Treasurer Jim Chalmers handed down his federal budget for the new financial year on May 9, 2023.
Chalmers walked away from the large, blanket tax cutting initiatives of the last Liberal government, such as Temporary Full Expensing (which applied to virtually all businesses) and the Low and Middle Income Tax Offset (which applied to all individual taxpayers with an income of less than $126,000), and instead focused on help which is more targeted and less generous.
While the initiatives are likely to be welcomed by those taxpayers who are the target of the tax breaks, they will pass by many, if not most, taxpayers entirely unnoticed.
This was a budget which was relatively light on tax measures, with most of the heavy lifting being done on the spending side with a variety of cost-of-living measures designed to boost incomes for the lowest paid and most vulnerable Australians.
In particular, increases in Jobseeker for all claimants, a package of rent assistance for those on low incomes, energy bill relief and a huge boost to Medicare will all be welcome.
But there was no news about the Morrison government’s Stage 3 tax cuts – which remain legislated to come into effect on 1 July 2024 and which will largely benefit the most wealthy.
There was no reprieve also for the Low and Middle Income Tax Offset, which expired last year – and leaves millions facing an effective tax increase in the current year of up to $1,500.
In particular, there was little good news for investors, with the tax regime remaining broadly unchanged for most. There were however some minor changes for property investors.
Specifically, the government will introduce tax incentive changes to help increase the supply of housing, which will prove attractive for property investors. The incentives are:
- An increase in the depreciation rate (for capital works purposes) from 2.5% to 4% per year for eligible new build-to-rent projects where construction commences after 9 May 2023; and
- A reduction in the rate of withholding tax for eligible fund payments from managed investment trusts (MITs) to foreign residents on income from newly constructed residential build-to-rent properties after 1 July 2024 from 30% to 15%, subject to further consultation on eligibility criteria.
Resident rates and thresholds for 2023-24
The 2023-24 tax rates and income thresholds for residents (unchanged since 2021-22) are:
- taxable income up to $18,200 – nil;
- taxable income of $18,201 to $45,000 – 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.
For 2023-24, the tax rates for foreign residents (unchanged) are:
- $0 - $120,000 - 32.5%;
- $120,001 - $180,000 - 37%; and
- $180,001+ - 45%.
The Budget did not announce any changes to the Stage 3 personal income tax cuts that are set to commence from July 1, 2024.
Under the Stage 3 tax changes from July 1, 2024, as previously legislated, 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 July 1, 2024, there will only be 3 personal income tax rates - 19%, 30% and 45%. From July 1, 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.
Mark Chapman is the director of tax communications at H&R Block (H&R Block (NYSE:HRB)) (H&R Block (H&R Block (NYSE:HRB))). As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales.