Federal Budget 2018/2019
Another year, another budget. The 2018-19 Federal Budget is rather low-key and doesn’t ruffle too many feathers.
Not surprising though, given that we are due an election sometime within the next 12 months.
Treasurer Scott Morrison has announced budget measures across the board, rather than singling out one particular segment.
Individuals can look forward to adjustments in personal income tax rates. This will be a 3-stage process over a 7 year period.
Small Business can continue to take advantage of the $20,000 instant asset write-off through to 30 June 2019.
Companies who undertake Research & Development (R & D) are set to see a change in the application of the R & D Tax Incentive.
Members of superannuation funds can breathe a sigh of relief. There are no overhauls to the sector this year. A few minor adjustments have been announced, including a cap on fees for low value accounts.
Increased resourcing for the ATO enforcement against the Black Economy has been allocated. Some areas did not rate a mention at all in the Budget.
Segments that received the silent treatment were:
- Work-related expense claims for individuals
- Any changes to Newstart payments
- Negative gearing
These new budget measures may have to wait in line, as there are a backlog of 2017-18 Budget measures still before Parliament. Most notable of the Bills yet to be passed relate to the:
- Reduction in the Corporate Tax rate to 25% by 2026-27
- Clarification of companies which can apply the reduced corporate tax rate (“Base Rate Entities”)
- Removal of the CGT main residence exemption for foreign residents
- Integrity measures regarding employers and their Superannuation Guarantee obligations
For further information on what these measures, plus many more, mean for you, we have provided a brief summary for your convenience under the following headings. Click on each heading to jump to that section of the newsletter
- Small Business & Business Tax
- Tax Compliance and Integrity Measures
- Goods and Services Tax
- Social Security Measures
Income tax reform
In the 2018-19 the Government proposed a 7-year 3-step plan to reform personal income tax:
From 1 July 2018 - a new non-refundable Low and Middle Income Tax Offset will be introduced, designed to provide tax relief of up to $530 for each of those years. The offset will be in addition to the existing low income tax offset (LITO).
|Taxable income $||Low and Middle Income Tax Offset $|
|0 - 37,000||200|
|37,000 - 48,000||200 - 530|
|48,000 - 90,000||530|
|90,000 - 125,333||530 less 1.5c per $ over 90,000|
- 1 July 2018 - top threshold of the 32.5% tax bracket will increase from $87,000 to $90,000
- 1 July 2022 - top threshold of the 19% tax bracket will increase from $37,000 to $41,000 and the top threshold of the 32.5% bracket will increase from $90,000 to $120,000
- 1 July 2022 - the Low Income Tax Offset (LITO) will increase from $445 to $645. The increased LITO 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
- 1 July 2024 - 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% from taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000
Proposed Tax Rates from 1 July 2024
|Taxable income $||Tax payable $|
|0 - 18,200||Nil|
|18,201 - 41,000||Nil + 19% of excess over 18,200|
|41,001 - 200,000||3,572 + 32.5% of excess over 41,000|
|>200,000||54,232 + 45% of excess over 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 2024-25
Income tax rates
No changes have been made to personal income tax rates for the 2017-18 Financial Year. The currently legislated personal tax rates (excluding Medicare levy of 2%) for Australian residents are:
|Taxable income $||Tax payable $|
|0 - 18,200||Nil|
|18,201 - 37,000||Nil + 19% of excess over 18,200|
|37,001 - 87,000||3,572 + 32.5% of excess over 37,000|
|87,001 - 180,000||19,822 + 37% of excess over 87,000|
|180,001+||54,232 + 45% of excess over 180,000|
This means that the highest marginal tax rate, including Medicare Levy, is 47% for the 2017-18 years.
Medicare Levy to remain at 2%
The Government had proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019, but has decided not to proceed with this measure.
Medicare Levy Low-Income thresholds
From 1 July 2017, the Medicare levy low-income threshold will increase to:
|Taxable income $||Tax payable $|
|Couples (no children)||$37,089|
|Couples with dependent children||$3,406 per child (in addition to the couple base rate)|
Changes to family tax benefit (FTB)
From 1 July 2017, Family Tax Benefit Part A supplement payments will be reduced by $28 per fortnight for each child who does not meet the Government immunisation requirements. Increased compliance activities: individuals and their tax agents . The Government will provide $130.8 million to the ATO to increase compliance activities targeting individuals and their tax agents. The funding will be used to maintain income matching programs, fund new compliance activities including audits and prosecutions and improving communication to tax agents and taxpayers with a focus on high risk taxpayers.
Instant asset write-off extended
The $20,000 instant asset write-off for small business entities (SBEs) which was due to end at 30 June 2018 has been extended for another 12 months to 30 June 2019. This applies to businesses with aggregated annual turnover less than $10 million.
SBEs will be able to continue to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2018 and 30 June 2019 and first used or installed ready for use by 30 June 2019 for a taxable purpose.
The threshold will revert back to $1,000 on 1 July 2019.
