We have drilled into the 2019-20 Budget documents to find the key points most relevant to you, our clients, regarding the tax and superannuation announcements contained in this year’s Budget.
- Further tax cuts for individuals, following on from the Government’s previously legislated Personal Income Tax Plan. The first of the additional cuts applies from FY2023, when the top threshold of the 19% personal income tax bracket increases from $41,000 to $45,000
- The second additional cut applies from FY2025, when, along with the previously announced abolition of the 37% tax bracket rate, the 32.5% marginal tax rate will be cut to 30%. Accordingly, from FY2025, there will be only four tax brackets:
- The non-refundable Low And Middle Income Tax Offset (LMITO), will be increased from a maximum of $530 to $1,080 per annum, from FY 2019 through to FY2022.
- Individuals earning between $48,000 and $90,000 will be eligible for the maximum offset, and eligibility will phase out completely when taxable income reaches $126,000, as follows:
- Also from FY2023, the Low Income Tax Offset will increase from $645 to $700, for taxable incomes up to $37,000, phasing out at a taxable income of $66,667.
- Previously announced changes to the CGT Main Residence Exemption for foreign residents were not covered in the Budget. Criticism of the measures along with recent comments by the Assistant Treasurer have led to wide speculation that the Government will not proceed with the measure.
- Small business entities (with a turnover up to $10 million) will be entitled to an instant asset write-off for eligible assets costing up to $30,000 first used, or installed ready for use from Budget night until 30 June 2020.
- A Bill already before the House of Reps proposes to increase the instant asset write-off threshold for small business entities from $20,000 to $25,000 from 29 January 2019. If this Bill passes, there will be three thresholds applicable during FY2019. Small businesses who intend to claim the write-off will need to confirm when they first used or installed the asset ready for use to ensure they qualify for the appropriate threshold.
- For Business entities turning over between $10 million and $50 million, the instant asset write-off for business assets up to $30,000 will be available if the assets are first used or installed ready for use from Budget night until 30 June 2020.
- Apprenticeship incentive payments to employers will double to $8,000 per placement. Eligible occupations currently include carpenters and joiners; plumbers; hairdressers; air-conditioning and refrigeration mechanics; bricklayers and stonemasons; plasterers; bakers and pastry cooks; vehicle painters; wall and floor tilers; and arborists. The list of eligible occupations will be reviewed regularly to address skills shortages as required. Apprentices will also receive a $2,000 incentive payment.
Family Groups & Estate Planning
- Significant changes to Division 7A (dealing with loans and payments to shareholders and associates) which were proposed to apply from 1 July 2019 have been deferred to 1 July 2020. This is intended to provide time for further consultation, which we welcome, given that the Consultation Paper issued by Treasury in October 2018 highlighted significant areas of uncertainty without resolution.
- Currently, the work test requires individuals aged 65-74 who wish to voluntarily contribute to super to work at least 40 hours in any 30-day period in the relevant financial year.
- The Government proposes to abolish the work test requirement for people aged 65 and 66 from FY 2021. In addition, the ability to make up to three years’ worth of non-concessional contributions under the bring forward rule will be extended to 65 and 66 year-old taxpayers
- These changes will align the work test with the eligibility for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.
- The age limit for receiving spouse contributions will be increased from 69 to 74. Currently, individuals aged 70 and over cannot receive contributions made on their behalf by another person. The work test requirements will still apply to spouse super contributions noting the increased age limits set out above.
- From 1 October 2019, insurance within superannuation must only be offered on an opt-in basis for accounts with balances of less than $25,000 and new accounts belonging to members under 25. This measure is already contained in a bill before parliament which was proposed to apply from 1 July 2019.
- From FY 2021, 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). This reduces costs and simplifies reporting for superannuation funds and embodies ATO administrative practice since FY2017. Actuarial certificates will also no longer be required 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.
- Existing tax relief for merging super funds which was due to expire on 1 July 2020 will be made permanent from that time. The relief enables funds to transfer revenue and capital losses to a new merged fund and to defer taxation consequences on gains and losses from revenue and capital assets. This measure permanently removes tax impediments to mergers and encourages consolidation to help address inefficiencies.
Tax Compliance Activity & Funding
- The Government will increase funding to the ATO for a number of compliance and anti-avoidance activities, including:
- recovering unpaid tax and super by larger businesses and high wealth individuals – the measure will not extend to small businesses;
- increasing activities of the ATO’s Tax Avoidance Taskforce;
- increasing the ATO’s analytical capabilities.
- From FY 2022, ABN holders with income tax return obligations may have their ABN registration cancelled for non-lodgement. Further, from FY 2023, ABN holders must confirm the accuracy of their details on the Australian Business Register on an annual basis. These measures are intended to disrupt black economy behaviour, but will impose an additional compliance burden on every ABN holder, regardless of compliance history or activities.
- Additional funding for export market development grants has been announced to help more businesses export their products and services around the world. Eligibility criteria include the business having income under $50 million in the grant year, and having incurred eligible export promotion expenses of at least $15,000
- Funding for the Fair Work Ombudsman to establish a dedicated sham contracting unit to address sham contracting behaviour engaged in by some employers to avoid statutory obligations and employment entitlements.