Well, that's another budget done and dusted. And what a simple, but great one, from a tax perspective. Unlike previous years where there have been numerous changes, keeping us accountants on our toes (particularly in the superannuation area), this year there weren't many proposed tax measures. But those that were announced are awesome - bringing much welcome tax relief to low to middle income earners and small business.
Of course, we advise you not to count your chickens before they hatch. This is particularly so in relation to the proposed increase to the immediate write off for assets purchased by small business. Bear in mind the previous announcement earlier this year to increase this deduction to 25K and extend it (its due to expire) still hasn't been legislated. However it would be hard to see how either party would not legislate this change or the tax cuts, asap.
The biggest space to watch here will be the upcoming election, rumored to be on the 11th or 18th of May. This will be a big election particularly with Labor's proposed removal of negative gearing, the general 50% capital gains discount and of franking credit refunds, and proposed minimum tax rates to apply to beneficiaries of family trusts. I find it hard to believe that many of these measures will get through in the proposed format, even if Labor is personally elected, but we'll wait and see!
For now, a summary of the key changes to tax as announced in the budget are summarised below.
Low and Middle Income Tax Offsets
An immediate substantial increase to the so-called low and middle income tax offset will give rise to benefits in the 2019 tax return for individuals. The full tax benefit of $1,080 will flow to individuals earning between $48K - $90K. It will decrease by 3c in the dollar for those earning above $90K and cut out once personal taxable income reaches $126K. Low Income Earners (below 37K) will receive a $255 offset in the 2019 return, with a proposed increase to $700 in the 2023 Income Tax Return.
Personal Tax Cuts and Bracket Changes
From 1 July 2022 the 19% personal tax bracket is proposed to increase from $41,000 to $45,000.
From 1 July 2024, the government said it would reduce the 32.5% marginal tax rate to 30% to more closely align the middle income tax bracket of personal tax system with corporate tax rates. It would also abolish the 37% tax bracket entirely under the government's already legislated plan. This will result in only 3 personal tax rates, 19%, 30% and 45% and is estimated to result in 94% of Australian taxpayers being on a marginal tax rate of 30% or less.
Tables reflecting the proposed changes are below;
Instant Asset Write Off for Business
There are two changes to the instant asset write-off, proposed to take effect from budget night 2nd April 2019 until 30 June 2020.
1) The write-off has been extended to medium-sized businesses (<50M aggregated turnover), where previously it only applied to small business entities (<10M aggregated turnover).
2) The write-off will be increased from the currently legislated $20,000 to $30,000 for assets first used or installed ready for use. Any existing small business pools with a value less than this will also be able to be "written-off" in full.
Division 7A Proposed Changes - Deferred for another 12 months
The government announced it will defer the start date of the 2019 budgeted measure "Division 7A Tax Integrity Rule) from 1 July 2019 to 1 July 2020. This is welcome relief and will allow additional time to consult with stakeholders so as to avoid unfair prejudice. Strong concerns have been raised in submissions from the industry and practitioners have been keenly awaiting government announcement about the outcome of its consultations. For further information about the proposed measures, please feel free to contact our office. Otherwise for now, its very much a "wait-and-see" and we'll update you once we have a more definite picture of the changes.
Tax Integrity on Unpaid Tax and Super by Larger Businesses
The government will provide $42.1M over 4 years to the ATO to increase activities to recover unpaid tax and super liabilities. This will focus on larger business and high wealth individuals, and is estimated to have a gain of $103.6M.
Contributing to Super made easier for 65 and 66 year olds
From 1 July 2020, making voluntary (both concessional and non concessional) contributions to super will be possible for individuals aged 65 and 66 without the need to meet the work test. The work test requires an individual to work at least 40 hours in any 30-day period in a financial year in order to make voluntary contributions. The work test will continue to apply for those aged between 67 - 74. This measure will align the work test with the eligibility for age pension which is scheduled to reach age 67 from 1 July 2023.
The age limit for making spouse super contributions will also be increased from aged 69 to 74.
Removal of Red Tape for SMSF in full retirement phase
The government will remove a redundant requirement for SMSF to obtain an actuarial certificate when calculating exempt pension income (i.e the amount of the SMSF income that is exempt from the usual 15% tax) where all members of the fund are fully in retirement phase for all of the income year. This is welcome relief as an actuarial certificate would provide a 100% tax exemption for the income in any event.
Strengthening the ABN rules
Currently ABN holders are able to retain their ABN regardless of whether they are meeting their income tax return lodgement obligations or obligation to update their ABN details. From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their return and from 1 July 2022 will be required to confirm the accuracy of their details on the ABR register annually.
The government will provide $70M over 2 years from 2018/2019 to undertake preparatory work required to migrate the ATO's existing data centre over to "an alternative data centre facility". They will also provide $6.9M over 4 years from 2019/2020 to support additional analytical capabilities within Treasury and other agencies.
Set to benefit carpenters and joiners, plumbers, hairdressers, air-conditioning and refrigeration mechanics, bricklayers, plasterers, bakers, vehicle painters, tilers and arborists. It will seek to create 80,000 new apprenticeships over 5 years and double incentive payments to employers to $8000 per placement as well as provide new apprentices with a $2000 incentive payment.
Addressing Sham Contracting
A dedicated unit will be setup and $9.2M invested over 4 years to address employers who misrepresent employment relationships as independent contracts to avoid statutory obligation and employment entitlements.
For information regarding what is an employee vs contractor, refer to https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/.
Social Security Income to be Automatically Reported via Single Touch Payroll
The government will automate reporting of employment income for social security purposes through Single Touch Payroll (STP) from 2018/2019. This measure ie expected to save $2.1Billion over 5 years. From 1 July 2020 income support recipients who are employed will report income received during teh fortnight and STP data will be shared with Department of Human Resources.