Federal Budget May 2023: Personal taxation measures
On Tuesday, 9 May 2023, Treasurer Jim Chalmers handed down the 2023–2024 Federal Budget, his second Budget, which follows the October 2022 Budget. The Treasurer announced a package of cost-of-living measures, including energy bill relief which is expected to reduce power bills by up to $500 for five million households. These measures have been designed to provide relief without adding inflationary pressures. Small businesses will also benefit from a temporary increase in the asset write-off threshold to $20,000 for 2023–2024.
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Personal tax rates unchanged for 2023–2024
In the Budget, the Government did not announce any personal tax rate changes. The Stage 3 tax rate changes commence from 1 July 2024, as previously legislated.
The 2023–2024 tax rates and income thresholds for residents (unchanged since 2021–2022) are:
- taxable income up to $18,200 – nil;
- taxable income of $18,201 to $45,000 – nil plus 19% of excess over $18,200;
- taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
- taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.
Stage 3 tax cuts: from 2024–2025
The Budget did not announce any changes to the Stage 3 personal income tax changes, which are set to commence from 1 July 2024 as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Low income offsets
Low and middle income tax offset (not extended)
The 2023–2024 Budget did not announce any extension of the low and middle income tax offset (LMITO) beyond the 2021–2022 income year. The LMITO has now ceased and has been fully replaced by the low income tax offset (LITO).
With no extension of the LMITO announced in this Budget, 2021–2022 was the last income year for which that offset was available.
As a result, low-to-middle income earners may see their tax refunds from July 2023 reduced by between $675 and $1,500 (for incomes up to $90,000 but phasing out up to $126,000), all other things being equal.
Low income tax offset (unchanged)
While the LMITO has now ceased, low and middle income taxpayers remain entitled to the low income tax offset (LITO). No changes were made to the LITO in the 2023–2024 Budget so it will continue to apply for the 2023–2024 income year and beyond.
The LITO was intended to replace the former low income and low and middle income tax offsets from 2022–2023, but the new LITO was brought forward in the 2020 Budget to apply from the 2020–2021 income year.
The maximum amount of the LITO is $700. The LITO is reduced at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Medicare levy low income thresholds for 2022–2023
For the 2022–2023 income year, the Medicare levy low income threshold for singles will be increased to $24,276 (up from $23,365 for 2021–2022).
For couples with no children, the family income threshold will be increased to $40,939 (up from $39,402 for 2021–2022).
The additional amount of threshold for each dependent child or student will be increased to $3,760 (up from $3,619).
For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low income threshold will be increased to $38,365 (up from $36,925 for 2021–2022).
The family threshold for seniors and pensioners will be increased to $53,406 (up from $51,401), plus $3,760 for each dependent child or student.
Medicare levy exemption for lump sum payments in arrears from 1 July 2024
The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024. This measure seeks to ensure that low income taxpayers don’t pay higher amounts of Medicare levy as a result of receiving an eligible lump sum payment, for example, compensation for underpaid wages.
Eligibility requirements will ensure this relief is targeted to taxpayers who are genuinely on low incomes and should be eligible for a reduced Medicare levy.
To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the two most recent years to which the lump sum relates. They must also satisfy the existing eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least 10% of the taxpayer’s income in the year of receipt.
Government to waive student loans impacted by delayed records transfer to ATO
The Government will forgo $5.4 million in receipts over five years from 2022–2023 (and $15.5 million over two years to 2033–2024) to support students affected by a delay in the transfer of some historical tertiary education loan records to the ATO.
This will mean waiving the following debts for affected loans, as determined at the date of transfer to the ATO:
- historical indexation, as well as indexation that will be applied on 1 June 2023 on loans issued prior to 1 July 2022 under the Higher Education Loan Program, the VET Student Loans program, the Trade Support Loans program and on loans issued in 2017 and 2018 under the VET FEE-HELP program; and
- outstanding debt for VET FEE-HELP loans issued from 2009 to 2016.
