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10 May 2018

2018-19 Federal Budget Review, what’s it in for you

The 2018-19 Federal Budget narrative delivered on Tuesday 8 May by Treasurer Scott Morrison focused on returning the Budget to balance and eventually surplus by 2020-21.

From rewards for SMSFs that have been diligent in reporting through to what’s in store for Aussie businesses, here we share our top Budget takeaways that will most likely be relevant to you.

Personal Tax Reforms

Hurrah! More coin (and smashed avo) for you, progressively.

The main change for the Australian tax paying public announced in the Budget relates to personal income tax rate reforms. The reforms will be rolled out over seven years in a 3-step plan.

The first of these steps will be a slight tweak to the 32.5% marginal tax bracket with the top end increasing to $90K and the introduction of a new non-refundable Low and Middle Income Tax Offset (LMITO) designed to provide tax relief of up to $530 for taxpayers earning up to $90,000. The offset phases out from $90,001 to $125,333. This offset will be in addition to the existing Low Income Tax Offset (LITO).

These reforms are a win for income earners at all levels but it’s going to take some time before the majority of taxpayers enjoy the full benefits.

Here’s a look at how tax rates and thresholds will change gradually from 2018-19 (changes noted in BOLD). The following exclude the 2% Medicare levy:

Tax rates and thresholds*

  Step One Step Two Step Three
Rate 2018-19 to 2021-22 2022-23 to 2023-24 2024-25 onwards
0% $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 – $41,000 $18,201 – $41,000
32.5% $37,001 – $90,000 $41,001$120,000 $41,001 – $200,000
37% $90,001 – $180,000 $120,001 – $180,000 N/A
45% $180,001+ $180,001+ $200,001+
LITO Up to $445 Up to $645 Up to $645
LMITO Up to $530

*Excluding 2% Medicare levy.
Prior to the release of the Budget, there was some talk about a 0.5% increase to the Medicare levy however this was scrapped.

 

Business Tax Highlights

There wasn’t anything too earth-shattering in the Budget for businesses in general. There was however, a strong emphasis and increased government spending to tackle Australia’s estimated $50B black/cash economy.

From 1 July 2019, businesses will no longer be able to accept more than $10K in cash for a single transaction. This restriction currently exists in specific industries however will be extended to all industries within the Australian economy.

The instant asset write-off for capital purchases less than $20K for small businesses that was due to finish at 30 June 2018 has been extended for another year. Available to businesses with an aggregated annual turnover of less than $10M, it’s important to note this benefit only serves those businesses that have the cashflow to afford the purchase.

 

There will be changes to the R&D tax incentive which come into effect from 1 July 2018. For businesses with an annual turnover of less than $20M:

  • The refundable R&D offset will be 13.5% points above the business’ tax rate.
  • Cash refunds will be capped at $4M p.a.
  • Any R&D tax offsets that cannot be refunded, will be carried forward as non-refundable tax offsets to future income years.

 

 

From 1 July 2019 businesses may receive no tax deduction for the following payments:

  • payments made to employees where no PAYG has been withheld; or
  • payments to contractors who have not provided an ABN and the business has not withheld an amount of PAYG.

The important take away from this announced measure is to ensure that PAYG is correctly withheld from salary and wages payments to employees and ensure that all contractors/subcontractors provide their ABN.

And finally, talk of extending the company tax cuts for big business ($50M + turnover) seems to have been put on the back burner in favour of significant changes to personal tax rates.

 

Super

There were some positive changes announced relating to superannuation:

  • The SMSF member limit will increase from four to six from 1 July 2019. This will create some planning opportunities for larger families and multi-generational funds particularly if the ALP proposed imputation/franking credit refunds were to be reduced or removed in the future.

 

  • Recent retirees aged 65-74 will no longer need to pass the work test in order to make voluntary contributions to their super fund if their member balance is below $300K. This measure will be effective from 1 July 2019 and will apply in the first year that the work test requirements are not met.

 

  • SMSFs with a history of good ATO lodgement timing and record keeping will change to a three yearly audit cycle. Currently all SMSFs are required to be audited annually prior to the tax return being lodged with the ATO. This change would be effective from 1 July 2019 and would be a bonus for SMSFs that stay on top of their lodgements and record keeping providing an administration cost saving.

 

  • There will be a cap on fees changed at 3% p.a and banning of exit fees when rolling to another super fund for taxpayers with small balances (less than $6K) held in industry or retail superannuation funds. This benefit will mainly be felt by younger people starting out in the workforce who regularly change employers and have super with various funds. This measure will make it less cost prohibitive rolling all super balances into the one fund.

 

Other Measures

The Taxable Annual Payments Reporting will apply beyond the building and construction industries:

  • from 1 July 2018, businesses within the cleaning and courier industries will now be required to report annual payments made to contractors.
  • from 1 July 2019, this will extend to businesses within the security, road freight transport and computer system design industries.

 

The information contained in this article is general in nature and does not take into account your personal situation and is not to be construed as advice. We specifically disclaim any losses or damages suffered by any party who may rely on this information in relation to their personal taxation or financial affairs.