The Treasurer, Scott Morrison, handed down the Federal Budget 2018-19 last night. We have outlined below the key budget items that may impact you:
Personal Income tax changes
The Government will introduce a 7 year, 3 step personal income tax plan as follows:
Step 1 – Targeted tax relief to low and middle income earners
The introduction of a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers. The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.
The benefit of the proposed Low and Middle Income Tax Offset is as follows:
- Taxpayers with taxable incomes of $37,000 or less will receive a benefit of up to $200;
- For taxpayers with taxable incomes between $37,00 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530;
- For taxpayers with taxable incomes from $48,000 to $90,000 a $530 offset applies; and
- For taxpayers with taxable incomes from $90,001 to $125,333 the offset will phase out at a rate of 1.5 cents per dollar.
The benefit of the Low and Middle Income Tax Offset is in addition to the Low Income Tax Offset.
Current (2018 and 2019)
|0 – 37,000||Up to $445||0 – 37,000||Up to $200|
|37,001 – 66,666||$445 – 1.5% of excess
|37,001 – 48,000||$200 + 3% of excess over $37,000|
|66,667+||Nil||48,001 – 90,000||$530|
|90,001 – 125,333||$530 – 1.5% of excess over $90,000|
Step 2 – Protecting middle income Australians from bracket creep
The Government has proposed the following changes to the personal income tax rates:
- From 1 July 2018, the Government will increase the top threshold of the 32.5% personal income tax bracket from $87,000 to $90,000. The rates below do not include medicare levy:
|0 – $18,200||0 – $18,200|
$18,201 – $37,000
$18,201 – $ 37,000
$37,001 – $87,000
$37,001 – $90,000
|37%||$87,001 – $180,000||
$90,001 – $180,000
- From 1 July 2022, the Government will:
– extend the 19% personal income tax bracket from $37,000 to $41,000; and
– further increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000.
The Government has also proposed an increase to the Low Income Tax Offset from $445 to $645 from 1 July 2022. This offset will reduce 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 $41,000 and $66,667.
Step 3 Ensuring Australians pay less tax by making the system simpler
In the third step, the Government will simplify and flatten the personal tax system by removing the 37% tax bracket entirely. From 1 July 2024, the Government will extend the top threshold of the 32.5% personal income tax bracket from $120,000 to $200,000. The 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000 and taxpayers with taxable incomes exceeding $200,000 will pay tax at the top marginal rate of 45%.
Changes to Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds from the 2018 income year as follows:
- The threshold for singles will be increased from $21,655 to $21,980;
- The family threshold for will be increased from $36,541 to $37,089;
- The threshold for single seniors and pensioners will be increased from $34,244 to $34,758; and
- 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.
The Government announced that it will not increase the Medicare Levy from 2% to 2.5% of taxable income from 1 July 2019 as previously announced.
Changes affecting business taxpayers:
- Extending the $20,000 immediate write-off for small business by a further 12 months to 30 June 2019 for businesses with aggregated annual turnover less than $10 million.
Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Only a few assets are not eligible (ie horticultural plants and in-house software).
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
- Introduction of an economy-wide cash payment limit
From 1 July 2019, the Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services. Currently, large undocumented cash payments can be used to avoid tax or to launder money from criminal activity. This measure will require transactions over a threshold to be made through an electronic payment system or cheque. Transactions with financial institutions or consumer to consumer non-business transactions will not be affected.
Superannuation related changes:
- Three-yearly audit cycle for some SMSFs
From 1 July 2019, the Government will change the annual audit requirement to a three-yearly requirement for 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.
- Increasing the maximum number of allowable members in an SMSF and small APRA funds
From 1 July 2019, the Government will increase the maximum number of allowable members in new and existing SMSFS and small APRA funds from four to six. This will provide greater flexibility for joint management of retirement savings, in particular for large families.
- Deductions for personal contributions
The Government intends to 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% tax to their contribution. As the contribution has been deducted from the individual’s income, no tax is paid on it at all.
The additional funding will enable the ATO to develop a new compliance model, and to undertake additional compliance and debt collection activities. From 1 July 2018, the ATO will modify income tax returns to alert individuals to the NOI requirements with a tick box to confirm they have complied.
- Capping passive fees, banning exit fees and reuniting small and inactive superannuation accounts
From 1 July 2019, the Government will introduce a 3% annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000 and will ban exit fees on all
superannuation accounts. The Government will also strengthen the ATO-led consolidation regime by requiring the transfer of all inactive superannuation accounts where the balances are below $6,000 to the ATO. The ATO will expand its data matching processes to proactively reunite these inactive superannuation accounts with the member’s active account, where possible.
- Changes to insurance in superannuation
The Government will change the insurance arrangements for certain superannuation members. Insurance within superannuation will move from a default framework to an opt-in basis for: members with low balances of less than $6,000; members under the age of 25 years; and members whose accounts have not received a contribution in 13 months and are inactive.
The changes will take effect on 1 July 2019 — affected superannuants will have a period of 14 months to decide whether they will opt-in to their existing cover or allow it to switch off.
Changes affecting companies:
- Reforms to combat illegal phoenixing
The Government will reform the corporations and tax laws and provide the regulators with additional tools to assist them to deter and disrupt illegal phoenix activity. The package includes reforms to:
• extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts;
• expand the ATO’s power to retain refunds where there are outstanding tax lodgements;
• 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; and
• restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator