Personal Income Tax
The centrepiece of this year’s Budget is the Government’s seven year Personal Income Tax Plan.
Step 1 of the plan provides immediate tax relief for low and middle income earners through a targeted non-refundable offset, on top of the low income tax offset.
Step 2 combats bracket creep with a modest increase in the ceiling of the 32.5 per cent tax bracket, with larger threshold increases to follow in 2022-23. Step 3 lifts this threshold again in 2024-25, effectively removing the 37 per cent bracket entirely.
By the time the measures take full effect in 2024-25, the following rates/brackets will apply:
- $18,201 to $41,000 – 19 per cent
- $41,001 to $200,000 – 32.5 per cent
- Over $200,000 – 45 per cent
No increase in Medicare Levy
In further good news for individuals, as previously announced, the proposed Medicare levy increase of 0.5% has been scrapped, which means the Medicare Levy will now remain at 2.0%.
$20,000 Tax Deduction Extended
The federal government has also extended the small business $20,000 tax deduction for another year, to 30 June 2019. The $20,000 immediate deduction is available for small business with a turnover of less than $10 million.
SMSF Measures: 2 Radical Policies
1. SMSF audits to be every 3 years:From 1 July 2019, if an SMSF is well-behaved (history of good record-keeping and compliance, clear audit reports for 3 years, and lodged returns on time), SMSF trustees of such a fund will meet compliance requirement by having an SMSF audit every three years
2. Increase number of members from 4 to 6 for SMSFs and small APRA funds: From 1 July 2019, allow an SMSF or small APRA fund to have a maximum number from 6 members rather than the current maximum of 4 members
Other Superannuation Measures
1. No work test for over-65s for one year, if account balance is less than $300,000.
2. Monitoring of ‘Notice of Intention to Deduct’ form requirements.
3. High-income earners and SG payments:From 1 July 2018, if an individual’s income exceeds $263,157, and he or she has multiple employers, then he or she can nominate that wages or salary from certain employers are not subject to the Superannuation Guarantee rules, to avoid breaching the concessional (before-tax) contributions cap. Individuals in these situations can negotiate to receive additional income rather than SG payments, which would then be taxed at marginal rates
4. Introduction of cap on passive fees for account balances of less than $6,000. From 1 July 2019, the federal government will introduce a 3% annual cap on passive fees charges by super funds for accounts with less than $6,000
5. Ban exit fees when a fund member changes super funds.
6. Ban default insurance in super accounts for under-25s and fund member accounts where a super contribution has not been received for 13 months, and the account is considered inactive.
Business Tax Top 5 Changes
1. Research and Development
From 1 July 2018, new rules will introduce an incremental intensity requirement impacting the value of the R&D Tax Incentive for larger entities. Other measures include increasing the maximum R&D expenditure threshold from $100 million to $150 million. For smaller entities, the refundable R&D offset will be a premium of 13.5% above the claimant’s tax rate and cash refunds will be capped at $4m per annum.
2. Thin capitalisation
For income years starting on or after 1 July 2019, entities will now be required to use financial statement values to value their assets for thin capitalisation purposes, with external or internal market valuations no longer available. Inbound investors will no longer be able to access testing aimed at outbound investors.
3. Managed Investment Trust Measures
The list of information exchange countries will be updated to include the 56 countries who have signed up since 2012, enabling access to the 15% managed investment trust withholding tax rate. Integrity measures will be introduced to remove the capital gains tax discount at the trust level to ensure only eligible beneficiaries can access the discount.
4. Taxing Digitalisation
The government has flagged further action on digitalisation, and will soon release a discussion paper that will explore options for taxing digitalised business.
5. Black Economy
The Government has released its responses to the Black Economy Taskforce final report. These include significant additional funding for the ATO. In addition, from 1 July 2019, businesses tendering for Commonwealth contracts over $4 million will be required to provide evidence of a satisfactory tax record. Further, the Government will expand the taxable payments reporting system to the road freight transport industry, the security and investigation industry, and the computer system design industry; and deductions for cash wage payments will be disallowed where the employer does not withhold the necessary PAYG.