The 2018-19 Budget’s main focus is on a stronger economy by guaranteeing the essentials Australians rely on and exercising restraint in repairing the Budget deficit. The Government also announced that it remains committed to pursuing its Ten Year Enterprise Tax Plan of company tax cuts and the Government Enterprise Tax Plan announced in the 2016-17 Budget.
The headline tax measure of the Budget is a seven year three-step implementation plan to make personal income tax “lower, fairer and simpler”. There are also proposed measures to ensure the integrity of the tax and superannuation systems, with substantial funding to be provided to the Australian Taxation Office (ATO) to counter the black economy and an overhaul of the R&D tax incentive.
The proposed Medicare levy increase to 2.5% from 1 July 2019 will not proceed and the $20,000 instant asset write-off for small businesses will be extended for another year.
As with last year’s Budget, no major tax reforms have been announced in preparation for the next Federal election which is expected to be held later this year.
We set out below a summary of the tax and superannuation highlights from the Budget. Note that measures proposed in the Budget are subject to the usual parliamentary process and may not become law or the eventual law may vary from the announced measures.
|Personal||Personal Income Tax Plan
A 7 year 3-step plan aimed to deliver lower, fairer and simpler personal income tax in Australia as follows:
Step 1: Introduction of the Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset is a non-refundable tax offset that will be available for the income years ending 30 June 2019 to 30 June 2022. The offset will depend on the amount of taxable income earned by an individual taxpayer in a given income year.
The Government has confirmed that the Low and Middle Income Tax Offset will be a tax benefit that will be available in addition to the existing Low Income Tax Offset.
|From 1 July 2018|
|Step 2: Bracket creep relief for middle income earners
The Government will implement the following measures designed to protect middle income earners from bracket creep:
• From 1 July 2018, the top threshold of the 32.5% personal income tax bracket will be increased from $87,000 to $90,000, which will then be further increased from 1 July 2022 to $120,000.
|From 1 July 2018|
|• From 1 July 2022, the tax offset in Step 1 will be locked in by an increase in the 19% personal income tax bracket to $41,000; and
• The Low Income Tax Offset will be withdrawn at a rate of 6.5 cents per dollar for taxable income from $37,000 to $41,000 and at a rate of 1.5 cents per dollar for taxable income from $41,001 to $66,667.
|From 1 July 2022|
|Step 3: Simpler personal income tax system
The Government proposes to simplify the current personal income tax system from 1 July 2024 by removing the 37% tax bracket and increasing the top threshold of the 32.5% personal income tax bracket from $120,000 (increased under step 2) to $200,000. As a result, the 32.5% tax bracket will apply to taxable incomes between $41,001 to $200,000. The top marginal tax rate of 45% (unchanged from the current top marginal tax rate) will apply to taxable incomes exceeding $200,000.
|From 1 July 2024|
|Personal||The Medicare levy increase from 2.0% to 2.5% of taxable income announced in last year’s Budget will no longer proceed.|
|Personal||The low income threshold for the Medicare levy for singles, families, seniors and pensioners will increase.||From the 2017-18 income year|
|Income Tax||Amendments to Division 7A will strengthen the unpaid present entitlements (UPE) rules.||1 July 2019|
|Property||Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied.||1 July 2019|
|Research & Development||Significant changes will be made to the calculation of the research and development (R&D) tax incentive, including a $4 million cap on the cash refund available to businesses with less than $20 million turnover.||1 July 2018|
|Small Business||The $20,000 instant asset write-off for small businesses will be extended by another 12 months for businesses with an aggregated turnover of less than $10 million.||1 July 2018 to 30 June 2019|
|Small Business||The small business capital gains tax (CGT) concessions will not apply to partners alienating rights to future partnership income.||8 May 2018|
|Superannuation||Personal superannuation contributions – Individuals will be required to confirm in their income tax returns that they have complied with “notice of intent” requirements.||1 July 2018|
|Superannuation||Super guarantee opt-out will be available for high income employees who breach the concessional cap.||1 July 2018|
|Superannuation||The maximum number of allowable members in SMSFs and small APRA funds will be increased to six members.||1 July 2019|
|Superannuation||The annual audit requirement for SMSFs will be changed to a three-yearly requirement for funds with a history of good record keeping and compliance.||1 July 2019|
|Trusts||The concessional tax rates for the income of minors from testamentary trusts will not be available for trust assets unrelated to the deceased estate.||1 July 2019|
|Trusts||A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts.||1 July 2019|
|Managed Investment Trusts||Managed investment trusts (MITs) and attribution MITs (AMITs) will be prevented from applying the 50% CGT discount at the trust level. The measure will prevent beneficiaries that are not entitled to the CGT discount in their own right from getting a benefit from the CGT discount being applied at the trust level, ensuring that MITs and AMITs operate as genuine flow through tax vehicles.||1 July 2019|
|Multinational||The definition of a ‘significant global entity’ (SGE) will be broadened to include more large multinational groups.||1 July 2018|
|Multinational||The thin capitalisation rules will be amended as follows:
To treat certain consolidated groups and multiple entry consolidated groups as both outward and inward investment vehicles for this capitalisation purposes.
|1 July 2019|
|Business||A tax deduction will no longer be available for payments to employees (such as wages) where the business has not withheld any amount of PAYG from these payments and payments to contractors where the no ABN withholding requirements have been ignored.||1 July 2019|
|Business||The taxable payments reporting systems will be extended to include security services, road freight transport and computer system design industries.||1 July 2019|
|Business||Businesses can no longer receive cash payments above $10,000 for goods and services.||1 July 2019|
|Business||Businesses seeking to tender for Australian government contracts above $4 million (incl. GST) will need to provide a statement of compliance with their tax obligations.||1 July 2019|
|Business||A package to reform the corporations and tax laws to deter and disrupt illegal phoenix activity and the black economy will be introduced.|
|GST||Offshore suppliers will be required to include supplies of hotel accommodation in Australia when calculating their GST turnover.||1 July 2019|