Federal Treasurer Scott Morrison’s third budget has already been dubbed a ‘Breadwinners’ Budget by some, as it introduces a gradual lowering of income tax rates and temporary tax offsets for low and middle level income earners.

Handed down on Tuesday 8th May 2018, the Federal Budget 2018-2019 seems to have two dominant themes: rewarding everyday workers (the ‘breadwinners’) and increasing taxation recovery through various measures to close loopholes and monitor problem areas.

Below we have listed the key Budget items that will affect our clients.

Small Businesses

1. • The $20,000 instant asset write off has been extended again and is now available on purchases made up until 30 June 2019. For eligibility details view this article: Now businesses with up to $10M turnover can access $20,000 instant asset write off.
   • From 1 July 2019, employers who fall behind with their PAYG obligations will lose the ability to claim a tax deduction for salary and wage payments they have made. Also, they will disallow deductions relating to payments to contractors where no ABN was provided and no PAYG was withheld.
   • Cash payments will be limited to $10,000 from 1 July 2019. For payments over this amount consumers will need to pay through an electronic system or by cheque.
   • There are significant changes to the Research and Development Tax Incentive that will come into effect on 1 July 2018. The ATO wants to see the the tax incentive leveraging intensive research and development activities that bring new knowledge rather than subsidising expected everyday improvements.
     1. Entities with aggregated annual turnover up to $20 million will have a refundable tax offset calculated by adding 13.5 percentage points to the claimants tax rate for the year, up to a $4 million cap annually. Amounts beyond the cap are deemed non-refundable tax offsets and may be carried forward to future income years).
     2. Entities with aggregated annual turnover above $20 million will see a gain in able to claim concessional tax offsets on Research and Development expenditure of up to $150 million per annum. However the rate of the non-refundable tax offset is also being linked to the spend on Research and Development as a proportion of all expenditure incurred.
   • Reforms to Division 7A dividends will apply from 1 July 2019. Full details are yet to be released but it seems that in certain circumstances unpaid present entitlements may become subject to tax as a dividend.
   • Effective now, small business Capital Gains Tax concessions are no longer accessible on rights that partners in a partnership have created, assigned or otherwise used to isolate their income.
   • From 1 July 2019 the Thin Capitalisation Rules (these apply where the total debt deductions are in excess of $2 million) will be adjusted to require entities to use the asset values contained in their financial statements for thin capitalisation purposes.
   • Along with other changes targeting phoenix activites, it is intended that the Director Penalty Regime will be extended beyond just unpaid superannuation guarantee and PAYG withholding amounts to include liabilities for GST, luxury car tax and wine equalisation tax – meaning directors would face personal liability for a broader range of a companies unpaid debts.
   • The definition of a Significant Global Entity will be extended on 1 July 2018 to include:
     1. Members of large multinational groups that are headed by private companies, trusts and partnerships
     2. Members of groups that are headed by investment entities.

     Entities captured under the new criteria face an increased level of compliance.

Individuals and Families

1. • There is a 7 year plan which gradually increases the various tax bracket threshholds and so lowers the income tax rate. The Government believes this will end up with 94% of taxpayers subject to a marginal rate of 32.5%.
   1. From 1 July 2018 the 32.5% tax bracket will extend to apply to income between $37,001 and $90,000, with the 37% bracket to only apply to income between $90,001 and $180,000
   2. From 1 July 2022 the 19% tax bracket will extend to apply to income between $18,201 and $41,000, with the 32.5% bracket then applying to income between $41,001 and $120,000 and the 37% bracket to apply on income between $120,001 and $180,000
   3. From 1 July 2024 the 32% tax bracket will be again extended and apply on income between $41,001 and $200,000, with the 37% tax bracket being removed so income above $200,000 going straight to being taxed at 45%.
   • A Low and Middle Income Tax Offset has been introduced (note it is still to be legislated) which would be effective over the next four financial years. This could provide up to $530 per year in tax offsets, in addition to the existing Low Income Tax Offset – the amount depends on your tax bracket.
   • As per last year’s budget annoucement the threshholds at which the Medicare Levy becomes payable have been increased by approx 1.5% and this is effective for the 2017-2018 year.
   • Various measures have also been introduced which affect pensioners:
   1. The Pension Work Bonus has increased to $300 a fortnight
   2. Pensioners can accrue unused amounts of the fortnightly Work Bonus up to a maximum of $7,800, which can be used to exempt future earnings from the pension income test.
   3. The scope of the Pension Work Bonus will be increased to allow self-employed retirees to earn up to $300 a fortnight, in addition to the income free area, without their pension being affected.

Investors

1. • From 1 July 2019 deductions for expenses associated with holding vacant land will be disallowed. This also poses issues where land is to produce assessable income or a dwelling intended for use as a rental property is being constructed.

Superannuation

1. • From 1 July 2019 the number of allowable members in new and existing SMSF’s will increase from four to six.
   • From 1 July 2019 fees for exiting superannuation funds will be banned and a 3% annual cap will apply to passive fees for accounts with balances under $6,000.
   • Inactive superannuation accounts with balances below $6,000 will be required to be transferred to the ATO from 1 July 2019.
   • From 1 July 2019 SMSF’s with a history of good record keeping and compliance will only be required to have audits performed every three years. It is currently uncertain whether this would mean only the third year of the cycle is subject to an audit or whether it is just that you can bulk three years together for an audit.
   • From 1 July 2019 superannuation fund members will not automatically be provided with insurance but will instead have to opt in.
   • A Superannuation Work Test Exemption will be introduced for people aged between 65 and 74 whose superannuation balance is below $300,000. This is based on these persons making voluntary contributions to super and applies only in the first year that they don’t otherwise meet the Work Test requirements. What it means is that they have an opportunity to make significant non concessional contributions to super in that same year.

If you would like more information on one of the Budget 2018-2019 items mentioned or are unsure how the Budget will affect you, please call us on 03 5339 3200 or email us at mail@focusaccountinggroup.com.au.

Thanks for reading.

By Genna Kidd

Focus Accounting and Financial Group Pty Ltd is a Corporate Authorised Representative (No. 1254675) of Merit Wealth Pty Ltd (AFSL No. 409361).

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