By BBG Foundation Member - Tax Specialist to Accountants and Lawyers
Leo Hollestelle http://members.referron.com/leo_.hollestelle
The Federal Treasurer, the Hon Josh Frydenberg, handed down the 2019-20 Federal Budget tonight.
This Tax tips, traps and updates summarises and sets out the details of the tax measures in the Federal Budget.
Of course, whether the Federal Budget tax measures are legislated, in whole or in part, will depend on the outcome of the next Federal election, widely tipped to be called for 11 May 2019.
By way of general Budget overview, the governments budget approach is a plan for a stronger economy to guarantee essential services Australians rely on, to provide lower taxes for hard-working Australians and to invest in economic and community infrastructure.
SUMMARY OF MAIN TAX MEASURES
• Immediate tax relief for low- and middle-income earners of up to $1,080 for singles or up to $2,160 for dual income families to ease the cost of living. The 32.5% tax rate is to be reduced to 30% from 1 July 2024.
• Backing small and medium-sized businesses through existing tax relief and by increasing the existing small business instant asset write-off to $30,000 and allowing medium size businesses access to the write-off.
• Making sure multinationals pay their fair share of tax.
• Tackling the black economy.
• A number of other measures, including extending concessional and non-concessional super contributions to those aged 65 and 66 without having to meet the work test.
INDIVIDUALS TAX MEASURES
Immediate tax relief to low- and middle-income earners
The Government will increase the low and middle income tax offset, providing tax relief of up to $1,080 for singles or up to $2,160 for dual income families. The offset will be available for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
In particular, the Government will provide a further reduction in tax provided through the non-refundable low and middle income tax offset (LMITO). Under the changes, the reduction in tax provided by LMITO will increase from a maximum amount of $530 to $1,080 per annum and the base amount will increase from $200 to $255 per annum for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
The LMITO will now provide a reduction in tax of up to $255 for taxpayers with a taxable income of $37,000 or less. Between taxable incomes of $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum offset of $1,080. Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080. From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.
The LMITO will be received on assessment after individuals lodge their tax returns for the 2018-19, 2019-20, 2020-21 and 2021-22 income years. This will ensure that taxpayers receive the benefit when they lodge returns from 1 July 2019.
The maximum offset of $1,080 is more than double the offset of $530 announced in the 2018-19 Budget. The base amount has also increased from $200 to $255 for those earning up to $37,000.
From 2022-23: Locking in the benefits of lower taxes
From 1 July 2022, the Government will increase the top threshold of the 19 per cent personal income tax bracket from $41,000, as legislated under its Income Tax Plan, to $45,000.
From 1 July 2022, the Government will increase the low income tax offset (LITO) from $645, as legislated under the plan, to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000, instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as previously legislated under the plan. LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Together, the increase to the top threshold of the 19 per cent personal income tax bracket and the changes to LITO will lock-in the reduction in tax provided by LMITO when LMITO is removed.
From 2024-25: Further structural changes to the tax system to deliver lower taxes
From 1 July 2024, the Government will reduce the 32.5 per cent marginal tax rate to 30 per cent. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates and is intended to improve tax incentives for working Australians.
In 2024-25 an entire tax bracket, the 37 per cent tax bracket will be abolished under the Government’s already legislated plan. With these changes, by 2024-25 around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less. The tax system is intended to be simpler, reward effort and maintain progressivity
The result will be a simpler system comprising three tax rates: 19 per cent, 30 per cent and 45 per cent.
From 1 July 2024, Australians earning between $45,000 and $200,000 will face a marginal tax rate of 30 per cent.
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Rates in 2017-18
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Thresholds in 2017-18
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New Rates in 2024-25
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New Thresholds in 2024-25
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Nil
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Up to $18,200
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Nil
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Up to $18,200
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19 per cent
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$18,201 - $37,000
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19 per cent
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$18,201 - $45,000
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32.5 per cent
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$37,001 - $87,000
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30 per cent
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$45,001 - $200,000
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37 per cent
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$87,001 - $180,000
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-
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-
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45 per cent
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Above $180,000
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45 per cent
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Above $200,000
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Low income tax offset in 2017-18
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Up to $445
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Low income tax offset in 2024-25
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Up to $700
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Maintaining a progressive tax system
Australia has a progressive tax system which ensures that those with the greatest ability to pay contribute a larger share of personal income tax revenue, while also providing reward for effort and incentives to get ahead.
