In the lead up to the announcement of the 2023 Federal Budget, the majority of the publicity centred on the Government’s promise to ease cost of living pressures. While those measures were detailed as the budget was delivered last night, Tuesday 9 May 2023, there were also some important announcements that are set to affect small to medium businesses (SMEs) around the country, both in the near future and in years to come.
Let’s take a closer look at some of the key items affecting SMEs in the 2023 Federal Budget.
Changes to Instant Asset Write-Off
The 2023 Federal Budget announced (or rather confirmed, as many had been expecting) that the current temporary full expensing provision will cease on 30 June 2023.
Temporary full expensing means that businesses can claim an immediate deduction for depreciating assets that are installed and ready for use from 6 October 2020 until 30 June 2023.
This provision is available to all businesses with less than $5bn in turnover and there is no cap on the cost of assets that are eligible.
When the temporary full expensing provision ends on 30 June 2023, a temporary increase to the previous instant asset write-off threshold from $1,000 to $20,000 will be effective for the 2023/24 financial year.
This means that from 1 July 2023 to 30 June 2024 businesses with turnover of less than $10m can claim an immediate deduction for the full cost of acquiring depreciating assets costing less than $20,000 each and 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, meaning that small businesses can instantly write off multiple eligible 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% in the first income year and 30% each income year thereafter.
Focus on Tax & Superannuation Compliance
There are a number of parts to the tax compliance measures delivered in the 2023 Federal Budget.
Extra Funds to Ramp Up Debt Collection
The Government has allocated additional funding to step up ATO efforts in recovering high value debts. That means debts over $100,000 and debts that are more than 2 years old. Businesses that fall into this category can expect tougher debt collection activity.
Lodgement Penalty Amnesty for SMEs
To continue tidying up existing tax debts for SMEs and to encourage small businesses to re-engage with the ATO a lodgement penalty amnesty program will be implemented for businesses with an aggregated turnover of less than $10 million.
The amnesty provisions mean that for any outstanding tax statements that were originally due during the period from 1 December 2019 to 28 February 2022, and are lodged between 1 June 2023 to 31 December 2023, there will be no late lodgement or failure-to-lodge penalties to be paid.
Targeting Superannuation Guarantee Compliance
The Government has pledged in excess of $40 million to the ATO to assist with targeting Superannuation Guarantee compliance. A large portion of the funds are intended to be used to improve data matching capabilities to better facilitate identifying and acting on cases of superannuation guarantee underpayment, with funds also allocated for consultation and co-design.
Extension of GST Compliance Program
There has also been significant funds allocated to facilitate a 4 year extension of the GST compliance program.
Activities carried out as part of the program are intended to ensure that businesses meet their tax obligations in regards to GST. That includes accurately accounting for and remitting GST, as well as correctly claiming GST refunds. The funding for the program extension will also assist the ATO to develop more sophisticated analytical tools with which to assess and mitigate emerging risks to the GST system.
Superannuation – Increases in Rates & Frequency
Increase in Rates – it is important to note that there will be no additional changes in relation to the previously announced increases to the compulsory Superannuation Guarantee rate. Rates will continue to increase 0.5% per year for the next 3 years. The revised rates will be 11% from 1 July 2023, then 11.5% from 1 July 2024 and 12% from 1 July 2025.
Increase in Frequency – it has been proposed that from 1 July 2026, employers will be required to pay their employees’ superannuation guarantee entitlements on the same day that they pay salary and wages.
This measure is intended to ensure employees have greater visibility over whether their entitlements have been paid and better enable the ATO to recover unpaid superannuation.
Incentives and Initiatives to Encourage SMEs to “Go Green”
SME businesses with turnover of less than $50 million will be able to claim up to $20,000 worth of additional depreciation deductions on eligible depreciating assets that acquired to support electrification and more efficient use of energy. The Small Business Energy Incentive, allows for up to $100,000 of eligible total expenditure, with the maximum bonus deduction being $20,000.
The range of eligible depreciating assets, as well as upgrades to existing assets, 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). 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.
Note that it is important to seek professional advice before proceeding with any significant assets purchases in order to clarify whether they are eligible for the Small Business Energy Incentive, or any other incentives or concessions.
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 within this same period.
The FBT exemption for electric cars will continue, but the exemption for plug in hybrids will be phased out from 1 April 2025.
Small businesses will also be eligible for a once off $650 offset on their energy bill.
Be Especially Mindful of Your Cash Flow
Good cash flow is always important. But with the current business and economic landscape, now is a particularly critical time to keep a very close eye on your business cash flow situation.
Forecasts are predicting a decrease in economic activity, as well as an expected peak in inflation. In addition, the various Covid-led concessions and incentives are now all but gone or winding up and the ATO increasing its debt collection. Being well prepared with a solid cash flow plan for the year, and years, ahead can help you to weather any unexpected issues that may come your way.
Get Expert Tax and Accounting Advice
As evidenced by the announcements in the 2023 Federal Budget, the world of tax and accounting is constantly changing. The team of expert tax accountants and tax lawyers at The Quinn Group are abreast of all the latest changes and regulatory requirements. We can provide comprehensive, tailored advice to keep your business on track (or work towards getting it back on track) and we can also help to ensure that you are making the most of any concessions or advantages that are available to you.
With any kind of financial matter or problem, it is important to seek professional advice sooner rather than later to hopefully avoid creating even more problems down the track. Contact us by submitting an online enquiry form or calling us on 1300 QUINNS or +61 2 9223 9166 and schedule an appointment to discuss your individual tax or accounting situation.
