On Tuesday 9 May, the Treasurer delivered the 2023 Federal Budget which included changes to current business incentives and build-to-rent housing developments.
In this article, we briefly summarise some key points from the Federal Budget which businesses and property investors should be aware of.
Extension of the instant asset write-off
The Australian Government has made the decision to temporarily extend the instant asset write-off incentive, which allows eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in the year its first used or installed ready for use. There are adjustments to the eligibility of assets and businesses which are as follows.
- Rules in place until 30 June 2023: Businesses with an aggregated turnover of less than $5 billion can claim an immediate deduction for qualifying assets under temporary full expensing with no upper limit to an asset’s value.
- Rules from 1 July 2023 – 30 June 2024: Small businesses with an aggregated turnover of less than $10 million can immediately deduct the full cost of qualifying assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. This is on a per-asset basis, meaning multiple assets can be written off as long as they qualify.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified pool and depreciated accordingly. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out will continue to be suspended until 30 June 2024.
Introduction of the Small Business Energy Incentive
The Australian Government will support small and medium businesses to save on energy bills by incentivising the electrification of assets and improvements to energy efficiency.
Under the incentive, small and medium businesses with an aggregated turnover of less than $50 million, will be able to deduct an additional twenty per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy. A total expenditure of up to $100,000 will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000.
A range of depreciating assets, as well as upgrades to existing assets, will be eligible for the Small Business Energy Incentive. These 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.
Eligible assets will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. 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.
Changes to Build-To-Rent Housing Developments
The Government has announced changes to build-to-rent housing developments which accelerate tax deductions and reduce managed investment trust withholding tax rates.
For eligible new build-to-rent projects where construction commences after 7:30 pm (AEST) on 9 May 2023, the Government will:
- increase the rate for the capital works tax deduction (depreciation) to four per cent per year
- reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from thirty per cent to fifteen per cent.
This measure will encourage investment and construction in the build-to-rent sector, which will expand the Australian housing supply and benefit renters and property investors.
This measure will apply to build-to-rent projects consisting of fifty or more apartments or dwellings made available for rent to the general public. The dwellings 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 3 years for each dwelling.
The reduced managed investment trust withholding tax rate for residential build-to-rent will apply from 1 July 2024. A consultation will be undertaken on implementation details, including any minimum proportion of dwellings being offered as affordable tenancies and the length of time dwellings must be retained under single ownership.
The information in this article is sourced from the Australian 2023 Federal Budget.