets. The government aims to enhance the disruption of organised crime groups that aim to compromise the integrity of Australia’s public finances by extending and merging these programs.
15% minimum rate of tax on large multinational groups
Large multinational groups that have global revenue of A$1.2 billion or more will be subject to a 15% minimum tax rate. This will be achieved via two key measures.
For income years starting on or after 1 January 2024, Australian parent entities of large multinational groups will be subject to a top up tax in Australia where they have global income that is subject to an effective tax rate of 15% or less.
For income years starting on or after 1 January 2025, Australia will expand this rule such that Australian subsidiaries of large multinational groups will be subject to a top up tax in Australia on global income where no other country has imposed a top up tax to ensure all global income is effectively taxed at 15% or more.
In addition to this, Australia will impose a top up tax on any Australian income that is subject to an effective Australian tax rate of less than 15%.
The introduction of a 15% minimum tax rate is Australia’s response to the OECD / G20’s ‘Pillar II’ recommendations, which target the potential underpayment of tax due to the ‘digitalisation’ of the economy.
Franked distributions funded by capital raisings
This measure was originally proposed in the December 2016 budget however, it was not enacted. The 2023 Budget amended the start date of the 2016–17 MYEFO measure: Tax integrity – franked distributions funded by capital raisings from 19 December 2016 to apply to distributions made on or after 15 September 2022.
The measure targets arrangements with the following features:
― A company with a significant franking credit balance raises new capital from existing or new shareholders.
― At a similar time, the company makes franked distributions to its shareholders, in a similar amount to the amount of capital raised.
The result is an increase of cashflow to the company as a result of the capital raising activities, and a corresponding outflow of the cash as a dividend, with a franking credit attached. The net asset position of the company remains similar, but the franking account has been depleted.
The ATO has previously expressed concerns about this type of arrangement via a taxpayer alert in 2015. That taxpayer alert highlights that the arrangement may attract the operation of the anti-avoidance rule in section 177EA of the Income Tax Assessment Act 1936. Section 177EA is a general anti-avoidance provision that enables the Commissioner to make a determination to cancel the franking credits attached to a franked dividend.
The implementation of this measure is a targeted tax integrity provision with more specific application than the general anti-avoidance provision. Where this measure applies, the company cannot attach franking credits to the shareholder distributions.
Expanding the general anti-avoidance rule in the income tax law
The Government is planning to enhance the integrity of the tax system by broadening the general anti-avoidance rule for income tax (Part IVA of the Income Tax Assessment Act 1936). The expanded rule will cover schemes that reduce tax paid in Australia by exploiting a lower withholding tax rate on income paid to foreign residents. The rule will also be extended to apply to schemes that achieve an Australian income tax benefit, even if their primary intention was to decrease foreign income tax.
This measure will be effective from income years starting on or after 1 July 2024, irrespective of whether the scheme was entered into before that date. The aim is to strengthen the tax system by preventing tax avoidance through the use of such schemes, ensuring that all taxpayers pay their fair share of tax.
Industry Growth Program
There is a ‘new’ $392.4 million Industry Growth Program, aiming to “support Australian small to medium-sized enterprises and startups to commercialise their ideas and grow their operations”.
Information is currently scarce but this appears to be the next incarnation of the Accelerating Commercialisation program which was a competitive grant providing SME businesses with $500,000 to $2 million of matched funding to commercialise a product or project. Targeted industries are renewables, low emissions technologies, medical science, transport, agriculture, resources and defence.
Digital Games Tax Offset
The previous Coalition Government announced a proposed 30% Digital Games Tax Offset (DGTO) in May 2021, with draft legislation released in March 2022 following industry consultation.
The Labor Government confirmed in October 2022 that it will continue implementing the DGTO as it sees this as being crucial for boosting Australia’s digital games sector.
The DGTO was not mentioned in this budget, suggesting a delay in its implementation, despite the importance of the sector for Australia’s global digital games production activity.
Critical technologies industries
$101 million over five years from 2022-2023 has been earmarked to promote the growth of Australia’s quantum computing and artificial intelligence technologies through the Critical Technologies Program, extending the National AI Centre and supporting SME businesses’ adoption of AI.