The Government will maintain a progressive tax system. It is projected that in 2024-25 around 60 per cent of all personal income tax will be paid by the highest earning 20 per cent of taxpayers, broadly similar to that cohort’s share if 2017-18 rates and thresholds were left unchanged. The share of personal income tax paid also remains similar for the top 1, 5 and 10 per cent of taxpayers.
Under the Governments enhanced plan, an individual with taxable income of $200,000 earns 4.4 times more income than an individual with taxable income of $45,000, but in 2024‑25 will pay around 10 times more tax.
The enhanced plan is said to result in a better tax system, with greater reward for effort while ensuring top earners pay their share.
Remaining internationally competitive on personal taxes
Australia currently has relatively high rates of tax, cutting in at relatively low levels of income compared with other countries.
Australia’s top marginal tax rate cuts in at around 2.2 times average full-time earnings, compared with 4 times in Canada and the UK, and 8 times in the US. Without the changes announced in last year’s Budget, Australia’s ratio was projected to drop to around 1.7, reducing our international competitiveness and ability to attract and retain talent. Increasing the bottom threshold of the top tax bracket from $180,000 to $200,000 as legislated means that this ratio is now expected to fall more modestly to around 1.9.
Personal Income Tax — increasing the Medicare levy low-income thresholds
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2018-19 income year. The increases take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempted from paying the Medicare levy.
The threshold for singles will be increased from $21,980 to $22,398. The family threshold will be increased from $37,089 to $37,794. For single seniors and pensioners, the threshold will be increased from $34,758 to $35,418. The family threshold for seniors and pensioners will be increased from $48,385 to $49,304. For each dependent child or student, the family income thresholds increase by a further $3,471, instead of the previous amount of $3,406.
SMALL BUSINESS TAX MEASURES
Small business tax rates
No changes were made to the small business tax rates previously legislated.
The Government has legislated lower tax rates for small and medium‑sized companies with turnovers below $50 million. Small and medium‑sized companies currently facing a 27.5 per cent rate will have a 25 per cent rate by 2021-22. The standard company tax rate of 30 per cent will remain unchanged.
The legislated unincorporated small business tax discount rate rises from 8 per cent currently to 13 per cent in 2020-21 and to 16 per cent from 2021-22. The existing cap of $1,000 remains unchanged.
Instant asset write-off
From 7:30 PM (AEDT) on 2 April 2019 (Budget night), the Government is increasing and expanding access to the instant asset write-off.
The Government is increasing the instant asset write-off threshold from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.
Medium sized businesses will now also have access to the instant asset write-off.
The increased and expanded instant asset write-off will apply from Budget night until 30 June 2020.
Small businesses (with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020.
Medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020. Medium sized businesses must also acquire these assets after Budget night to be eligible as they have previously not had access to the instant asset write-off.
Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool (the pool) and depreciate those assets at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.
Medium sized businesses do not have access to the small business pooling rules and will instead continue to depreciate assets costing $30,000 or more (which cannot be immediately deducted) in accordance with the existing depreciating asset provisions of the tax law.
The previously announced increase in the instant asset write-off for small businesses for assets costing less than $25,000 purchased from 29 January 2019 to Budget night will remain.
Easier, cheaper and quicker to resolve tax disputes
The Government has:
• Created a dedicated Small Business Taxation Division within the Administrative Appeals Tribunal with dedicated case managers, a lower application fee and fast‑tracked decisions.
• Is requiring the ATO to pay reasonable legal costs for the small business in certain circumstances when they challenge ATO decisions.
• Is establishing a small business concierge service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide advice and support.
Improving access to tax advice
The Government is establishing 10 tax clinics across metropolitan and regional Australia, as a 12 month pilot, which provide access to free advice to assist unrepresented small businesses and individuals on tax issues.
GST reporting
The Government is streamlining GST reporting for around 2.7 million small businesses by reducing the number of BAS GST questions.
Employee share schemes
The Government is simplifying and expanding the current regulatory regime for employee share schemes, reducing the time and cost burden for small businesses.
