The latest 2019-20 Federal Budget was announced last night on Tuesday, 2 April by the Treasurer Mr Josh Frydenberg. This year’s Budget has been framed with voters in mind and the approaching federal election. The primary area of focus is the government’s ‘Personal Income Tax Plan’. This Plan was announced in the 2018-19 Federal Budget and is being phased in over a seven-year period. It is proposed that additional relief to that previously announced be provided by making further changes to thresholds and rates.
Detailed below is a selection of some of the key Budget announcements, which are likely to be of interest to many taxpayers.
1. Personal Tax Cuts
Key highlights of the proposed personal tax cuts include:
• Immediate income tax relief – Increasing the maximum benefit of the low and middle income tax offset from $530 to $1,080 for singles, or up to $2,160 for dual income families for the 2018-19 to 2021-22 financial years. The Government projects that 4.5 million taxpayers will be eligible to receive the full tax offset upon lodgement of their income tax returns.
• Lowering taxes – From 2022-/23, the Government proposes to lock in additional tax relief via an increase in the 19% tax bracket, from $41,000 to $45,000, and increasing the low income tax offset from $645 to $700.
• Further reform of our tax brackets – From 1 July 2024, the Government is proposing to lower the 32.5% middle tax bracket to 30%. Not only does this align our personal income tax rates closer to our corporate tax rates, but this coincides with the last Budget’s announcement of the abolishment of the 37% tax bracket, and has Australians earning between $45,000 – $200,000 being taxed at a marginal rate of 30%.
Current Personal Tax Rates
Income Tax Rates
|Taxable Income||Rate||Tax Payable|
|$0 – $18,000||0%||Nil|
|$18,201 – $37,000||19%||Nil + 19% of amount exceeding $18,200|
|$37,001 – $90,000||32.5%||$3,572 + 32.5% of amount exceeding $37,000|
|$90,001 – $180,000||37%||$20,797 + 37% of amount exceeding $90,000|
|$180,000 +||45%||$54,097 + 45% of amount exceeding $180,000|
Proposed Tax Rates 2024-25
Income Tax Rates
|Taxable Income||Rate||Tax Payable|
|$0 – $18,000||0%||Nil|
|$18,201 – $45,000||19%||Nil + 19% of amount exceeding $18,200|
|$45,001 – $200,000||30%||$5,092 + 30% of amount exceeding $45,000|
|$200,000 +||45%||$51,592 + 45% of amount exceeding $200,000|
2. Increase in Medicare Levy Thresholds
The Budget announced proposed increases to the Medicare Levy threshold from the 2018/19 financial year:
|Increase in Medicare Levy Thresholds|
|Single seniors & pensioners||34,758||35,418||660|
|Seniors & pensioners – families||48,385||49,304||919|
|Each dependent child-student||3,406||3,471||65|
1. Instant asset write-off extended
The Government has announced the following changes to the instant asset write-off provisions:
1. Increase from $25,000 to $30,000, effective from 2 April 2019 to 30 June 2020; and
2. Expansion of the availability threshold to businesses with aggregated annual turnover of $10 million – $50 million, making this available to medium-sized businesses.
The announcement means that the Government will still proceed with the previously announced increase to $25,000, which will apply from 29 January 2019 – 2 April 2019.
Assets eligible for the instant asset write-off must be first used or installed ready for use from 7.30pm (the time of the budget announcement) to until 30 June 2020.
1. Superannuation Contributions work test exemption extended to age 66
From 1 July 2020, the government has announced that individuals between 65 and 66 will be able to make voluntary superannuation contributions without having to meet the work test.
Currently, individuals aged 65-74 must work at least 40 hours in any 30 day period in the financial year in which the contributions are made, in order to make voluntary personal contributions.
This means an individual who is aged 65 or 66,who works only one day per week or volunteers, will now be able to make voluntary contributions in to their superannuation fund if they choose to.
They will also be able to make up to three years of non-concessional contributions under the bring-forward rule. This will allow them to make non-concessional contributions up to $300,000 in one year, instead of $100,000.
2. Spouse Contributions age limit increased
Individuals up to and including age 74 will be able to receive spouse contributions. This is up from the current age limit of 69.
3. Exempt current pension income calculation to be simplified for super funds
Superannuation fund trustees with interests in both the accumulation and retirement phases during an income year will be allowed to choose their preferred method of calculating exempt current pension income (ECPI).
