The Treasurer has handed down the Government’s 2018-19 Federal Budget, which despite not addressing any major tax reforms does include a number of important and targeted measures which are outlined below.
Backing Small Business Investment — further extending the immediate deductibility threshold
The Government will extend the accelerated depreciation for small businesses by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million. This initiative is also known as the $20,000 instant asset write-off.
Better targeting the research and development tax incentive
For companies with aggregated annual turnover of $20 million or more, the Government will introduce an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.
Black Economy Package — further expansion of taxable payments reporting
The Government will further expand 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. Under the TPRS, businesses are required to report payments to contractors to the ATO. This brings payments to contractors in these industries into line with wages which are reported to the ATO. Businesses will need to ensure that they collect information from 1 July 2019, with the first annual report required in August 2020.
Black Economy Package — removing tax deductibility of non-compliant payments
Businesses will no longer be able to claim deductions for payments to their employees such as salary & wages where they should have 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.
Company Tax — significant global entity (SGE) definition amendment
The Government will broaden the definition of SGE to now include members of large multinational groups headed by private companies, trusts and partnerships. It will also include members of groups headed by investment entities.
More Choices for a Longer Life — work test exemption for recent retirees
The Government will introduce an exemption from the work test for voluntary contributions to superannuation, for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements.
Personal Income Tax — increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds from the 2017-18 income year. The threshold for singles will be increased from $21,655 to $21,980. The family threshold will be increased from $36,541 to $37,089.
For single seniors and pensioners, the threshold will be increased from $34,244 to $34,758.
The family threshold for seniors and pensioners will be increased from $47,670 to $48,385. For each dependent child or student, the family income thresholds increase by a further $3,406, instead of the previous amount of $3,356.
Personal Income Tax — retaining the Medicare levy rate at 2 per cent
The Government will not increase the Medicare levy rate from 2.0 per cent to 2.5 per cent of taxable income from 1 July 2019.
Personal Income Tax Plan
The Government will introduce a seven-year Personal Income Tax Plan.
- They will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident Low and Middle income taxpayers.
- From 1 July 2018, the Government will increase the top income threshold of the 32.5 per cent personal income tax bracket from $87,000 to $90,000.
- From 1 July 2022, the Government will increase the Low Income Tax Offset from $445 to $645 and extend the 19 per cent personal income tax bracket up 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
- a rate of 1.5 cents per dollar between incomes of $41,000 and $66,667.
From 1 July 2022, the Government will further:
- increase the top threshold of the 32.5 per cent personal income tax bracket from $90,000 to $120,000.
From 1 July 2024, the Government will extend the:
- top income threshold of the 32.5 per cent personal income tax bracket from $120,000 to $200,000, to recognise inflation and wage growth impacts.
- Taxpayers will pay the top marginal tax rate of 45 per cent from taxable incomes exceeding $200,000. The 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000 thereby removing the 37 per cent tax bracket entirely.
Superannuation — better integrity over deductions for personal contributions
The Government will improve the integrity of the ‘notice of intent’ (NOI) processes for claiming personal superannuation contribution tax deductions. Currently, some individuals receive deductions on their personal superannuation contributions but do not submit a NOI, despite being required to do so. This results in their superannuation funds not applying the appropriate 15 per cent tax to their contribution. As the contribution has been deducted from the individual’s income, no tax is paid on it at all. The ATO currently uses data matching processes to try to catch this practice.
Superannuation — increasing the maximum number of allowable members in self-managed superannuation funds and small APRA funds from four to six
The Government will increase the maximum number of allowable members in new and existing self-managed superannuation funds and small APRA funds from four to six, from 1 July 2019.
This change can achieve a better alignment of the SMSF/Small APRA fund to the small businesses they are often associated with in a family group.
Superannuation — preventing inadvertent concessional cap breaches by certain employees
The Government will allow individuals whose income exceeds $263,157 and have multiple employers to nominate that their salary & wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018.
Superannuation — three-yearly audit cycle for some self-managed superannuation funds
The Government will change the annual audit requirement to a three-yearly requirement for self-managed superannuation funds (SMSFs) with a history of good record-keeping and compliance.
This measure will reduce red tape 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.
This measure will start on 1 July 2019.
Tax Integrity — clarifying the operation of the Division 7A integrity rule
The Government will ensure that unpaid present entitlements come within the scope of Division 7A of the Income Tax Assessment Act 1936 from 1 July 2019. This will apply where a related private company is made entitled to a share of trust income as a beneficiary but has not been paid that amount, known as an unpaid present entitlement.
No detail has been provided to date, so we cannot yet advise how the possible changes will impact you.
Tax Integrity — deny deductions for vacant land
The Government will deny deductions for expenses associated with holding vacant land. This is an integrity measure to address concerns that deductions are being improperly claimed for expenses, such as interest costs, related to holding vacant land, where the land is not genuinely held for the purpose of earning assessable income. It will also reduce tax incentives for land banking, which deny the use of land for housing or other development. This measure will take effect from 1 July 2019.
Tax Integrity — enhancing the integrity of concessions in relation to partnerships
From 7:30PM (AEST) on 8 May 2018, partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership will no longer be able to access the small business capital gains tax (CGT) concessions in relation to these rights.
Tax Integrity — extending anti-avoidance rules for circular trust distributions
The Government will extend to family trusts a specific anti-avoidance rule that applies to other closely held trusts that engage in circular trust distributions. Currently, where family trusts act as beneficiaries of each other in a ‘round robin’ arrangement, in some situations a distribution can be ultimately returned to the original trustee in a way that avoids any tax being paid on that amount.
Tax Integrity — improving the taxation of testamentary trusts
From 1 July 2019, the 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.
There have been some situations where assets having no connection to the decease’s estate have been injected into the testamentary trust. From 1 July 2019 income and capital gains from such assets will be taxable to minors at the normal penalty rates.
Tax Integrity — thin capitalisation — valuation of assets and treatment of consolidated entities
The Government will tighten Australia’s thin capitalisation rules by requiring entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.