Last night the Federal Government handed down the 2018-19 Federal Budget. The centrepiece of the Budget was a seven-year personal income tax strategy, beginning with reductions for low and middle-income earners in the 2018-19 year. It also focused on reining in spending, tax cuts for small to medium enterprises, and on assisting older Australians.
Personal Income Tax
Increase in tax bracket thresholds - Income tax cuts will be delivered over a seven-year period, through a combination of tax rate threshold changes and tax offsets.
- From 1 July 2018 - 32.5% upper threshold increased from $87,000 to $90,000. Reduces the tax liability of those earning $90,000 or more by $135.
- From 1 July 2018 - Low & Middle income tax offset for those earning between $48,000 - $90,000 up to $530. No tax offset for incomes over $125,000.
- From 1 July 2022 - further increase to 32.5% threshold to $120,000. 19% threshold will increase from $37,000 to $41,000.
- From 1 July 2024 - the 37% tax bracket will be removed. Top threshold of 32.5% extended to $200,000. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,001.
Visit the Government's budget website for the tax relief estimator.
Expenses associated with holding vacant land will cease to be deductible from 1 July 2019 and will not be able to be carried forward. Such expenses for land that was previously vacant will only become deductible when:
- Construction is complete, approval for occupancy has been granted and the property is available for rent, or
- The land is used in carrying on a business.
A new measure, commencing on 1 July 2019, will ensure that minors are taxed in a manner consistent with other income earned and prevent assets being placed into a testamentary trust that were not related to the deceased estate. Current rules allow minors to be taxed as adults in respect of income paid on assets or cash proceeds held within a testamentary trust.
Cash payments to businesses will be restricted to $10,000 or less from 1 July 2019. Any payments for goods or services to businesses that exceed $10,000 can only be paid electronically or via cheque.
- Transactions with financial institutions and consumer to consumer (non-business) transactions will not be subject to this cash limit.
Small Business tax cuts:
- The lower corporate tax rate of 27.5% will be broadened to companies with an annual turnover of less than $50 million from 1 July 2018.
- The $20,000 instant asset write-off will be extended an additional 12 months to 30 June 2019.
From 1 July 2018:
- More entities to be caught by Significant Global Entity (SGE) Rules. These rules will potentially apply to Australian Subsidiary companies or Australian branches of foreign companies, regardless of the turnover of the Australian operations. If an entity is an SGE, they will need to provide general purpose financial statements to the ATO if not already provided to ASIC.
- Research & Development Incentive shake up to refocus support for larger companies towards higher intensity R & D eg Medical and Clinical. Smaller companies will continue to benefit from a refundable R & D tax offset.
From 1 July 2019:
- No more salary & wage tax deductions for late paying employers.
- Taxable payment reports will be required from Security, Road Freight and Computer Design service industries. This requirement is currently in place for Cleaning, Building Industry and Courier businesses.
- Tax carve out for craft brewers - concessional draught beer excise rates will be extended to kegs 8 litres or more and the excise refund scheme will be increased to $100,000 per financial year (current cap is $30,000 per financial year).
The work test for certain individuals aged 65-74 will be removed, and certain longevity retirement income products may be more concessionally treated under the age pension means testing than originally proposed.
- Self-employed age pensioners will now be able to access the Pension Work Bonus and earn up to $7,800 per year without reducing their pension payments, while the existing cap on the Pension Work Bonus for age pensioners will increase by $50 per fortnight to $300 before reducing pension payments.
- A one-year exemption on the work test for those retiring over age 65 who want to contribute to superannuation, with a total superannuation balance below $300,000 will also be exempted from the superannuation work test for voluntary contributions.
- Expansion of the Pension Loan Scheme to all Australians of Age Pension age - offering an alternative to reverse mortgages to fund care costs as well as other income needs, from 1 July 2019. The maximum loan amount will increase from 100% to 150% of age pension.
- Employers of older Australians will be able to access wage subsidies of up to $10,000 and a new Skills and Training Incentive will be offered to mature workers.
- Improving access to residential and home care, with an increase in Home Care packages.
- There were no changes announced for aged care fees.
- Individuals who earn over $263,157 from 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. This will allow eligible individuals to avoid unintentionally breaching the concessional contributions cap as a result of receiving SG contributions from multiple employers. Employees who use this measure could negotiate to receive additional income, taxed at marginal tax rates.
- Exit fees will be banned on all superannuation accounts.
- From 1 July 2019, a 3% annual cap on passive fees will apply to superannuation accounts where the balance is below $6,000.
- Superannuation funds will also be required to transfer inactive accounts (ie that have not received a contribution for at least 13 months) with a balance of less than $6,000 to the ATO. The ATO will proactively reunite inactive accounts with active accounts where the value of the consolidated account will be at least $6,000.
- Insurance will become opt-in, rather than opt-out, for superannuation fund members under age 25, inactive for more than 13 months or with a balance less than $6,000.
- Member limit increase from four to six from 1 July 2019.
- Annual audits can be changed to a three-yearly audit from 1 July 2019. To qualify the SMSF will be required to have three consecutive clear audit reports and lodged their annual returns on time.
- Super trustees will need ot build new retirement income investment strategies for their members.
How Can We Help?
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2018-19 Federal Budget, please feel free to give WLM a call on 9221 7777 to arrange a time to meet so that we can discuss your particular requirements in more detail.