Application of Division 7A to UPEs
The operation of Division 7A will be clarified to ensure that Unpaid Present Entitlements (UPEs) come within the scope of Division 7A. This measure will ensure that a UPE, where a related private company becomes entitled to a share of trust income but has not been paid that amount, is either required to be repaid to the private company as a complying loan or subject to tax as a dividend.
Anti-avoidance rules: family trust circular distributions
Anti-avoidance rules will be extended from other closely held trusts that engage in circular trust distributions to family trusts. This measure will apply from 1 July 2019.
This extension will allow the ATO to pursue family trusts that engage in circular trust distributions arrangements and impose tax on distributions at a rate equal to the top marginal rate plus the Medicare levy. Circular trust arrangements are where family trusts are beneficiaries of each other and a distribution can be returned to the original trustee in a way that avoids any tax being paid on that amount.
Deductions disallowed for holding vacant land
Deductions will be disallowed for expenses associated with holding vacant land where the land is not genuinely held for the purpose of earning assessable income. This measure will not apply to expenses associated with holding land that are incurred after:
- A property has been constructed on the land and 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.
This will apply to land held for residential and commercial purposes however the ‘carrying on a business’ test would generally exclude land held for commercial development.
This measure will apply from 1 July 2019.
R & D tax incentive changes
The research and development (R&D) tax incentive will be amended for the income years starting on or after 1 July 2018.
For companies with aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above the claimant’s company tax rate. Any cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. Any R&D tax offset that cannot be refunded will be carried forward to future income years as non-refundable tax offsets.
For companies with aggregated annual turnover of $20 million or more 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 proportion of total expenditure for the year. The R&D expenditure threshold will be increased from $100 million to $150 million per annum.
Other changes including allowing the ATO to publicly release applicant details regarding the R&D expenditure that they have claimed.
Additional funding for Single Touch Payroll to assist small businesses
An additional $15 million of funding will be provided to the ATO over 3 years from 2018-19 income year to assist with the modernisation of payroll and superannuation fund reporting. This funding will be used to support small businesses who have less than 20 employees during the transition to Single Touch Payroll from 1 July 2019.
Additional Funding for ASIC
To assist in their involvement in the Royal Commission into Banking, Australian Securities and Investment Commission (ASIC) will be provided $10.6 million over 2 years and Australian Prudential Regulation Authority (APRA) will be provided $2.7 million in the 2018-19 year.
Pathway to Permanent Residency for Retirement and Investor Retirement Visa Holders
Retirement and Investor Retirement visa holders will be eligible to apply onshore for a permanent visa and will be exempted from some requirements such as having family in Australia. This pathway will remain open until all eligible visa holders who want to transition to permanent residency have done so. As part of this measure the Retirement and Investor Retirement visas have been closed to new applicants.
SMSF member limit to increase from 4 to 6
From 1 July 2019, the budget proposes an increase to the maximum allowable members in new and existing self-managed superannuation funds and small APRA funds from 4 to 6 members.
This measure seeks to provide greater flexibility for large families to jointly manage retirement savings.
Improving notice of intention to deduct - Personal super contributions
The Government have announced that additional funding will be provided to the ATO to ensure greater compliance with the process to claim a tax deduction for personal contributions made to superannuation.
This measure has been introduced to address the integrity problems with the current process.
Superannuation work test exemption for contributions by recent retirees
The budget proposes to allow superannuation fund members between the ages 65-74 (inclusive) to make voluntary super contributions in the first year that they do not meet the works test; a test which requires the member to hold gainful employment for 40 hours within a period of 30 consecutive days.
However, this exemption is only available where the member’s total super balance is under $300,000 at the end of the previous financial year. The exemption will apply to personal deductible, and personal non-concessional (after-tax) contributions.
This measure will apply from 1 July 2019.
Super Guarantee opt-out for high-income employees
From 1 July 2018, high income earners with income of $263,157 or more will be able to opt out of the Superannuation Guarantee (SG). This will allow eligible individuals receiving SG contributions from multiple employers to avoid exceeding the annual concessional contribution cap, currently $25,000.
At present, a breach of the concessional cap would result in an individual being subject to excess contributions tax as well as a shortfall interest charge.
To compensate for a reduction in SG contributions, employees will be able to negotiate additional income which will be taxed at marginal rates.
Triennial SMSF Audits
Self-managed superannuation funds (SMSFs) with a history of “good record-keeping and compliance” will have their annual audit requirement extended to a 3-yearly cycle.
At present, SMSFs will be eligible where there is a history of clear audit reports for the previous 3 consecutive years in addition to lodging annual returns by due date.
This measure is to be introduced from 1 July 2019, after consultation with industry groups to ensure workability and implementation.
