Federal Budget 2023: Tax Integrity & other measures

On May 9, 2023, Treasurer Dr. Jim Chalmers gave the government its second Federal Budget. The Budget for 2023–2024 builds a stronger base for a better future. It deals with the problems Australians are having right now, makes it easier for people to take advantage of opportunities in our society, and sets the groundwork for a stronger and more stable economy in the future.

The Government has announced a slender surplus, the first in more than a decade, and a range of measures primarily aimed at lowering the cost of living or improving welfare for those in difficult circumstances.

Federal Budget Expanding the general anti-avoidance rule (Part IVA)

The Government will expand the scope of the general anti-avoidance rule for income tax (Part IVA of the ITAA 1936) so that it can apply to:

• schemes that reduce the tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and
• schemes that achieve an Australian income tax benefit, even where the dominant purpose is to reduce foreign income tax.

This measure will apply to income years commencing on or after 1 July 2024, regardless of whether the scheme was entered into before that date.

 Extending the compliance program for personal income tax

The Government will provide $89.6 million to the ATO and $1.2 million to Treasury to develop the Personal Income Tax Compliance Program for two years from 1 July 2025 and expand its scope from 1 July 2023.  

This extension will enable the ATO to continue to deliver a combination of proactive, preventative, and corrective activities in critical areas of non-compliance and to expand the scope of the program to address emerging areas of risk, such as deductions relating to short-term rental properties to ensure they are genuinely available to rent.

The personal income tax compliance program will be immensely benefitted from the new federal budget.

Improving engagement with taxpayers to ensure timely payment of tax and superannuation liabilities

The Government will provide funding over four years from 1 July 2023 to enable the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities.

The additional funding will facilitate ATO engagement with taxpayers who have high-value debts over $100,000 and aged debts older than two years where those taxpayers are either:

• public and multinational groups with an aggregated turnover of greater than $10 million; or 
• privately owned groups or individuals controlling over $5 million of net wealth.

Investing in superannuation guarantee compliance

The Government will provide $40.2 million to the ATO in the 2024 income year, which includes $27 million for the ATO to improve data matching capabilities to identify and act on cases of superannuation guarantee underpayment by employers, and $13.2 million for consultation and co-design.

Four-year extension for GST compliance program

The Government will provide $588.8 million to the A.T.O. over four years from 1 July 2023 to continue activities promoting GST compliance. These activities will ensure businesses meet their tax obligations, including accurately accounting for and remitting GST and correctly claiming GST refunds.  Funding through this extension will also help the ATO develop more sophisticated analytical tools to combat emerging risks to the GST system.

Extending and merging the Serious Financial Crime Taskforce and Serious Organized Crime program

The Government will extend funding for the Serious Financial Crime Taskforce (‘SFCT’) and Serious Organized Crime program (‘SOC’) over four years to 30 June 2027 and merge the agenda with a joined SFCT to commence from 1 July 2023. The SFCT and SOC are currently separately funded ATO-led cross-agency collaborations between the ATO, national policing, and other law enforcement and regulatory agencies, targeting serious and organized crime groups and severe financial crime and tax evasion. An extension and merging of these programs will maximize the disruption of organized crime groups that seek to undermine the integrity of Australia’s public finances.

Other budget measures 

Capital allowances – Accelerating the capital works tax deduction for ‘Build-To-Rent Developments’

For eligible new build-to-rent projects where construction commences after 7:30 pm (AEST) on 9 May 2023 (Budget night), the Government will:

• Increase the rate for the capital works tax deduction to 4% per year; and
• Reduce the final withholding tax rate on eligible fund payments from managed investment trust (‘MIT’) investments from 30% to 15%.

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

The reduced managed investment trust withholding tax rate for residential build-to-rent will apply from 1 July 2024.  The consultation will be undertaken on implementation details, including any minimum proportion of dwellings offered as affordable tenancies and the length of time dwellings must be retained under single ownership.

FBT – Electric Car Discount

The Government will sunset the eligibility of plug-in hybrid electric cars for the FBT exemption for eligible electric vehicles.  This change will apply from 1 April 2025. Arrangements involving plug-in hybrid electric vehicles entered into between 1 July 2022 and 31 March 2025 remain eligible for the Electric Car Discount.

Note that this announcement is already reflected in the legislation.  Specifically, Treasury Laws

Amendment (Electric Car Discount) Act 2022 included a ‘sunset clause’ concerning plug-in hybrid electric cars.  The law applies such that a plug-in hybrid electric car ceases to be a ‘zero or low emissions vehicle’ from 1 April 2025. Thus, it ceases to be eligible for the FBT exemption from 1 April 2025, subject to transitional measures.

Incentivizing pensioners into the workforce – six months extension

The Government will provide $3.7 million to extend the measure to give aged and veteran pensioners a once-off credit of $4,000 to their Work Bonus income bank and temporarily increase the maximum income bank until 31 December 2023. Under this measure, pensioners can earn up to $11,800 before their pension is reduced, supporting pensioners who want to work, or work more hours, to do so without losing their retirement.

This Budget deals with the problems Australians are having right now, makes it easier for people to take advantage of opportunities in society and all over the country, and sets the stage for a more robust and stable economy. It lowers the cost of living for those who need it most in a responsible and targeted way. It also invests in critical drivers of sustainable growth and pays for the services Australians depend on sustainably. It does this while improving our financial situation by predicting a budget surplus in 2022–2023 and smaller deficits and debt every year after that.

This Budget builds a stronger foundation for a better future by:

• Lowering the cost of living,
• strengthening Medicare;
• Investing in a more robust and more secure economy;
• expanding opportunities;
• maintaining the Budget; and
• paying for our goals.

This Budget hits the right balance between dealing with problems that must be fixed immediately and preparing Australia for the future.

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