MAINTAINING THE INTEGRITY OF THE TAX SYSTEM
The Government will provide $1.0 billion over four years from 2019-20, including $6.5 million in capital funding, to the ATO to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.
This measure is estimated to have a gain to the budget of $3.6 billion over the forward estimates period. In underlying cash balance terms this measure is estimated to have a gain to the budget of $2.0 billion over the forward estimates period. The difference between the fiscal and cash amounts arises as there is a delay between revenue liabilities raised as a result of the compliance activity and the subsequent cash collections.
The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. This measure will allow the Taskforce to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.
BLACK ECONOMY MEASURES
From 1 July 2019, the Government will introduce additional Black Economy measures, including:
• Ensuring people in certain high‑risk industries cannot hide or under‑report their income.
• Making it harder for businesses to pay cash wages to staff while also evading their obligations to report the income.
• Requiring businesses to have a good tax record when tendering for large Government contracts.
Strengthening the Australian Business Number System
The Government will strengthen the Australian Business Number (ABN) system to disrupt black economy behaviour by requiring ABN holders:
• from 1 July 2021, with an income tax return obligation, to lodge their income tax return; and
• from 1 July 2022, to confirm the accuracy of their details on the Australian Business Register annually.
The new conditions will make ABN holders more accountable for meeting their government obligations, while minimising the regulatory impact on businesses doing the right thing.
OTHER MEASURES
Tax Integrity — further consultation on amendments to Division 7A
The Government will defer the start date of the 2018-19 Budget measure, Tax Integrity — clarifying the operation of the Division 7A integrity rule, from 1 July 2019 to 1 July 2020.
The Government issued a consultation paper in October 2018 seeking stakeholder views on the proposed implementation approach for the amendments to Division 7A of the Income Tax Assessment Act 1936. The Government received valuable feedback from stakeholders which highlighted that this is a complex area of the tax law and raised implementation issues that warrant further consideration. Delaying the start date by 12 months will allow additional time to further consult with stakeholders on these issues and to refine the Government’s implementation approach, including to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced.
Superannuation — improving flexibility for older Australians
The Government will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 without meeting the work test from 1 July 2020. People aged 65 and 66 will also be able to make up to three years of non-concessional contributions under the bring-forward rule.
Those up to and including age 74 will be able to receive spouse contributions, with those 65 and 66 no longer needing to meet a work test.
Currently, people aged 65 to 74 can only make voluntary superannuation contributions if they self-report as working a minimum of 40 hours over a 30 day period in the relevant financial year. Those aged 65 and over cannot access bring-forward arrangements and those aged 70 and over cannot receive spouse contributions.
Aligning the work test with the eligibility age for the Age Pension (scheduled to reach 67 from 1 July 2023) and increasing the age limit for spouse contributions to 74 will give older Australians greater flexibility to save for retirement.
Superannuation — permanent tax relief for merging superannuation funds
The Government will make permanent the current tax relief for merging superannuation funds that is due to expire on 1 July 2020.
The tax relief will be made permanent from 1 July 2020, ensuring superannuation fund member balances are not affected by tax when funds merge.
Superannuation — reducing red tape for superannuation funds
The Government will reduce costs and simplify reporting for superannuation funds by streamlining some administrative requirements for the calculation of exempt current pension income (ECPI).
The Government will allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI. The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.
This measure will start on 1 July 2020.
Higher Education Loan Program ─ partial cost recovery delay
The Government will delay the introduction of partial cost recovery arrangements for the Higher Education Loan Program (HELP) to provide additional time for the sector to prepare for the new arrangements. The new arrangements will now commence from 1 January 2020 instead of 1 January 2019.
Indirect Tax Concession Scheme — diplomatic, consular and international organisation concessions
The Government has granted or extended access to refunds of indirect tax (including GST, fuel and alcohol taxes) under the Indirect Tax Concession Scheme (ITCS). New access to refunds will be granted to the diplomatic and consular representations of Sudan in Australia. The Commission for the Conservation of Southern Bluefin Tuna will be granted upgraded access to the ITCS. The Government has extended ITCS access for Laos, Mauritius and Samoa to include construction and renovation relating to their current and future diplomatic missions and consular posts.
