The latest federal budget was handed down on Tuesday 8 May, when the Federal Government announced a return to surplus one year earlier than forecast and little more than a year away.

We have summarised some of the measures that caught our attention.  Read on, or download a PDF.  But remember that none of these proposals will happen until they are passed by the full parliament. If you are in any doubt about how these measures will affect you, please contact Burnett Business Centre.

Things That May Affect You from 1 July This Year

Small Business Instant Asset $20,000 Write-Off Extended by another 12 Months

Proposed Effective Date if passed through parliament: 1 July 2018

Small businesses will still be able to immediately deduct purchases of eligible assets costing less than $20,000, first used or installed ready for use by 30 June 2019.  But be careful as certain purchases might not qualify, and the amount must be $19,999.99 or less – check with us first if you are unsure.

Some Tax Bracket Changes, and New Low and Middle Income Tax Offset

Proposed Effective Date if passed through parliament: 1 July 2018

The top threshold of the 32.5 per cent personal income tax bracket will increase from $87,000 to $90,000.

A new non-refundable Low and Middle Income Tax Offset of up to $530 per annum will be available for the 2018-19 to 2021-22 income years, to be received as a lump sum on your tax return.

The Low and Middle Income Tax Offset will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. Between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. From $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar. The benefit of the Low and Middle Income Tax Offset is in addition to the existing Low Income Tax Offset.

Other Measures

Proposed Effective Date if passed through parliament: 1 July 2018

Medicare Levy exemption and reduction thresholds will be increased (as is normally the case each year.)

Regional students’ access to the Youth Allowance will improve by changing the threshold and assessment year for parental income.

Individuals whose income exceeds $263,157, and have multiple employers, will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018.

 

Things That May Affect You from 1 July 2019

Small Business Instant Asset Write-Off Will Revert Back to $1,000

Proposed Effective Date if passed through parliament: 1 July 2019 (else 1 July 2018)

New Reporting Requirements for More Businesses

Proposed Effective Date if passed through parliament: 1 July 2019

The taxable payments reporting system (TPRS) that currently applies to the building and construction industry, and to courier and cleaning industries from 1 July 2018, will be extended to more businesses from 1 July 2019. These businesses that use contractors will be required to track and report the payments. Newly affected are security providers and investigation services, road freight transport; and computer system design and related services.

Removing Tax Deductibility of Non-Compliant Payments

Proposed Effective Date if passed through parliament: 1 July 2019

Businesses will no longer be able to claim deductions for payments to their employees such as wages where they have not withheld any amount of PAYG from these payments, despite the PAYG withholding requirements applying. The Government will also remove deductions for payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG despite the withholding requirements applying.

Superannuation

Proposed Effective Date if passed through parliament: 1 July 2019

Recent retirees aged 65-74 years, with super balances below $300,000, will be exempt from the work test for voluntary super contributions in the first year they do not meet the work test requirements.

All super funds will be banned from charging exit fees.

Super fund accounts for certain individuals will change from having default insurance to being offered on an opt-in basis, with a 14 month transition period.

SMSFs will be allowed 6 members, rather than the current 4.

SMSFs with a good compliance history over at least 3 years will have their existing annual audit requirement extended to a three-yearly requirement.

Measures for Older Australians

Proposed Effective Date if passed through parliament: 1 July 2019

Pensioners will be able to earn more without impacting their pension, and the scheme will also be extended to self-employed retirees. The Pension Loans Scheme will be expanded to everyone over Age Pension age and the maximum fortnightly income amount will be increased. This will enable Australians to use the equity in their homes to increase their incomes.

Other Measures

Proposed Effective Date if passed through parliament: 1 July 2019

The Medicare levy will NOT increase to 2.5% from 1 July 2019.

Cheaper beer!  (At least lower excise rates will apply for smaller beer kegs to allow craft brewers to compete with the large manufacturers.)

Trusts that distribute to companies will come under the Division 7A rules for the amount of entitlement that is left unpaid (a UPE) by legislation. The ATO has interpreted the legislation this way for a number of years (somewhat controversially), but this will make the treatment clear. We’ll have to wait and see if it tightens the current ATO practice. Other changes to Division 7A announced in last year’s budget will be deferred to 1 July 2019.

Deductions relating to vacant land will be denied, unless used in business.

Lifetime limit for higher education loans commencement delayed until 1 January 2020, and repayments will be able to be re-accessed after 30 June 2019.

Things That May Affect You from 1 July 2020 or Later

Some More Tax Bracket Changes (Tax Cuts)

Proposed Effective Date if passed through parliament: 1 July 2022 and 1 July 2024 as indicated

From 1 July 2022, the Low Income Tax Offset will increase from $445 to $645, and the 19 per cent personal income tax bracket will be extended from $37,000 to $41,000. The increased Low Income Tax Offset will be withdrawn at a rate of 6.5 cents per dollar between incomes of $37,000 and $41,000, and at a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667.  The upper threshold of the 32.5 per cent personal income tax bracket will be increased from $90,000 to $120,000.

From 1 July 2024, the upper threshold of the 32.5 per cent personal income tax bracket will be increased from $120,000 to $200,000, after which the top marginal tax rate of 45 per cent will apply.  This will effectively abolish the 37% tax bracket entirely and will simplify and flatten the personal tax system.

Summary of Tax Rates and Thresholds for 2018-19 Onwards

The following table reflects the announced personal tax rate and threshold changes (highlighted in bold):

 

Proposed Tax rates and Thresholds (excluding the 2% Medicare levy)
Rate 2018-19 to 2021-22 2022-23 and 2023-24 2024-25 onwards
0% $          0 – $  18,200 $          0   – $  18,200 $          0 – $  18,200
19% $18,201 – $ 37,000 $18,201   – $  41,000 $18,201 – $  41,000
32.5% $37,001 – $  90,000 $41,001   – $120,000 $41,001 – $200,000
37% $90,001 – $180,000 $120,001 – $180,000 N/A
45% $180,001+ $180,001+ $200,001+

 

ALP Opposition Policies

The ALP will present their budget reply speech on Thursday, however the following is our understanding of some of their policies that have caught our attention should they win the next election.

  • A minimum non-refundable 30% tax rate on trust distributions (excluding farming trusts, deceased estates and some others).
  • Restrict negative geared losses on newly acquired residential rentals unless newly constructed.
  • Remove cash refunds for excess dividend imputation credits (although a later backflip was to not apply that to those in receipt of a pension or allowance, or for a SMSF with at least one member in receipt of a pension or allowance before 28/3/18.
  • Super – reduce the maximum Non-Concessional Contribution cap, remove the new averaging of the Concessional Cap, reduce the threshold before the Division 293 Super Surcharge kicks in, and reinstate the 10% rule to prevent wage earners for getting a deduction for additional super contributions.
  • There is also talk of a reduction of the CGT discount
  • Proposed company tax cut will not proceed, and increased Small Business threshold for certain concessions will be wound back from $10m to $2m.
  • Capping the tax deduction for tax advice incurred by individuals at $3,000
  • Abolish GST “tampon tax”, and will tax natural therapies instead IF it can secure the agreement from all the states that has not previously been forthcoming.
  • Accelerated depreciation for new capital equipment investment that will enable businesses to deduct up to 20% of the value of new investment in the first year, with the balance depreciated in line with normal depreciation schedules from the first year. Eligible assets include tangible machinery, plant and equipment, trucks and utes for tradies as well as intangible investments in knowledge assets such as patents and copyrights.