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Reward for work is a dominant theme in this year’s Budget.
The seven year personal income tax plan initially targets low to middle income earners before making significant changes to the tax brackets.
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As you would expect from an election budget, there is not a lot of bad news or serious cuts. The black economy however features consistently with a multiagency taskforce and all manner of programs including the imposition of a limit of $10,000 on cash payments.
There are also a number of tax changes to close loopholes and while not presented in the budget, the Treasurer has flagged the release of a discussion paper that will explore options for taxing digital business in Australia. There will be more to come – just not this year.
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Proposed Budget Measures
Subject to being passed as legislation.
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For Businesses
$20k Accelerated Depreciation Extended
| Date of effect | current until 30 June 2019 |
The ability for small business entities to claim an immediate deduction for assets costing less than $20,000 has been extended until 30 June 2019.
From 1 July 2019, the immediate deduction threshold will reduce back to $1,000.
There are no limits to the number of times you can use the immediate deduction assuming your cashflow supports the purchases.
If your business is registered for GST, the cost of the asset needs to be less than $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price. If your business is not registered for GST, it is the GST inclusive amount.
Second hand goods are also deductible. However, there are a number of assets that don’t qualify for the instant asset write-off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.
If you purchase assets costing $20,000 or more, the immediate deduction does not apply but small businesses have the ability to allocate the purchase to a pool and depreciate the pool at a rate of 15% in the first year and 30% for each year thereafter.
Security, Road Freight, And Computer Design Services Become ATO Black Economy Target
| Date of effect | 1 July 2019 |
The taxable payments reporting system requires businesses in certain industries to report payments they make to contractors (individual and total for the year) to the ATO. ‘Payment’ means any form of consideration including non-cash benefits and constructive payments.
From 1 July 2019 the following industries will be required to lodge annual reports to the ATO:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
The building industry, cleaning and courier businesses are already required to provide this enhanced reporting to the ATO.
The first annual report for these industries is required by August 2020. Businesses in these industries will need to start collecting information on payments to contractors from 1 July 2019.
No More Salary & Wage Tax Deductions For Late Paying Employers
| Date of effect | 1 July 2019 |
The Government really wants employers focussed on their tax obligations to the point where employers that fall behind will lose the right to claim employment related tax deductions.
Employers who do not keep up with their PAYG obligations will not be able to claim a tax deduction for payments to employees (such as wages).
Businesses will also lose the ability to claim deductions for payments made to contractors where the contractor does not provide an ABN and the business does not withhold PAYG.
$10k Limit On Cash Transactions
| Date of effect | 1 July 2019 |
A limit of $10,000 will be introduced for cash payments made to businesses for goods and services from 1 July 2019. Payments above the threshold will need to be made through an electronic payment system or by cheque.
The measure does not impact on transactions with financial institutions or non-business consumer to consumer transactions. But, if you run a business, from 1 July 2019 you will not be able to accept cash transactions above $10,000.
Regulators Target Phoenixing
| Date of effect | No date specified |
Corporation and tax laws will be reformed in an attempt to target phoenix activity. The reforms:
- Introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing;
- 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;
- 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.
The current Director Penalty Regime includes unpaid superannuation guarantee and PAYG withholding amounts but does not include GST liabilities. These proposed changes will ensure that directors become personally liable in situations where the company has not satisfied its GST obligations as well as luxury car tax and wine equalisation tax liabilities.
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For Individuals
Personal Income Tax Cuts
The anticipated personal income tax cuts will be delivered as part of a seven year plan culminating in the removal of one tax bracket from 1 July 2024. The Government states that the end result will be that around 94% of taxpayers will be subject to a marginal tax rate of 32.5%.
The focus right now however is the low and middle tax income brackets with changes to the tax brackets and the introduction of the Low and Middle Income Tax Offset.
| Tax thresholds | ||||
| Tax rate | Current | From 1 July 2018 | From 1 July 2022 | From 1 July 2024 |
| 0% | $0 – $18,200 | $0 – $18,200 | $0 – $18,200 | $0 – $18,200 |
| 19% | $18,201 – $37,000 | $18,201 – $37,000 | $18,201 – $41,000 | $18,201 – $41,000 |
| 32.5% | $37,001 – $87,000 | $37,001 – $90,000 | $41,001 – $120,000 | $41,001 – $200,000 |
| 37% | $87,001 – $180,000 | $90,001 – $180,000 | $120,001 – $180,000 | – |
| 45% | >$180,000 | >$180,000 | >$180,000 | >$200,000 |
| Low & middle income tax offset | Up to $530 | – | – | |
| LITO | Up to $445 | Up to $445 | Up to $645 | Up to $645 |
From 1 July 2018:
- The top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000.
From 1 July 2022:
- The top threshold of the 19% personal income tax bracket will increase from $37,000 to $41,000.
- The top threshold of the 32.5% personal income tax bracket will again increase from $90,000 to $120,000.