International Tax — signing the Australia-Israel Tax Treaty
On 28 March 2019, the Government signed the Convention between the Government of Australia and the Government of the State of Israel for the Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance. The Government will also introduce amendments to the International Tax Agreements Act 1953 to give the treaty force of law in Australia. That Act will also be amended to provide that certain income covered by a tax treaty is deemed to have an Australian source.
The Convention relieves double taxation, lowers withholding tax rates (on interest, dividend and royalty payments) and improves certainty for taxpayers in both countries.
Further information can be found in the joint press release of 28 March 2019 issued by the Treasurer and the Assistant Treasurer.
International Tax — updating the list of information exchange countries
The Government will update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15 per cent, instead of the default rate of 30 per cent, on certain distributions from Australian Managed Investment Trusts (MITs). To be listed, countries must have established the legal relationship enabling them to share taxpayer information with Australia. This update will add Curaçao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates to join 114 other jurisdictions already on the list. These new jurisdictions have entered into information sharing agreements since the previous update in 2018. The updated list will be effective from 1 January 2020.
This measure supports the operation of the MIT withholding tax system by providing the reduced withholding tax rate only to residents of countries that enter into effective information sharing agreements with Australia. These agreements form an important part of Australia’s commitment to safeguard against offshore tax avoidance and evasion.
Luxury Car Tax — increased refunds for eligible primary producers and tourism operators
The Government will provide further relief to farmers and tourism operators by amending the luxury car tax refund arrangements. For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.
Currently, primary producers and tourism operators may be eligible for a partial refund of the luxury car tax paid on eligible four-wheel or all-wheel drive cars, up to a maximum refund of $3,000. The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.
North Queensland Flood Recovery Package — tax treatment of qualifying grants
The Government will provide an income tax exemption for qualifying grants made to primary producers, small businesses and non-profit organisations affected by the North Queensland floods. Qualifying grants include Category C and Category D grants provided under the Disaster Recovery Funding Arrangements 2018, and grants provided under the On-Farm Restocking and Replanting Grants Program and the On-Farm Infrastructure Grants Program.
The exemption will apply where the grants relate to the monsoonal trough, which produced flooding that started on or after 25 January 2019 and continued into February 2019. The grants will be made non-assessable non-exempt income for tax purposes.
Philanthropy — extending deductible gift recipient status to Men’s Sheds and Women’s Sheds
The Government will establish a deductible gift recipient (DGR) general category to enable Men’s Sheds and Women’s Sheds to access DGR status from 1 July 2020.
Taxpayers may claim an income tax deduction for gifts of money or property of $2 or more to DGRs. Ensuring that Men’s Sheds and Women’s Sheds can become DGRs will further encourage philanthropy and support for the not-for-profit sector.
Philanthropy — updates to the list of specifically listed deductible gift recipients
Since the 2018-19 MYEFO, the following organisations have been approved as specifically-listed deductible gift recipients from 1 July 2019 to 30 June 2024:
• Australian Academy of Law; • China Matters Limited; • Foundation Broken Hill Limited; • Motherless Daughters Australia Limited; • Superannuation Consumers Centre Limited; and • The Headstone Project (Tasmania) Incorporated.
Protecting Your Super Package — amendment
The Government agreed to amendments to the Protecting Your Super Package announced in the 2018-19 Budget to: • extend to 16 months the period after which an account that has not received any contribution is considered inactive; • expand the definition of when an account is considered active for the ATO-led consolidation regime; and • require the ATO to consolidate to an active account, where possible, within 28 days of receipt.
Protecting Your Super Package — putting members’ interests first
The Government will delay the start date for ensuring insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under the age of 25 years to 1 October 2019.
Queensland storms — tax treatment of payments to primary producers
The Government will treat as exempt income payments to primary producers in the Fassifern Valley, Queensland affected by storm damage in October 2018. The tax treatment relates to payments distributed to affected taxpayers through a grant totalling $1.0 million to the Foundation for Rural and Regional Renewal, working with the Salvation Army and a local community panel.
Tax Integrity — clarifying the operation of the hybrid mismatch rules
The Government will make a number of minor amendments to Australia’s hybrid mismatch rules to clarify their operation. This measure will apply to income years commencing on or after 1 January 2019, with the exception of the amendments to the integrity rule, which will apply to income years commencing on or after 2 April 2019.
