Budget 2024 – Wrap Up Video

Transcript

Hi, my name’s Shaun Farrugia and this is the Optimised Accounting 2024 Federal Budget Wrap Up.

In this short presentation, we’re going through the key measures that were announced in last night’s federal budget and how they affect small to medium sized business owners and their families.

For those of you who are not familiar with us we’re an accounting firm located in the western suburbs of Melbourne. We deal primarily with small to medium-sized business owners in a variety of industries.

The main thing we need to make sure you’re aware of is that this is general advice only. If you’re wanting advice or assistance with implementation, please speak to us or your accountant to make sure that the advice is relevant to you and there are no unintended consequences.

It’s also worth mentioning that some of the measures that are being presented today aren’t legislation yet and may or may not pass. Keep that in mind as well when making your decision on whether or not to make decisions based on what we talk about today.

We can start with some key points on the economy, how it’s affecting inflation and some other key metrics from an economic standpoint.

Then we’re going to go into the measures that were announced, primarily around the cost of living, a couple of measures on small business, and other generic measures that are relevant and don’t fit into those categories. We’ll finish off on some rate changes coming in on the 1st of July and some things to consider before the end of the financial year as part of your tax planning and end of financial year planning strategies.

Economy

With last night’s budget, there was not a huge amount of announcements. A lot of the good news was leaked beforehand. The government is being very careful not to stoke inflation too much. This budget was fairly light and it could be seen as a pre-election budget. With the government looking to go to election next year, many measures announced last night were to help households with the costs of living. Which will no doubt influence the electorate.

The biggest thing is the inflation side of things and making sure we’re getting inflation low so that interest rates can drop. The treasurer has stated that the measures he announced will reduce inflation by up to three quarters of a percent, and the Treasury is expecting inflation to drop within that 2% to 3% target range by the end of the calendar year.

This is in contrast with the RBA who are expecting it to be around 4% at the end of the calendar year and heading to that 3% band towards the end of 2025. It’ll be interesting to see where the RBA goes with this and whether or not they change any of their forecasts.

The government’s forecasting a surplus of $9.3 billion for the financial year, on top of last year’s surplus of $22.1 billion. While this sounds good and we’re apying off some of the federal debt, the surplus is going to be short-lived. Over the medium term, we’re expecting deficits of about $73.4 million in the next 3 financial years, with $28.3 million of that being in the 24-25 financial year alone.

This is what’s been described as unavoidable spending in areas like defense, NDIS costs going out of control, aged care, and health costs that are vital for the public. A lot of these programs are just being renewed.

Apart from that, unemployment is expected to rise by about 6% from where it is at the moment at 3.9% to about 4.5%. From other forecasts that we’ve seen previously, that’s a pretty modest increase, which is a good thing.

Cost of Living

The cost of living measures were probably the main thing to be brought up in the budget. Three areas were looked at.

One was the Stage 3 Tax Cuts. These were announced back in 2018, and even in last year’s presentation we did there was speculation these may change.

Of course they did back in February. They were changed from what the Liberal government were proposing and made to assist a greater section of the economy. Now, with the new rate changes, it’s expected that Stage 3 Tax Cuts will basically help every single taxpayer. We’ll go through some of the detail of that in a sec.

Then there were some changes to student assistance, primarily around the HECS HELP indexing, and a few things to do with student placements. Then there were other measures like the electricity bonus which we’ll go through.

Changes were also made to student assistance, mainly in the HECS HELP indexing and a few aspects related to student placements. Additionally, there were several other measures we will also address, such as the electricity bonus.

Stage 3 Tax Cuts

With the Stage 3 Tax Cuts, what you can see on the screen at the moment is what we’ve got currently: in a dark gray. The old stage 3 is just there for reference, and in blue is what the new stage stage 3 is.

In a nutshell, comparing between the old and the new stage 3, if you’re earning less than $150,000 a year, the new stage 3 is better for you. If you’re running over, it’s slightly worse for you. That’s the crux of it, really.

As far as what it has done: it’s simplifying where tax rates are and where the thresholds change. The 19% goes down to 16%, the 30% and 37% brackets get consolidated a 30% bracket, and that goes now all the way up to $190,000, rather than the previous $180,000.