Protecting small super balances
From 1 July 2019, the Government is introducing measures to reduce the compliance and insurance costs for funds with small balances to prevent unnecessary erosion of retirement savings. The proposed measures are as follows:
- Fees charged by superannuation funds will be capped at 3% for small superannuation accounts with a balance of $6,000 or less
- A ban on exit fees for all superannuation accounts. This measure is aimed to reduce barriers to consolidate multiple superannuation accounts
- The ATO’s efforts to consolidate lost and low balance superannuation accounts will be prioritized through an expansion of its data matching processes. Superannuation account balances of $6,000 or less will require transfer to the ATO to protect the balances from further erosion
- Insurance arrangements within superannuation will move from a default framework to an opt in basis where the member’s balance is $6,000 or less, the members is under the age of 25 and the superannuation account has not received contributions in 13 months
Super trustees required to formulate retirement income strategy for members
Further to the development of a new retirement income product as announced in the 2016 Budget reforms, the Superannuation Industry (Supervision) Act 1993 (SIS Act) will be amended to introduce a covenant requiring super funds to formulate a retirement income strategy for its members.
Retirement income products
Also part of the ongoing development of a new retirement income product, the Government have proposed an amendment to the Corporations Act 2001 to ensure simplified reporting and standardized metrics within product disclosure statements (PDSs) prepared by providers. This is in an effort to assist customer decision making.
Superannuation supervisory levies to increase from 1 July 2018
From 1 July 2018, the Government will increase the supervisory levy applying to APRA regulated super funds. They have advised the additional revenue is required to fully recover the cost of regulating superannuation activities.
Black Economy Measures
From 1 July 2018 additional funding to the ATO will provide $318.5 million over four years to implement new strategies to combat the black economy. The ATO will implement a new and enhanced enforcement strategy that brings together:
- new mobile strike teams
- an increased audit presence
- a Black Economy Hotline that will allow for the community to report black economy and illegal “phoenix” activities
- improved government data analytics and
- Educational activities
The government will also consult on and design a new regulatory framework for the Australian Business Number (ABN) system in 2018-19. The desired outcome is to strengthen the system, providing improved confidence in the identity and legitimacy of Australian businesses.
Combating Illegal “Phoenix” Activity
In addition to the enhanced enforcement strategy, the government has announced it will reform the corporations and tax laws and provide the regulators with additional tools to assist them to deter and disrupt the illegal “phoenix” activity of creating a new company to continue the business of an existing company that is deliberately liquidated to avoid paying taxes, creditors and employee entitlements.
The package includes reforms to:
- introduce new “phoenix” offences to target those who conduct or facilitate illegal “phoenixing”
- prevent directors improperly backdating resignations to avoid liability or prosecution
- limit the ability of directors to resign when this would leave the company with no directors
- restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator
- extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts, and
- expand the ATO’s power to retain refunds where there are outstanding tax lodgements.
Cash Payments Limit: Payments Made to Business
The government will introduce a Black Economy Taskforce recommendation to limit a cash receipt for a business to under $10,000, from 1 July 2019.
Transactions with financial institutions or consumer-to-consumer non-business transactions will not be affected.
No Tax Deduction for Non-Compliant PAYG and Contractor Payments
Commencing 1 July 2019 the following payments will no longer be deductible where businesses have not complied with the PAYG Obligations:
- Payments to Employees - where the employer is required to withhold PAYG from gross payments, but fails to report or remit it to the ATO
- Payments to Contractors – where the contractor does not quote an ABN and the purchaser does not withhold an amount at the top marginal rate and remit this to the ATO
Note – failure to comply will render the entire payment non-deductible.
Reportable Payments System Extended
The taxable payments reporting system (TPRS) will be expanded to the following industries from 1 July 2019:
- security providers and investigation services
- road freight transport, and
- computer system design and related services.
These reporting requirements are identical to ones already in place for payments to contractors in the building and construction industry, as well as payments in the cleaning and courier industries, commencing 1 July 2018.
Offshore Suppliers of Australian Hotel Accommodation
For some years the Government has been looking at GST issues arising from both Australian residents and foreign consumers booking hotel accommodation in Australia through online websites. Some of the websites are operated by Australian entities, others by overseas entities. Although the hotel itself will pay GST on its accommodation, the website’s mark-up is currently only being subjected to GST if operated by an Australian resident entity. The Budget measure removes this anomaly by providing that foreign suppliers will need to include this mark-up in their GST turnover calculations.
This measure is proposed to commence on 1 July 2019.
Social Welfare Debt Recovery
The Budget extends the Department of Human Services’ fraud detection and debt recovery activities. The main measures are:
- A focus on people with welfare debts exceeding $10,000 and not in a payment plan, or in a payment plan but who have been identified as having the ability to pay more
- Welfare recipients with unpaid Court fines will have money deducted from their payments until the debt is paid. Those with outstanding warrants for criminal offences will have their payments suspended
- Increased data-matching with the Australian Taxation Office.
Carer Support Services
The Budget is providing a range of early intervention and preventative services for carers. However carers will only qualify for Carer Allowance payments if their income is below $250,000.
The waiting period for newly arrived migrants to access certain welfare benefits is being increased from three to four years. Exemptions apply for vulnerable groups and humanitarian migrants.
Provisions have been introduced to enhance the standard of living for older Australians, including:
- Increasing the Pension Work Bonus from $250 to $300 per fortnight, and extending eligibility to self-employed retirees
- Amending the pension means test to encourage lifetime retirement income products
- Expanding the Pension Loans Scheme to enable use of home equity to increase income
These measures commence on 1 July 2019.