Energy price relief plan
There has been much interest in the Government’s plan to address rising energy prices, so although it’s not directly linked to taxation, here is a brief outline.
The Government will provide $1.5 billion over five years from 2022–2023 (and $2.7 million per year ongoing) to reduce the impact of rising energy prices on Australian households and businesses by providing targeted energy bill relief and progressing gas market reforms.
Funding includes:
- $1.5 billion over two years from 2023–2024 to establish the Energy Bill Relief Fund to support targeted energy bill relief to eligible households and small business customers, which includes pensioners, Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and small business customers of electricity retailers;
- $14.7 million over five years from 2022–2023 (and $2.7 million per year ongoing) to the Australian Competition and Consumer Commission to administer and enforce compliance with a temporary cap of $12 per gigajoule on the price of gas and to develop and implement a mandatory gas code of conduct;
- $9.5 million over three years from 2022–2023 for the Australian Energy Regulator to monitor coal and gas markets across the National Electricity Market.
The Government will also provide funding to support the NSW and Queensland governments to implement a cap of $125 per tonne on the price of coal used for electricity generation.
Superannuation Measures
Super to be paid on payday from 1 July 2026; more action to catch non-payers
The Budget papers confirmed the Government’s intention to require that from 1 July 2026, all employers have to pay their employees’ super guarantee amounts at the same time as their salary and wages are paid. This payday superannuation measure was originally announced by the Treasurer on 2 May 2023.
The ATO will receive additional resourcing (some $40.2 million) to help it detect unpaid superannuation payments earlier. It is estimated that $3.4 billion worth of superannuation went unpaid in 2019–2020.
The Government will also set enhanced targets for the ATO for the recovery of superannuation payments.
The proposed 1 July 2026 start date for payday superannuation is intended to provide sufficient time for employers, superannuation funds, payroll providers and other parts of the superannuation system to prepare for the change.
Superannuation tax changes for account balances above $3 million confirmed, but no further details
The Government confirmed its intention to implement superannuation tax changes for individuals with account balances above $3 million from 1 July 2025, including in relation to defined benefit schemes.
However, the Budget Papers did not reveal any further details other than to note its estimate that the measure will increase receipts by $950 million, and increase payments by $47.6 million, over the five years from 2022–2023.
Under the proposed changes announced on 28 February 2023, individuals with total superannuation balances (TSBs) over $3 million at the end of a financial year will be subject to an additional tax of 15% on earnings from 1 July 2025. Earnings will be calculated with reference to the difference in TSB at the start and end of the financial year, adjusting for withdrawals and contributions. This means that the proposed additional 15% earnings tax on an individual’s balance above $3 million will operate on an accruals basis and include any notional (unrealised) gains and losses.
Currently, fund earnings from superannuation in the accumulation phase are taxed at up to 15%. This 15% tax rate will continue for total superannuation balances below $3 million but individuals will pay an extra 15% for balances above that amount (around 80,000 people).
In response to the Government’s consultation paper, the SMSF Association has called for superannuation funds to be given the option of reporting “actual earnings” rather than the proposed model which would calculate earnings based on the movement in the member’s TSB, which by definition, includes “unrealised gains”. In its submission, the SMSF Association set out numerous reasons why certain amounts would need to be excluded from an individual’s TSB to avoid “earnings” being overstated under the proposed model.
Superannuation consumer advocate funding; ACCC super complaints mechanism
The Government will provide $5 million over five years from 2023–2024 to continue a superannuation consumer advocate to improve members’ outcomes. This funding will be offset by an increase in the Superannuation Supervisory Levy administered by APRA.
In addition, the Australian Competition and Consumer Commission will establish the first phase of a complaints mechanism for designated consumer and small business advocacy groups to raise systemic issues under consumer law (superannuation complaints) within existing resourcing.
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Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.