- The Low Income Tax offset will increase from $445 to $645. The increased Low Income Tax Offset 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.
From 1 July 2024:
- The 37% tax bracket will be removed.
- The top threshold of the 32.5% personal income tax bracket will again increase from $120,000 to $200,000.
The ATO has released a tax relief calculator, click the link below to see your proposed tax relief.
Encouraging Pensioner Financial Independence
| Date of effect | From 2017-18 |
A range of measures seek to encourage pensioner financial independence:
- Pension Work Bonus increase from $250 to $300 per fortnight – allowing pensioners to earn up to $7,800 each year without impacting their pension. This is in addition to the income free area, which is currently $168 a fortnight for a single pensioner and $300 a fortnight (combined) for a pensioner couple. A single person with no other income will be able to earn up to $468 a fortnight from work and get the maximum rate of Age Pension.
- Pensioners will also continue to accrue unused amounts of the fortnightly Work Bonus, which can exempt future earnings from the pension income test. The maximum accrual amount will increase to $7,800.
- The pension work bonus will also be expanded to allow self-employed retirees to earn up to $300 per fortnight without impacting their pension.
Example from the pension work bonus fact sheetNisha is a single part rate age pensioner who runs a small business. She earns an average of $1,000 a fortnight. Her assets are below the pension asset test free area. As Nisha’s income from self-employment is now eligible for the Work Bonus, the first $300 of her income will be excluded from the pension income test, and Nisha will receive a higher part-rate Age Pension. Her pension will increase by $150 per fortnight. |
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For Superannuation
3-Year Cycle For SMSF Audits
| Date of effect | 1 July 2019 |
SMSFs with a history of good record‑keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time, will only be required to have their fund audited every three years.
The Government has flagged consultation with key stakeholders on this measure (with no further details available at present).
The key issue with this measure is how the three-year cycle will work – is it an audit for one year in three or three years once?
If the audit is only for the third year of the cycle, then there is a major risk of compliance issues going unnoticed. Having two years with no audits may present opportunities for ‘creative’ trustees to manipulate the superannuation system. It will be difficult for an auditor to sign-off on the third year without having a level of comfort as to what has transpired in previous years.
If the audit is for the prior three years, the benefit for members may be negligible as auditors will need to charge for three years of work. The measure is designed to reduce ‘red-tape’ for trustees but having three years of questions from auditors might just group three years into one.
Preventing Inadvertent Breaches Of Concessional Caps
| Date of effect | 1 July 2018 |
Individuals whose income exceeds $263,157 and have multiple employers will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG).
The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap (and incurring excess contributions tax) as a result of multiple compulsory SG contributions.
It is anticipated that employees who use this measure will negotiate additional income in lieu of the 9.5% superannuation guarantee.
Opt-In Insurance Inside Super
| Date of effect | 1 July 2019 |
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.
This means that these members will not automatically be provided with insurance inside their superannuation fund but instead will opt-in if they choose. The Government is concerned that automatic insurance cover is eroding savings with many unaware they have insurance within their fund or within multiple funds.
The changes will not prevent anyone who wants insurance from being able to obtain it — low balance, young, and inactive members will still be able to opt-in to insurance cover within super.
Affected members will have 14 months to decide whether they will opt in to their existing cover or allow it to switch off.
Work Test Exemption For Retirees
| Date of effect | 1 July 2019 |
An exemption to the work test will be introduced for people aged 65 to 74 with superannuation balances below $300,000, who make voluntary contributions to superannuation. The exemption applies in the first year that they do not meet the work test requirements. This measure is really a reprieve for people transitioning to retirement to get their affairs in order.
Currently, the work test restricts the ability to make voluntary superannuation contributions for those aged 65‑74 to individuals who work a minimum of 40 hours in any 30 day period in the financial year.
Example from the Superannuation Work Test exemption for retirees fact sheetAt the age of 68, Gus retires from full-time work on 1 June 2020. As he would not meet the work test in the 2020-21 financial year, Gus would currently be prevented from making any voluntary super contributions after 30 June 2020. As his total superannuation balance is $150,000 at the end of the 2019-20 financial year, Gus is eligible to make contributions under the work test exemption from 1 July 2020 to 30 June 2021. As Gus had not reached his concessional contribution cap over the past 2 years, having contributed only $18,000 in 2018-19 and $12,000 in 2019-20, under the existing carry forward arrangements and new work test exemption Gus can contribute up to $45,000 at concessional tax rates in the 2020-21 financial year. As a result of the work test exemption, Gus is also able to contribute up to $100,000 in non-concessional contributions in 2020-21. |
Increasing the maximum number of members in an SMSF
| Date of effect | 1 July 2019 |
Budget confirmed that the maximum number of allowable members in new and existing SMSFs and small APRA funds will increase from four to six – from 1 July 2019.
The proposed increase to the maiximum number of SMSF members seeks to provide greater flexibility for large families to jointly manager retirement savings.
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For more information about Budget 2019-20
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