There’s a bit of saving here from bracket creep. Whether or not it helps for long, who knows, but this is what’s been passed into legislation and will come into effect from 1 July.

The average taxpayer will save $36 each week in their paycheck, and that will be done by reduced withholding. Therefore, it’s expected that all pays from 1 July will these benefits brought in.

Student loan debts

Apart from the stage 3 tax cuts, the next big section was student assistance, which involved changes to the HELP indexing.

What HELP is, is a student loan debt, which covers the old HECS system and STSS system as well.

Currently, on 1st of June every year, the outstanding HECS debt is indexed by CPI. They don’t charge interest, but they index by inflation to keep the debt relevant. Most people just think of it as interest.

But rather than using CPI now, what the government has proposed and is back-dating to last year, is to use, or to index, the rate of the HECS debt by either CPI or the wage price index, whichever is lower.

What this means is instead of CPI, where the basket of goods goes up in price and that’s what’s leading to inflation, it’s changing the value of the HECS debt in line with what wages go up. It’s a little bit fairer and provides a saving. The average HECS debt in Australia is around $25,000 or $26,000.

This change alone was back dated to last year where there was a substantial 7.1% bump in the CPI rate with the HECS debts. This is going to save people with that average debt about $1,200.

On the 1st of June this year, which is in 2 weeks’ time, the wage price index rate will change and actually gets released later today. No doubt on the news tonight or by the time you’re watching this or reading our articles, we will know what the 2024 figure will be. It’s likely going to be closer to that 3% to 3.5% rather than the 6% and 7%. That’s good news for people with student loan debts.

Student practical support payments

Apart from the student loan debts, there’s been assistance announced for practical support payments.

What this is, is for people doing teaching, nursing or social work as part of their university degrees, they need to do certain number of hours of unpaid placements to get industry experience.

To support students that are undergoing those placements, the government is going to start paying practical support payments of $319 a week to eligible students. This is basically to assist with cost of living and making sure that the students can get that placement without significant hardship.

Free TAFE spots in construction

On top of that, there were 20,000 free TAFE spots announced for the construction and housing sector. This is aimed at making sure we’ve got skilled trades going forward to help with housing shortages and we’ve got good builders available in the country.

Is the HECS adjustment inflationary?

One thing to keep in mind is, while it sounds like whether decreasing the HECS debts can be seen as inflationary and there is a saving per year: the amount that is being repaid off the debt through the pay packet and through withholding from your salary doesn’t actually change.

While your student debt is decreasing, you’re not going see the immediate benefit of any of the measures from HECS HELP. What it will do is reduce the term of your loan but your ongoing repayments won’t change at all.

In this way it is still a help but doesn’t hurt inflation at all.

$300 power bill credit

Then on to other cost of living announcements that were made: the $300 power bill credit.

What this is, is very, very simple. Anyone with a residential power connection in Australia is going to receive a $75 credit on each of their 4 quarterly bills from 1 July this year.

The credit will just be spread across, there’s no requirement to register, and no other process. Your electricity provider will handle this and apply those credits as it goes.

Pretty straightforward and will undoubtedly help a bit.

Deeming rate freezes

Then there’s deeming rate freezes. This is a big one for people who are on pensions or getting support from the Department of Veterans Affairs or Centrelink.

With deeming rates, what this is, is if there are any financial assets held that do affect payments, rather than looking at what is earned on those investments, they deem a level of it to make sure that the means testing of the payment is correct.

By continuing the freeze, this is actually helping people who are getting those Veterans Affairs and Centrelink pensions get more money. This is another obvious cost of living improvement.

Business announcements

Now onto small to medium-sized business announcements. There’s not a lot here to discuss that’s overly new or exciting but for completeness, we’ll go through what was announced and make sure that you’re aware of how it affects you.

$20k Instant Assets Write Off

The $20,000 Instant Asset Write Off has been extended. This means that if you’re buying an asset for use in your business, you can write off the entire cost of the asset against your taxable income.

Now keep in mind if you spend $20,000, you don’t get $20,000 back, you get your tax rate back.

If you’re a company with a tax rate of 25%, and you’re spending $19,999, you’re going to get a tax benefit of about $5,000 off the next tax bill.

