The Australian Federal Budget for the fiscal year 2023-24 was announced with a focus on promoting economic growth, job creation and investment in the small business sector. This budget aims to support small businesses in Australia to recover from the COVID-19 pandemic which severely impacted the economy.

The Australian economy experienced an inflation rate of 7.0% in the March 2023 quarter, which is a small decrease from the previous quarter’s rate of 7.8%, the highest it has been in over 30 years. Although inflation peaked in December, it is still considerably high compared to the desired target rate of 2-3% required by monetary policy.

Tax Relief Measures:

To provide immediate relief to the small business sector, the Australian government has introduced tax relief measures that will come into effect from 1st July 2023. The following tax relief measures have been introduced:

1. Reduction in the corporate tax rate: The corporate tax rate for small businesses with an annual turnover of less than $50 million will be reduced to 25%. This is expected to provide relief to over 3.5 million businesses in Australia.

• Instant Asset Write-off: The Instant Asset Write-off scheme has been extended for another year. Small businesses with an annual turnover of less than $50 million will be able to immediately write off the cost of eligible assets, such as machinery and equipment, up to the value of $150,000.

• Loss Carry Back: The government has extended the Loss Carry Back provisions for another year. Eligible companies with an annual turnover of less than $5 billion will be able to carry back tax losses from the 2023-24 financial year to offset tax paid in the 2021-22 and 2022-23 financial years.
• Fringe Benefits Tax: The government has announced a reduction in the Fringe Benefits Tax (FBT) rate for small businesses. From 1st April 2024, the FBT rate will be reduced from 47% to 45%.

• Small Business Energy Incentive: The government is introducing a new tax break called the Small Business Energy Incentive. Under this incentive, up to $310 million will be provided in tax relief to support approximately 3.8 million businesses in making investments like converting to electric heating and cooling systems, upgrading to high-efficiency electrical appliances, and installing batteries. From 1 July 2023 until 30 June 2024, businesses with annual turnovers of less than $50 million will be eligible for a bonus tax deduction of 20% for eligible assets that support electrification and energy efficiency, up to a maximum of $100,000 in total expenses. The highest bonus tax deduction per business will be $20,000.

• Built-to-rent Properties: To encourage an increase in the availability of rental housing, adjustments will be made to investment arrangements for built-to-rent properties. These adjustments will include an increase to the capital works tax deduction from 2.5% to 4% per year for constructions that commence after 7:30 pm (AEST) on the 9th of May 2023

Investment Incentives:

The Australian government has also introduced investment incentives to encourage small business owners to invest in their businesses and create new jobs. The following investment incentives have been introduced:

1. Digital Investment Incentive: The government has introduced a Digital Investment Incentive to encourage small businesses to invest in digital technologies. Eligible businesses can claim a tax deduction of up to $100,000 for the cost of acquiring new digital assets.

• JobMaker Hiring Credit: The JobMaker Hiring Credit has been extended for another year. Eligible businesses can receive up to $200 per week for each new eligible employee aged between 16 and 35 years.

• Research and Development Tax Incentive: The government has announced changes to the Research and Development Tax Incentive to provide greater support to small businesses. From the 1st of July 2023, the refundable tax offset for small businesses with an annual turnover of less than $20 million will be increased from 18.5% to 20%.

Here are some areas that could potentially be challenging for small businesses:

1. Increase in Minimum Wage: The budget includes a planned increase in the minimum wage which could increase the labour cost of small businesses. While this is a positive development for low-wage workers, it could put pressure on small businesses with tight profit margins.

• Higher Energy Costs: The budget does not include any significant measures to address rising energy costs. Small businesses could be particularly vulnerable to these costs, especially if they rely on energy-intensive processes or have limited bargaining power with energy suppliers.

• Limited Support for Exporters: While the budget includes funding for international trade and investment, there is limited support for small businesses looking to export their products or services. This could limit opportunities for small businesses to expand their customer base beyond Australia.

• Lack of Support for Small Business Growth: The budget includes several measures to support small businesses but there is limited focus on encouraging growth or scaling up. Small businesses looking to expand may need to seek support from alternative sources such as private investors or lenders.

• Limited Support for Industry-Specific Issues: The budget does not include any industry-specific measures that could benefit small businesses in particular sectors. This could be a disadvantage for small businesses operating in industries that face unique challenges or opportunities.

• Pay Superannuation guarantee on the same day: Starting from 1 July 2026, employers will have to pay their employees’ superannuation guarantee (SG) on the same day as their salary and wage payments. This could increase the workload for small businesses and have an impact on their cash flow.

• Heavy vehicle Road User Charge: The government has revealed its plan to gradually increase the Heavy Vehicle Road User Charge (presently at 27.2 cents per litre of diesel) by 6% over the course of the next three years as detailed below.   

2023-2024              28.8 Cents

2024-2025              30.5 Cents

2025-2026               32.5 Cents

Conclusion:

The 2023-24 Australian Federal Budget has introduced various measures to provide relief and support to the small business sector in Australia. These measures are expected to promote economic growth, job creation, and investment in the small business sector which is crucial for the recovery of the Australian economy from the COVID-19 pandemic. There are also areas where small businesses may face challenges. These include higher labour costs, rising energy costs, limited support for exporters, a lack of focus on growth and scaling and limited industry-specific support. Small businesses may need to take steps to mitigate these challenges and seek out alternative sources of support where necessary.

Written by SBAA Ambassador & Senior Accountant and CEO of Austral Accountants Vajira Jayasooriya