Currently, there are two methods to work out ECPI for a superannuation fund;
1. Segregated method;
2. Proportionate method.
The government will also remove the 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.
1. Updating the list of information exchange countries
Effective from 1 January 2020, the government will update the list of information exchange countries (EOI) to add Curacao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates. Recipients if Managed Investment Trust (MIT) distributions in EOI jurisdictions will be entitled to a reduced withholding tax rate of 15%, as opposed to the default 30% rate for recipients in non-EOI jurisdictions.
2. Australia-Israel double tax treaty
On 29 March 2019, Australia and Israel signed a double tax treaty. This will be the first tax treaty between the two countries. The treaty includes provisions dealing with reduced withholding tax rates, rules to address double taxation and the inclusion of many of the OECD/G20 base erosion and profit shifting (BEPS) recommendations.
3. Other tax treaty measures
The government will update legislation to provide that certain income covered by a tax treaty is deemed to have an Australian source. Previously, the approach in Australia had been to include these source rules in the text of each particular tax treaty.
4. The Digital Economy
At the present time, the G20 and OECD are exploring a multilateral response to the tax difficulties presented by the digitalisation of the economy. The government has announced that it will continue to participate in a multilateral process with other countries and not proceed with unilateral measures (e.g. a digital services tax).
TAX INTEGRITY MEASURES
1. Increasing funding for the Tax Avoidance Taskforce
With effect from 2019-20, the government will allocate $1 billion over four years to broaden the operations of the Tax Avoidance Taskforce. This will include providing $6.5 million to the Australian Taxation Office (ATO). The Taskforce was established in the 2016 Budget and has been entrusted with administering integrity measures such as the Multinational Anti-Avoidance Law (MAAL).
These measures are designed to enable the Taskforce to expand its compliance activities and will include targeting multinationals, large public and private groups and companies, trusts and high wealth individuals.
2. Increasing funding for debt collection
Funding of $42.1 million will be provided to the ATO by the government over four years to increase activities in respect of unpaid tax and superannuation liabilities. The main focus of these activities will larger businesses and high wealth individuals.
3. Australian Business Number rules
The government will increase the integrity of the Australian Business Number (ABN) system by introducing new compliance obligations for ABN holders to retain their ABN. At the present time, ABN holders are able to retain their ABN regardless of whether they are meeting their obligations for income tax return lodgement or updating their ABN details.
From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their income tax return. Additionally, from 1 July 2022, ABN holders will be required to confirm the accuracy of their details annually on the Australian Business Register.
4. Sham contracting
The government announced that it will provide funding to establish a dedicated sham contracting unit within the Fair Work ombudsman. This is designed to address sham contracting behaviour engaged in by some employers, with an emphasis on those who knowingly or recklessly misrepresent employment relationships as independent contracts, with the purpose of avoiding statutory obligations and employment entitlements.
GOODS & SERVICES TAX (“GST”) AND INDIRECT TAXES
The budget papers did not contain any changes affecting GST. However, there were some minor changes to the luxury car tax regime.
1. Increased Luxury Car Tax (‘LCT’) refunds for farmers and tourism operators
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.
OTHER TAX CHANGES
1. Division 7A Amendments – start date deferred for 12 Months
The Government has announced that it will defer the start date of proposed Division 7A amendments from 1 July 2019 to 1 July 2020.
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”.
The above statement may give taxpayers hope that mechanisms could be implemented to grandfather existing 25-year secured loans, for example.
2. Single Touch Payroll (‘STP’) Expansion
From 1 July 2020, the government has announced that it will automate reporting of employment for social security purposes through STP.
Currently support recipients are required to calculate and report their earnings.
The changes will see income of support recipients with employers using STP reported fortnightly through data sharing arrangements with the Department of Human Services.
It is expected this will assist support recipients by greatly reducing the likelihood of them receiving an overpayment of income support payments.
3. Post budget legislation logjam
There are many Bills currently making their way through Parliament. It is possible that some (or all) of these Bills will lapse when the federal election is called. There is also a large volume of draft legislation, consultation papers and reviews that are outstanding, which could lead to further legislative amendments.
For any further information on the budget, please don’t hesitate to contact your accoutant at WMS.
DISCLAIMER: This article is intended to provide a general summary only and should not be relied on as a substitute for professional advice.
© 2019 WMS Solutions Pty Ltd