This measure has been extended to 30 June, 2025. That’s for another 12 months.

For assets more than that, they become part of the general pooling system where 15% of the pool gets deducted in the first year and 30% in the subsequent years on a reducing basis.

We won’t go into the weeds any more than that, but obviously if you’ve got questions, feel free to ask.

$325 power bill rebate

The next measure was a $325 power bill rebate. This applies to primarily small businesses and not really to businesses that are using huge amounts of power like manufacturing.

This operates in pretty much the same way as the residential bonus. Except it’s an extra $25 over the year and this will be split across the bills over the next 4 quarters.

Beyond the budget: business tax legislations to be aware of

Apart from those two items, there’s a few other things that aren’t really announcements that have come directly through last night’s budget, except for the next one. But they’re things that have been announced in the last couple of months that you do need to be aware of.

BAS refunds retained up to 30 days

The 3rd thing was the ATO can retain BAS refunds for longer. At the moment if you’re getting a refund on your BAS, the ATO needs to be able to release the cash to your account within 14 days.

That’s what they need to do all their integrity and compliance checks. This is going to be extended out to 30 days. What this effectively means is the ATO’s got twice as long now to decide whether or not they want to ask questions and audit.

If anyone’s getting abnormal BAS refunds, it is worth making sure that you’ve got all your supporting documentation ready. That way if the ATO does ask, we can make sure that you can get the refund back as soon as possible.

No deductions allowed for general interest charge

Another big announcement is that there’s going to be a proposed change to not allowing deductions for general interest charge.

Now, what general interest charge is, is the amount that’s charged to you if you have an outstanding and overdue tax bill.

If you have outstanding tax debt at the moment, the current rate is 11.34%. If you’re paying that, you get to claim a tax deduction on that interest.

That means depending on your tax rate, you could be getting between 25% and 47% back off that.

Now what the ATO is doing, and they’re doing this to reduce the amount of debt that’s outstanding, is they’re wanting to make it unattractive to use the ATO as a bank and not finance your tax bills.

By them removing the ability to deduct the general interest charge, in effect, it’s going to cost between 25% and 47% more.

So that 11.34% rate, if you’re a trading company paying tax at 25%, is equivalent to another funding source of about 15.12%. Or if you’re an individual on the highest marginal tax rate it’s equivalent to a 21% tax bill that’s interest built from another source.

The ATO, with this plan, is basically wanting people, if they can’t pay their tax bill, to refinance it to another bank.

It’s going to be a very interesting time and whether or not the ATO gets it passed, we’ll see. I haven’t heard whether there’s going to be any objection from the other side, but time will tell. That was a surprising one.

Payday Super

The last item here is Payday Super coming in on the 1st of July, 2026.

This is where employers are going to be obligated to pay an employee superannuation at the same time as making their regular payroll payments to the employee. The government last night extended some funding to this to make sure this will be able to come into effect by 1 July, 2026.

Other relevant points

The other measures announced last night are relevant to our audience, but don’t fit into those categories.

Super paid on parental leave

Super is now going to start being paid on paid parental leave from the 1st of July, 2025.

This is where, if the government’s paying the paid parental leave amount, they’re going to also pay the 12% superannuation guarantee, which comes into effect on the same day on top of that.

Whether the government pays this directly into the super fund or if it goes via the employer, like the net payments do at the moment is yet to be announced. I dare say that the government will just pay it across to the employer, and then let the employer pay it in their regular super batch payments. But we’ll where that goes. This is a good thing for expectant mothers or parents of that time.

Future Made In Australia Plan

The Future Made in Australia Plan is something that affects mainly larger businesses. What this is, is a whole heap of concessions that were announced for clean energy and getting to a net carbon rate of zero in the next few years.

ATO compliance

The next item was to do with ATO compliance. There were a couple of changes to this, bu the majority of it was the extending of existing programs.

The new function was $187 million to prevent fraud in real time. Exactly what this is we’re not sure of, but I dare say it’s to make sure that there’s some data matching happening between financial institutions and the ATO.

The items that have been extended is the personal income tax compliance program that started a few years ago; the shadow economy program, to reduce undeclared cash in the economy. And the emerging risks program, which is the big one that we’re seeing at the moment. Which is all to do with over-claiming of deductions and making sure that rental deductions are right.

