Key takeaways from the 2023 Australian Federal Budget | Small to medium businesses:
Provided to small and medium businesses to electrify and save on energy bills by installing batteries and upgrading to high-efficiency electrical goods.
Will be able to immediately deduct the cost of eligible assets costing less than $20,000 and purchased between 1 July 2023 to 30 June 2024.
Small Business Energy Incentive
A Small Business Energy Incentive will be introduced to support small and medium businesses’ electrification of assets and improvements to energy efficiency with the aim of helping eligible business save on their energy bills.
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. This will be limited to a maximum of $100,000 of expenditure, with the maximum bonus deduction being $20,000.
Eligible expenditure may be on new depreciating assets as well upgrades to existing assets. This will include investments in electrifying heating and cooling systems, installing batteries and upgrades to high-efficiency electrical goods. 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.
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 measure is estimated to provide $310 million in tax relief and support up to 3.8 million businesses. This is in addition to the $62.6 million announced in the October 2022 Budget for energy efficiency grants for small and medium enterprises.
Amendment to the electric car Fringe Benefits Tax exemption
As announced in last year’s Federal Budget, a fringe benefits tax exemption was introduced effective from 1 July 2022 for eligible zero or low emissions vehicles including electric cars, hydrogen fuel cell electric cars and plug-in hybrid electric cars.
The Government has announced that plug-in hybrid electric cars will cease to benefit from the fringe benefits tax exemption, effective 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.
Reduction of tax instalments for small businesses
The Government will reduce the GDP adjustment factor used to calculate Pay As You Go (PAYG) and Goods and Services Tax (GST) instalments to 6% for the 2023-24 income year. The GDP adjustment factor would otherwise be 12% if the current formula was applied.
This measure is intended to provide cash flow support to eligible small businesses and individuals with an annual aggregated turnover of up to $50 million for PAYG instalments and $10 million for GST instalments.
The measure will apply to instalments relating to the 2023-24 income year which fall due after the enabling legislation receives Royal Assent.
ATO debt recovery
The Government will provide funding over the four years from 1 July 2023 to improve the ATO’s engagement with taxpayers and ensure tax and superannuation liabilities are paid on time.
The funding will provide the ATO with resources to engage certain taxpayers with large tax debts exceeding $100,000, and aged debts of more than two years – focusing on public and multinational groups with aggregated turnover exceeding $10 million, or privately owned groups or individuals controlling over $5 million of net wealth.
For small business with aggregated turnover of less than $10 million, there will be a lodgment penalty amnesty that will remit failure-to-lodge penalties on outstanding tax statements lodged between 1 June 2023 to 31 December 2023, that were originally due for lodgment during the period from 1 December 2019 to 29 February 2022.
Increased amendment period for small businesses
From 1 July 2025, the two year amendment period for small businesses’ income tax returns will be extended to four years – a measure aimed at reducing the burden on small businesses wishing to revise their income tax returns.
Temporary increase to instant asset write-off
The instant asset write-off threshold will be temporarily increased for the 2023-2024 income year to $20,000.
Businesses with an aggregated annual turnover of less than $10 million can immediately fully deduct eligible assets costing less than $20,000 for assets that are first installed or ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold is applied on an asset-by-asset basis.
Currently, the temporary full expensing measure allows eligible businesses with aggregated annual turnover of less than $5 billion to fully deduct the business portion of the cost of eligible assets first held or installed ready for use between 6 October 2020 and 30 June 2023.
For assets that cost $20,000 or more, the small business simplified depreciation pool can still be applied. Depreciation is at 15% in the first income year and 30% each income year after.
Businesses that have previously opted out of applying the simplified depreciation pool will be able to re-enter the regime up to 30 June 2024.