Scott Morrison’s 2018 – 2019 Federal Budget Speech Spruiked Tax Relief for families in the form of a fairer and simpler tax system, Banking on Business to drive the economy, Guaranteeing Essential Services for all and Securing Australia, all while living within our means.
With an election looming next year, the general thought was that Mr Morrison’s speech was singing to middle class Australia to shore up voters. There is comprehensive coverage through various media about this year’s budget. However, the team here at MKS Group have summarised the major points of the Budget Announcements that impact most of our clients.
Individuals
- Personal Income Tax Rate changes
- The Treasurer announced that the Government will introduce a seven-year Personal Income Tax Plan. The targeted tax relief is aimed at middle income earners, aimed to protect middle income Australians from bracket creep and ensuring Australian pay less tax with a simpler tax system.
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- Increasing the personal income tax bracket from $87,000 to $90,000 from 1 July 2018
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- A non-refundable Low and Middle-Income Tax Offset of up to $530 per annum to be received as a lump sum on assessment by eligible Australian resident taxpayers – for the 2018-19 to 2021-22 income years only
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- An increase to the Low-Income Tax Offset from $445 to $645 from 1 July 2022
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- An extension of the 19 per cent personal income tax bracket from $37,000 to $41,000 and a further increase to the 32.5 per cent personal income tax bracket from $90,000 to $120,000 — from 1 July 2022;
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- A further extension of the 32.5 per cent personal income tax bracket from $120,000 to $200,000. The top marginal tax rate of 45 per cent will then apply to taxable incomes exceeding $200,000 — from 1 July 2024.
- Retaining Medicare Levy at 2% (previous 2017-18 Budget Speech announced a rise to 2.5% from 1 July 2019).
- Increasing the Medicare levy low income thresholds for the 2017-2018 Income Tax year –
- Singles $21,655 to $21,980
- Families $36,541 to $37,089
- Single seniors and pensioners $34,244 to $34,758
- Each dependent child/student $3,356 to $3,406
- Lifestyles of the rich and famous –
- High profile individuals will no longer be able to licence their fame or image to another entity. This would typically include sportspeople and actors.
Deductions
- Denied deductions for vacant land. Such measures include:
- Previously allowable deductions will no longer be available and will not be able to be carried forward for use in later income years;
- Expenses that would ordinarily be treated as a cost base element (such as borrowing expenses and council rates) may be included in the cost base of the asset for CGT purposes; and
- Expenses that would not ordinarily be a cost base element would not be able to be included in the cost base of the asset for CGT purposes
Superannuation
- Increasing the maximum number of allowable members in SMSFs and small APRA funds
- As already announced, the Federal Government confirmed its decision to expand the number of members allowed in an SMSF from four to six. Expanding the definition of an SMSF to a fund with a maximum of six members will provide greater flexibility in how funds can be structured.
- Three-yearly audit cycle for some SMSFs
- The Government will change the annual SMSF audit requirement to a three-yearly requirement for SMSFs with a history of good record keeping and compliance. The measure will start on 1 July 2019 for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
- Preventing inadvertent concessional contribution cap breaches by certain employees
- The Treasurer announced that — from 1 July 2018 — the Government will allow individuals whose income exceeds $263,157 and who have multiple employers to nominate that their wages from certain employers will not be subject to the superannuation guarantee (SG).
- Work test exemption for recent retirees
- The Treasurer announced that — from 1 July 2019 — the Government will introduce an exemption from the work test for voluntary contributions to superannuation, for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements.
- Life insurance cover in super to be opt-in for individuals under 25 years of age
- The Government will legislate that life insurance cover in superannuation will be opt-in for those individuals under 25 years of age or with account balances under $6,000 to ensure that unnecessary fees do not erode smaller balances. Life insurance cover will also cease where no contributions have been made for a period of 13 months.
TIP – most SMSF deeds will need to be reviewed to capture any change in legislation. This may result in a SMSF deed amendment. In any case, contact MKS Group on what trustees must do and when.
Black Economy
- Business will be denied deductions where required PAYG Withholding has not been made (including salary and wages) from 1 July 2019.
- Denied deductions where payments to Contractors that do not provide an ABN and where no PAYG Withholding has been made
- Economy Wide limit of cash payments of $10,000 from 1 July 2019.
- The measure requires that transactions over the proposed $10,000 threshold made to businesses for goods and services must be made through an electronic payment system or by cheque.
- Expansion of the taxable payments reporting system. From 1 July 2019, the following industries would be included in annual taxable payments reporting system –
- Security providers and investigation services
- Road freight transport
- Computer system design and related services.
Small Business
- Extension of the small business immediate write off
- The Government will extend the $20,000 instant asset write-off by 12 months to 30 June 2019 for businesses with aggregated annual turnover of less than $10 million.
Companies
- Amendments to Division 7A
- Targeted amendments to improve the operation and administration of Div. 7A will now be deferred to a start date of 1 July 2019
Trusts
- Removing the CGT discount at the trust level for Managed Investment Trusts
- For payments made from 1 July 2019 the Government will prevent Managed Investment Trusts (MITs) and Attribution MITs (AMITs) from applying the 50 per cent CGT discount at the trust level.
- The measure will allow MITs and AMITs that derive a capital gain to continue to distribute this income as a capital gain that can be discounted in the hands of the beneficiary, but it will prevent beneficiaries that are not entitled to the CGT discount in their own right from getting a benefit from the CGT discount being applied at the trust level.
For further explanation on any of the budget announcements, call the team at MKS Group on 03 9374 8400 or email us at job@mksgroup.com.au .