This is obviously a big issue for the government at the moment, because interest rates have more than doubled over the last couple of years. Those deductions on rental properties that may have been neutral slightly negatively geared are now heavily negative. This is costing the ATO and landlords quite a bit.

Changes from 1st July 2024

Firstly, obviously we have already discussed Stage 3 Tax Cuts.

Super Guarantee is going to raise from 1 July to 11.5%, from the 11% that it is currently. And then from 1 July next year (2025), it raises up 12%. The super contribution cap – this is the concessional contribution cap where you can claim a deduction for super contributions, is increasing to $30,000 per year.

My slides are a bit covered here, but the Division 7A interest rate will probably change as well. This will come out on the first couple of weeks of June. But this is the rate on funds you may owe to a private company. If Division 7A affects you, you will be aware of it.

State based changes to payroll tax thresholds have been announced for New South Wales and Victoria. This will start coming across in the next few weeks as well.

There will also be some changes to workers compensation premiums.

The last thing that the ATO will start looking at doing is increasing the rates for things like cents per kilometer rates for vehicles, home office expense rates and a few other bits and pieces. This will come out in the next few weeks.

What to do before June 30th

Now, what to do before June 30?

From what we’ve discussed, there’s nothing really new that needs special planning or tearing up an old plan and putting a new one in place. It’s more about making sure that you are on top of what’s going on and being proactive in getting the right outcome.

Book in your tax planning session

First thing’s first: if you’re a client, make sure you’re booking in your tax planning session if you haven’t already. That will be important so we go through where exactly everything sits in your specific case and ensure you’re not paying more tax than you need to.

Super contribution deductions

If you are wanting to deduct any super contributions, whether for your staff or yourself, the funds have to hit the super fund before June 30th.

If it’s a personal contribution, make sure you contact your fund to find out their cut off dates are.

If it’s for employee super, we recommend lodging the super batch through Xero by about the 14th or 15th of June to give plenty of time.

Instant Asset Write Offs

If are wanting to instantly write off an asset this year, what you need to do is make sure that the asset is under $20,000, excluding GST. That means $1,999, and that the asset is delivered and available for use by 30th June.

If it’s ordered now and delivered in July, then the deduction goes forward into the next year. You don’t lose it, but you don’t get the benefit immediately. Make sure that you’ve got your trust distribution minutes signed so that you’re not liable for tax at 47%.

Bringing forward expenses

A common tactic that we do see at this time of the year as people are deferring income or bringing forward expenses.

With this, it is always important to be mindful that what you’re doing is going to be supported by your cash flow.

It’s not worth purchasing something merely for a tax benefit. Why spend $1,000 to save $250 if you don’t need it and won’t get a return in your business?

But if you’ve got expenses you were going to pay in July and you’re bringing forward this year for the tax benefit, if your cash flow allows, there’s no issue with that.

Deferring income

With deferring income, this is something people will do by invoicing in July rather than in June so the tax bill doesn’t hit for another year or so.

In tough economic times, when cash is important, it is worth considering the viability of this strategy and whether your customer is going to be able to pay later. Sometimes, it’s better to have the cash a little bit earlier, even though you’ll pay the tax in 9 months’ time, say in March next year, rather than in a year after that. But having that cash available to you and not running the risk of your customer potentially going bankrupt or into liquidation is probably worth looking at.

Division 7A loans

Moreover, if you’ve got division 7A loans, especially if the interest isn’t deductible or they’ve been used for private purposes, it’s worth considering paying those back.

If they are deductible, it’s not as bad because the increased interest can still be deducted and maybe at a higher rate.

But for those ones used for personal use, if you have the ability to pay those funds back to the company, we would suggest you do that if you’re wanting to save that interest.

Get in touch!

With all of these though, if you are a client of ours, we will go through these in a tax planning session. If you’ve had a tax planning session already, feel free to send an email with any specific questions you may have.

There’s not much else there to discuss. As we said, it was a business as usual budget, but thank you for your time.

If there’s any way we can be of assistance to you, please don’t hesitate to reach out.

Thanks so much!

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