Personal tax rates will be reformed in a three stage plan, staggered over a seven year period. These steps are as follows:
Step 1: Immediate relief to low and middle income earners
A Low & Middle Income Tax Offset will be introduced for the 2018/19 to 2021/22 financial years. This will provide tax relief of up to $530 for each of those years. will be in addition to the existing low income tax offset (LITO).
Step 2: Relief from bracket creep for middle income tax payers
Middle income taxpayers will be provided relief for bracket creep in phases.
This will increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000 from 1 July 2018. In 2022–2023, the top threshold of the 19% bracket will increase from $37,000 to $41,000 and the LITO will increase from $445 to $645. The top threshold of the 32.5% bracket will increase from $90,000 to $120,000 from 1 July 2022.
Step 3. Removing the 37% personal income tax bracket.
This will be removed from 1 July 2024.
From this date the top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers will pay the top marginal tax rate of 45% where taxable income exceeds $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000.
The Government says this means that around 94% of all taxpayers are projected to face a marginal tax rate of 32.5% or less in 2024–2025
|Tax rates and thresholds
|2018-19 to 2021-22
|2022-23 and 2023-24
|$0 – $18,200
|$0 – $18,200
|$0 – $18,200
|$18,201 – $37,000
|$18,201 – $41,000
|$18,201 – $41,000
|$41,001 – $120,000
|$41,001 – $200,000
|$90,001 – $180,001
|$120,001 – $180,001
No increases to the Medicare Levy
The Government has decided not to go ahead with the proposed increase in the Medicare Levy from 2% to 2.5 %.
We can assume that the Bills to do this, which are currently before Parliament, will be removed. In an address on 26 April 2018 to the Australian Business Economists in Sydney, the Treasurer said that, due to the improving economy and fiscal position, the Government is “now in a position to give our guarantee to Australians living with a disability and their families and carers that all planned expenditure on the National Disability Insurance Scheme (NDIS) will be able to be met in this year’s Budget and beyond without any longer having to increase the Medicare levy”
At the same time, it has been reported that Shadow Treasurer Chris Bowen has announced that Labor will not proceed with its proposal to increase the Medicare levy by 0.5% (to 2.5%) on those earning above $87,000.
Small Business Investment Incentives
The $20,000 instant asset write-off for Small Businesses will be extended by 12 months, to 1 July 2019. This applies to businesses with an aggregated annual turnover of less than $10 million.
Disallowing deductions for holding vacant land
From 1 July 2019 the Government will disallow deductions for expenses associated with holding vacant land. Where the land is not genuinely held for the purpose of earning assessable income, expenses such as interest costs will be denied. It is hoped this measure will reduce the tax incentives for land banking which limit the use of land for housing or other development.
The measure will apply to both land held for residential and commercial purposes. However, the “carrying on a business” test would generally exclude land held for a commercial development. It will not apply to expenses associated with holding land that are incurred after:
- a property has been constructed on the land, it has received approval to be occupied and available for rent; or
- the land is being used by the owner to carry on a business, including a business of primary production.
Disallowed deductions will not be able to be carried forward for use in later income years. Expenses for which deductions will be denied could be included in the cost base if it would ordinarily be a cost base element (ie interest, borrowing costs and council rates) for CGT purposes.
Integrity Measures for Testamentary Trusts
Integrity measures for minors receiving income from testamentary trusts will be introduced from 1 July 2019.
Concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets. This is to prevent taxpayers paying lower tax rates on assets unrelated to the deceased estate that have been injected into the trust.
Increase in Compliance Activities
From 1 July 2018 there will be an increase in compliance activities targeting individuals and their tax agents. The Government will be providing the ATO with $130.8 million to continue with four income matching programmes to detect incorrect reporting of income.
It will also allow for new compliance activities including additional audits and prosecutions, improving education and guidance materials, pre-filling of income tax returns, and improving real time messaging to tax agents and individual taxpayers to deter over-claiming of entitlements, especially in relation to higher risk taxpayers and their agents.
Firm Stance on Tax & Super Debts
The Government will provide $133.7 million to the ATO to continue to deliver on a range of strategies that sustain both an increase in debt collections and an improvement in the timeliness of debt collections.
This will extend, and roll into ongoing funding, the measure announced in the August 2013 Economic Statement addressing the level of unpaid tax and superannuation in the community that would otherwise terminate on
30 June 2018.
The measure will ensure the ATO is able to continue to target those taxpayers gaining an unfair financial advantage over those who pay their fair share of tax and superannuation.
No Tax Deductions for Non-Compliant PAYG and Contractor Payments
From 1 July 2019 measures will be enacted to ensure that taxpayers will not 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.
Similarly, the Government intends to 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 (again despite the withholding requirements applying).
Increased Funding to Combat the Black Economy
The Government will provide $318.5 million over 4 years to implement additional strategies to combat the black economy.
A Limit of $10,000 for Cash Payments Made to Businesses for Goods & Services
This measure will require transactions over a threshold to be made through an electronic payment system or by
The rules will not apply to transactions with:
- financial institutions; or
- consumer-to-consumer non-business transactions.
This measure was recommended by the Black Economy Taskforce. It is designed to support other measures designed to counter the black economy. The Government will consult further as part of the implementation process.
Taxable Payments Reporting System (TPAR) to be Extended
The Government will extend the taxable payments reporting system (TPRS) to the following industries:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
This will extend the TPRS requirements already applying to the building and construction industry. The TPRS requirements will also be extended, from 1 July 2018, to the cleaning and courier industries under measures contained in the Treasury Laws Amendment (Black Economy Taskforce Measures No 1) Bill 2018.
The reporting requirements will apply from 1 July 2019, with the first annual report required in August 2020.
An SMSF friendly budget is the good news coming out of the 2018-19 Federal Budget. With SMSF members still working through the wide-reaching and complex superannuation changes which took effect from 1 July 2017, this Federal Budget will provide much needed stability while looking to reduce costs for SMSFs and prove additional flexibility.
The key changes proposed for SMSFs and superannuation are:
Three-yearly audit cycle for some self-managed superannuation funds
The Government will change the annual SMSF audit requirement to a three yearly requirement for SMSFs with a history of good record keeping and compliance. The measure will start on 1 July 2019 for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
Expanding the SMSF member limit from four to six
As already announced, the Federal Government confirmed its decision to expand the number of members allowed in an SMSF from four to six. Expanding the definition of an SMSF to a fund with a maximum of six members will provide greater flexibility in how funds can be structured.
Work test exemption
The Government will provide more time for Australians aged 65 to 74 to boost their retirement savings, by introducing an exemption from the superannuation work test. This exemption will apply where an individual’s total superannuation balance is below $300,000 and will permit voluntary superannuation contributions in the first year that they do not meet the work test requirements.
Life insurance cover in super to be opt-in for individuals under 25 years of age
The Government will legislate that life insurance cover in superannuation will be opt-in for those individuals under 25 years of age or with account balances under $6000 to ensure that unnecessary fees do not erode smaller balances. Life insurance cover will also cease where no contributions have been made for a period of 13 months.
If you have any questions regarding the Budget, please call your accountant at Kennedy Barnden on 02-4365 6789 and arrange an appointment to discuss the implications for you and your business.